Edgar Filing: ARBOR REALTY TRUST INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32136

Arbor Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

Maryland		20-0057959
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

333 Earle Ovington Boulevard, Suite 900 Uniondale, NY (Address of principal executive offices)		11553 (Zip Code)

(516) 506-4200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock, $0.01 par value per share: 50,136,308 outstanding (excluding 2,650,767 shares held in the treasury) as of May 1, 2014.

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ARBOR REALTY TRUST, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Consolidated Balance Sheets at March 31, 2014 (Unaudited) and December 31, 2013	2
Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2014 and 2013	3
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2014 and 2013	4
Consolidated Statement of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2014	5
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2014 and 2013	6
Notes to the Consolidated Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3. Quantitative and Qualitative Disclosures about Market Risk	64
Item 4. Controls and Procedures	66
PART II. OTHER INFORMATION	66
Item 1. Legal Proceedings	66
Item 1A. Risk Factors	67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3. Defaults Upon Senior Securities	67
Item 4. Mine Safety Disclosures	67
Item 5. Other Information	67
Item 6. Exhibits	68
Signatures	69

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CAUTIONARY STATEMENTS

The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in Arbor Realty Trust, Inc. We urge you to carefully review and consider the various disclosures made by us in this report.

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically; adverse changes in the financing markets we access affecting our ability to finance our loan and investment portfolio; changes in interest rates; the quality and size of the investment pipeline and the rate at which we can invest our cash; impairments in the value of the collateral underlying our loans and investments; legislative/regulatory changes; the availability and cost of capital for future investments; competition; and other risks detailed from time to time in our SEC reports. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management’s views as of the date of this report. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement. For a discussion of our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Significant Accounting Estimates and Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2013.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2014			2013
	(Unaudited)
Assets:
Cash and cash equivalents	$	32,704,172		$	60,389,552
Restricted cash (includes $96,071,579 and $54,051,439 from consolidated VIEs, respectively)	97,161,850			54,962,316
Loans and investments, net (includes $1,034,066,873 and $1,196,434,032 from consolidated VIEs, respectively)	1,574,832,799			1,523,699,653
Available-for-sale securities, at fair value	2,776,077			37,315,652
Investments in equity affiliates	4,680,306			4,680,306
Real estate owned, net (includes $80,787,215 and $80,787,215 from consolidated VIEs, respectively)	110,791,226			111,718,177
Real estate held-for-sale, net	11,444,812			11,477,676
Due from related party (includes $0 and $91,988 from consolidated VIEs, respectively)	281,462			98,058
Prepaid management fee — related party	19,047,949			19,047,949
Other assets (includes $18,907,215 and $19,861,310 from consolidated VIEs, respectively)	46,589,572			54,083,143
Total assets	$	1,900,310,225		$	1,877,472,482

Liabilities and Equity:
Repurchase agreements and credit facilities	$	248,206,026		$	159,125,023
Collateralized debt obligations (includes $519,770,974 and $639,622,981 from consolidated VIEs, respectively)	519,770,974			639,622,981
Collateralized loan obligations (includes $264,500,000 and $264,500,000 from consolidated VIEs, respectively)	264,500,000			264,500,000
Junior subordinated notes to subsidiary trust issuing preferred securities	159,423,385			159,291,427
Notes payable	17,498,874			2,500,000
Mortgage note payable — real estate owned	42,745,650			42,745,650
Mortgage note payable — real estate held-for-sale	11,005,354			11,005,354
Due to related party	1,140,910			2,794,087
Due to borrowers	32,656,568			20,326,030
Deferred revenue	77,123,133			77,123,133
Other liabilities (includes $12,228,728 and $13,944,737 from consolidated VIEs, respectively)	58,349,055			60,842,515
Total liabilities	1,432,419,929			1,439,876,200
Commitments and contingencies	—			—
Equity:
Arbor Realty Trust, Inc. stockholders’ equity:
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; 8.25% Series A, $38,787,500 aggregate liquidation preference; 1,551,500 shares issued and outstanding at March 31, 2014 and December 31, 2013; 7.75% Series B, $31,500,000 aggregate liquidation preference; 1,260,000 shares issued and outstanding at March 31, 2014 and December 31, 2013; 8.50% Series C, $22,500,000 aggregate liquidation preference; 900,000 shares issued and outstanding at March 31, 2014, no shares issued and outstanding at December 31, 2013	89,295,905			67,654,655
Common stock, $0.01 par value: 500,000,000 shares authorized; 52,787,075 shares issued, 50,136,308 shares outstanding at March 31, 2014 and 51,787,075 shares issued, 49,136,308 shares outstanding at December 31, 2013	527,870			517,870
Additional paid-in capital	630,644,261			623,993,245
Treasury stock, at cost — 2,650,767 shares at March 31, 2014 and December 31, 2013	(17,100,916		)	(17,100,916		)
Accumulated deficit	(212,748,410		)	(212,231,319		)
Accumulated other comprehensive loss	(22,728,414		)	(25,237,253		)
Total equity	467,890,296			437,596,282
Total liabilities and equity	$	1,900,310,225		$	1,877,472,482

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended March 31,
	2014		2013
Interest income	$	24,911,855	$	22,988,822
Interest expense	10,591,378		10,642,244
Net interest income	14,320,477		12,346,578
Other revenue:
Property operating income	8,661,515		8,334,328
Other income, net	858,396		1,379,458
Total other revenue	9,519,911		9,713,786
Other expenses:
Employee compensation and benefits	3,385,949		3,083,639
Selling and administrative	1,982,219		2,189,283
Property operating expenses	6,524,138		6,343,313
Depreciation and amortization	1,811,683		1,496,299
Impairment loss on real estate owned	250,000		—
Provision for loan losses (net of recoveries)	134,344		2,500,155
Management fee - related party	2,450,000		2,800,000
Total other expenses	16,538,333		18,412,689
Income from continuing operations before gain on extinguishment of debt and income (loss) from equity affiliates	7,302,055		3,647,675
Gain on extinguishment of debt	—		3,763,000
Income (loss) from equity affiliates	40,048		(81,885		)
Income from continuing operations	7,342,103		7,328,790
Income (loss) from discontinued operations	123,588		(101,572		)
Net income	7,465,691		7,227,218
Preferred stock dividends	1,590,930		533,328
Net income attributable to noncontrolling interest	—		53,651
Net income attributable to Arbor Realty Trust, Inc. common stockholders	$	5,874,761	$	6,640,239

Basic earnings per common share:
Income from continuing operations, net of noncontrolling interest and preferred stock dividends	$	0.12	$	0.20
Income (loss) from discontinued operations	—		—
Net income attributable to Arbor Realty Trust, Inc. common stockholders	$	0.12	$	0.20

Diluted earnings per common share:
Income from continuing operations, net of noncontrolling interest and preferred stock dividends	$	0.12	$	0.19
Income (loss) from discontinued operations	—		—
Net income attributable to Arbor Realty Trust, Inc. common stockholders	$	0.12	$	0.19

Dividends declared per common share	$	0.13	$	0.12

Weighted average number of shares of common stock outstanding:
Basic	49,336,308		33,771,925
Diluted	49,752,813		34,236,689

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended March 31,
	2014			2013
Net income	$	7,465,691		$	7,227,218
Unrealized loss on securities available-for-sale, net	(58,789		)	—
Reclassification of unrealized gain on securities available-for-sale realized into earnings	(431,476		)	—
Unrealized loss on derivative financial instruments	(441,773		)	(354,980		)
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings	3,440,877			3,495,764
Comprehensive income	9,974,530			10,368,002
Less:
Preferred stock dividends	1,590,930			533,328
Comprehensive income attributable to noncontrolling interest	—			53,651
Comprehensive income attributable to Arbor Realty Trust, Inc. common stockholders	$	8,383,600		$	9,781,023

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

Three Months Ended March 31, 2014

	Preferred Stock Shares	Preferred Stock Value		Common Stock Shares	Common Stock Par Value		Additional Paid-in Capital		Treasury Stock Shares		Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance — January 1, 2014	2,811,500	$	67,654,655	51,787,075	$	517,870	$	623,993,245	(2,650,767	)	$	(17,100,916	)	$	(212,231,319	)	$	(25,237,253	)	$	437,596,282
Issuance of common stock				1,000,000	10,000		6,504,000													6,514,000
Issuance of 8.50% Series C preferred stock	900,000	21,641,250																		21,641,250
Stock-based compensation							147,016													147,016
Distributions — common stock														(6,387,720		)				(6,387,720		)
Distributions —preferred stock														(1,590,930		)				(1,590,930		)
Distributions — preferred stock of private REIT														(4,132		)				(4,132		)
Net income														7,465,691						7,465,691
Unrealized loss on securities available-for-sale																	(58,789		)	(58,789		)
Reclassification of unrealized gain on securities available-for- sale realized into earnings																	(431,476		)	(431,476		)
Unrealized loss on derivative financial instruments, net																	(441,773		)	(441,773		)
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings																	3,440,877			3,440,877
Balance — March 31, 2014	3,711,500	$	89,295,905	52,787,075	$	527,870	$	630,644,261	(2,650,767	)	$	(17,100,916	)	$	(212,748,410	)	$	(22,728,414	)	$	467,890,296

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2014			2013
Operating activities:
Net income	$	7,465,691		$	7,227,218
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,811,683			1,632,131
Stock-based compensation	147,016			571,810
Gain on sale of securities	(518,640		)	—
Gain on extinguishment of debt	—			(3,763,000		)
Provision for loan losses (net of recoveries)	134,344			2,500,155
Impairment loss on real estate owned	250,000			—
Amortization and accretion of interest, fees and intangible assets, net	(1,393,654		)	(214,661		)
Change in fair value of non-qualifying swaps and linked transactions	46,071			(107,722		)
(Loss) income from equity affiliates	(40,048		)	81,885
Changes in operating assets and liabilities:
Other assets	(1,437,250		)	13,998
Distributions of operations from equity affiliates	40,048			24,365
Other liabilities	83,686			(4,160,838		)
Change in restricted cash	(179,394		)	239,974
Due to/from related party	(1,836,582		)	(2,189,651		)
Net cash provided by operating activities	$	4,572,971		$	1,855,664

Investing activities:
Loans and investments funded, originated and purchased, net	(268,256,928		)	(101,354,622		)
Payoffs and paydowns of loans and investments	228,173,239			34,733,621
Due to borrowers and reserves	(36,240		)	(585,143		)
Deferred fees	2,566,938			515,220
Purchase of securities, net	—			(20,500,000		)
Principal collections on securities, net	663,684			7,615,742
Investment in real estate, net	(1,278,339		)	(2,799,667		)
Proceeds from sale of available-for-sale securities	33,904,172			—
Net cash used in investing activities	$	(4,263,474	)	$	(82,374,849	)

Financing activities:
Proceeds from repurchase agreements, loan participations, credit facilities and notes payable	132,087,708			23,704,650
Paydowns and payoffs of repurchase agreements, loan participations and credit facilities	(28,007,831		)	(104,962,456		)
Proceeds from collateralized loan obligations	—			177,000,000
Payoffs and paydowns of collateralized debt obligations	(119,668,296		)	(58,130,055		)
Change in restricted cash	(42,020,140		)	(29,771,615		)
Payments on financial instruments underlying linked transactions	(45,881,649		)	(18,265,294		)
Receipts on financial instruments underlying linked transactions	52,385,881			18,939,101
Payments on swaps and margin calls to counterparties	(347,106		)	(20,644,853		)
Receipts on swaps and margin calls from counterparties	3,646,010			22,551,317
Distributions paid to noncontrolling interest	—			(50,167		)
Proceeds from issuance of common stock	6,800,000			91,696,328
Expenses paid on issuance of common stock	(206,000		)	(2,974,812		)
Proceeds from issuance of preferred stock	22,500,000			38,787,500
Expenses paid on issuance of preferred stock	(764,553		)	(1,329,526		)
Distributions paid on common stock	(6,387,720		)	(4,154,553		)
Distributions paid on preferred stock	(1,410,305		)	—
Distributions paid on preferred stock of private REIT	(4,132		)	(4,132		)
Payment of deferred financing costs	(716,744		)	(3,096,570		)
Net cash (used in) / provided by financing activities	$	(27,994,877	)	$	129,294,863
Net (decrease) increase in cash and cash equivalents	$	(27,685,380	)	$	48,775,678
Cash and cash equivalents at beginning of period	60,389,552			29,188,889
Cash and cash equivalents at end of period	$	32,704,172		$	77,964,567

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

	Three Months Ended March 31,
	2014		2013

Supplemental cash flow information:
Cash used to pay interest	$	10,928,537	$	13,094,185
Cash used for taxes	$	6,706	$	108,594
Supplemental schedule of non-cash investing and financing activities:
Distributions accrued on 8.25% Series A preferred stock	$	266,664	$	533,328
Distributions accrued on 7.75% Series B preferred stock	$	203,438	$	—
Distributions accrued on 8.50% Series C preferred stock	$	180,625	$	—
Accrued and unpaid expenses on preferred stock offerings	$	94,197	$	142,280
Accrued and unpaid expenses on common stock offerings	$	80,000	$	120,000

See Notes to Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

Note 1 —Description of Business

Arbor Realty Trust, Inc. (the “Company”) is a Maryland corporation that was formed in June 2003 to invest in a diversified portfolio of multi-family and commercial real estate related assets, primarily consisting of bridge loans, mezzanine loans, junior participating interests in first mortgage loans, and preferred and direct equity. The Company may also directly acquire real property and invest in real estate-related notes and certain mortgage-related securities. The Company conducts substantially all of its operations through its operating partnership, Arbor Realty Limited Partnership (“ARLP”), and ARLP’s wholly-owned subsidiaries. The Company is externally managed and advised by Arbor Commercial Mortgage, LLC (“ACM”).

The Company organizes and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. A REIT is generally not subject to federal income tax on its REIT-taxable income distributed to its stockholders, provided that it distributes at least 90% of its REIT-taxable income and meets certain other requirements. Certain assets of the Company that produce non-qualifying income are owned by its taxable REIT subsidiaries, the income of which is subject to federal and state income taxes.

The Company’s charter provides for the issuance of up to 500 million shares of common stock, with a par value of $0.01 per share, and 100 million shares of preferred stock, with a par value of $0.01 per share.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which was filed with the Securities and Exchange Commission (“SEC”).

The accompanying unaudited consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, partnerships or other joint ventures in which the Company owns a voting interest of greater than 50 percent, and Variable Interest Entities (“VIEs”) of which the Company is the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Current accounting guidance requires the Company to present a) assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE, and b) liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. As a result of this guidance, the Company has separately disclosed parenthetically the assets and liabilities of its three collateralized debt obligation (“CDO”) and two collateralized loan obligation (“CLO”) subsidiaries on its Consolidated Balance Sheets. Entities in which the Company has significant influence are accounted for primarily under the equity method.

The Company is organized and conducts its operations to qualify as a REIT for federal income tax purposes. As a REIT, the Company is generally not subject to federal income tax on its REIT—taxable income that it distributes to its stockholders, provided that it distributes at least 90% of its REIT—taxable income and meets certain other requirements. Also, under current federal tax law, the income and the tax on such income attributable to

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

certain debt extinguishment transactions realized in 2009 or 2010 have been deferred to future periods at the Company’s election. As of March 31, 2014 and 2013, the Company was in compliance with all REIT requirements and, therefore, has not provided for income tax expense for the three months ended March 31, 2014 and 2013. Certain of the Company’s assets that produce non-qualifying income are owned by its taxable REIT subsidiaries, the income of which is subject to federal and state income taxes. During the three months ended March 31, 2014 and 2013, the Company did not record any provision for income taxes for these taxable REIT subsidiaries.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified to conform to current period presentation. During the third quarter of 2013, the Company classified a real estate investment that was part of a portfolio of multifamily properties as held-for-sale, resulting in reclassifications of property operating activity and related depreciation to discontinued operations for all prior periods presented.

Significant Accounting Policies

As of March 31, 2014, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, have not changed materially.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance is effective prospectively as of the first quarter of 2015, with early adoption permitted for new disposals or new classifications as held-for-sale. The Company early adopted this new guidance in the first quarter of 2014 and it did not have a material effect on the Company’s Consolidated Financial Statements.

In July 2013, the FASB issued updated guidance that resolves the diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new accounting guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward that would apply in settlement of an uncertain tax position. The guidance was effective as of the first quarter of 2014 and its adoption did not have a material effect on the Company’s Consolidated Financial Statements.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

Note 3 — Loans and Investments

The following table sets forth the composition of the Company’s loan and investment portfolio at March 31, 2014 and December 31, 2013:

	March 31, 2014			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	First Dollar LTV Ratio (2)		Last Dollar LTV Ratio (3)

Bridge loans	$	1,249,994,589		73	%	100	5.23	%	19.4	0	%	73	%
Mezzanine loans	100,597,621			6	%	28	7.63	%	64.5	61	%	85	%
Junior participation loans	247,495,215			15	%	7	4.20	%	16.6	60	%	81	%
Preferred equity investments	108,890,000			6	%	14	5.97	%	51.7	20	%	35	%
	1,706,977,425			100	%	149	5.27	%	23.7	14	%	73	%
Unearned revenue	(15,401,214		)
Allowance for loan losses	(116,743,412		)
Loans and investments, net	$	1,574,832,799

	December 31, 2013			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	First Dollar LTV Ratio (2)		Last Dollar LTV Ratio (3)

Bridge loans	$	1,171,783,914		71	%	95	5.11	%	18.5	0	%	76	%
Mezzanine loans	118,550,172			7	%	27	7.02	%	58.2	56	%	83	%
Junior participation loans	248,337,542			15	%	7	4.21	%	19.6	60	%	81	%
Preferred equity investments	121,523,673			7	%	15	7.20	%	45.5	58	%	79	%
	1,660,195,301			100	%	144	5.26	%	23.5	17	%	77	%
Unearned revenue	(14,218,237		)
Allowance for loan losses	(122,277,411		)
Loans and investments, net	$	1,523,699,653

(1) “Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balances of each loan in the Company’s portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements. Certain loans and investments that require an additional rate of interest “Accrual Rate” to be paid at the maturity are not included in the weighted average pay rate as shown in the table.

(2) The “First Dollar LTV Ratio” is calculated by comparing the total of the Company’s senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will absorb a total loss of its position.

(3) The “Last Dollar LTV Ratio” is calculated by comparing the total of the carrying value of the Company’s loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will initially absorb a loss.

Concentration of Credit Risk

The Company operates in one portfolio segment, commercial mortgage loans and investments. Commercial mortgage loans and investments can potentially subject the Company to concentrations of credit risk. The Company is subject to concentration risk in that, as of March 31, 2014, the unpaid principal balance related to 29 loans with five different borrowers represented approximately 26% of total assets. At December 31, 2013, the unpaid principal balance related to 28 loans with five different borrowers represented approximately 30% of total assets. The Company measures its relative loss position for its mezzanine loans, junior participation loans, and preferred equity investments by determining the point where the Company will be exposed to losses based on its position in the capital stack as compared to the fair value of the underlying collateral. The Company determines its loss position on both a first dollar loan-to-value (“LTV”) and a last dollar LTV basis. First dollar LTV is calculated by comparing the total of the Company’s senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will absorb a total loss of its

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position. Last dollar LTV is calculated by comparing the total of the carrying value of the Company’s loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will initially absorb a loss.

The Company assigns a credit risk rating to each loan and investment. Individual ratings range from one to five, with one being the lowest risk and five being the highest. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves. Other factors such as guarantees, market strength, remaining loan term, and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan. This metric provides a helpful snapshot of portfolio quality and credit risk. Given the Company’s asset management approach, however, the risk rating process does not result in differing levels of diligence contingent upon credit rating. That is because all portfolio assets are subject to the level of scrutiny and ongoing analysis consistent with that of a ‘high-risk” loan. All assets are subject to, at minimum, a thorough quarterly financial evaluation in which historical operating performance is reviewed, and forward-looking projections are created. Generally speaking, given the Company’s typical loan and investment profile, a risk rating of three suggests that the Company expects the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired. A risk rating of four indicates the Company anticipates that the loan will require a modification of some kind. A risk rating of five indicates the Company expects the loan to underperform over its term, and that there could be loss of interest and/or principal. Ratings of 3.5 and 4.5 generally indicate loans that have characteristics of both the immediately higher and lower classifications. Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, condition of the market of the underlying collateral, additional collateral or other credit enhancements, or loan terms, may result in a rating that is higher or lower than might be indicated by any risk rating matrix.

As a result of the loan review process at March 31, 2014 and December 31, 2013, the Company identified loans and investments that it considers higher-risk loans that had a carrying value, before loan loss reserves, of approximately $188.1 million and $187.5 million, respectively, and a weighted average last dollar LTV ratio of 92% and 93%, respectively.

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class as of March 31, 2014 and December 31, 2013 is as follows:

	March 31, 2014
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	First Dollar LTV Ratio		Last Dollar LTV Ratio

Multi-family	$	1,128,731,473	66.1	%	3.2	9	%	70	%
Office	326,393,792		19.1	%	3.2	34	%	80	%
Land	116,933,830		6.9	%	4.0	3	%	87	%
Hotel	100,422,768		5.9	%	3.7	19	%	79	%
Commercial	24,745,562		1.4	%	3.0	3	%	48	%
Retail	6,750,000		0.4	%	2.5	0	%	65	%
Condo	3,000,000		0.2	%	2.5	28	%	42	%
Total	$	1,706,977,425	100.0	%	3.3	14	%	73	%

	December 31, 2013
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	First Dollar LTV Ratio		Last Dollar LTV Ratio

Multi-family	$	1,068,529,815	64.4	%	3.3	14	%	75	%
Office	358,832,526		21.6	%	3.2	32	%	82	%
Land	116,751,563		7.0	%	4.0	3	%	88	%
Hotel	69,181,252		4.2	%	3.8	26	%	84	%
Commercial	24,900,145		1.5	%	3.0	3	%	49	%
Condo	15,250,000		0.9	%	3.7	41	%	65	%
Retail	6,750,000		0.4	%	2.5	0	%	63	%
Total	$	1,660,195,301	100.0	%	3.3	17	%	77	%

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Geographic Concentration Risk

As of March 31, 2014, 31% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York. As of December 31, 2013, 36% and 10% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York and Texas, respectively.

Impaired Loans and Allowance for Loan Losses

The Company performs an evaluation of the loan portfolio quarterly to assess the performance of its loans and whether a reserve for impairment should be recorded. The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.

During the three months ended March 31, 2014, the Company determined that the fair value of the underlying collateral securing an impaired loan with a carrying value of $4.8 million was less than the net carrying value of the loan, resulting in a $1.0 million provision for loan loss. In addition, during the three months ended March 31, 2014, the Company recorded $0.9 million of net recoveries of previously recorded loan loss reserves resulting in a provision for loan losses, net of recoveries, of $0.1 million. The $1.0 million of loan loss reserve recorded during the three months ended March 31, 2014 was attributable to a loan on which the Company had previously recorded reserves and is now fully reserved.

During the three months ended March 31, 2013, the Company determined that the fair value of the underlying collateral securing two impaired loans with an aggregate carrying value of $13.5 million was less than the net carrying value of the loans, resulting in a $2.5 million provision for loan losses. In addition, during the three months ended March 31, 2013, the Company recorded less than $0.1 million of net recoveries of previously recorded loan loss reserves resulting in a provision for loan losses, net of recoveries, of $2.5 million. The $2.5 million of loan loss reserves recorded during the three months ended March 31, 2013 was attributable to two loans on which the Company had not previously recorded reserves.

There were no loans for which the value of the collateral securing the loan was less than the carrying value of the loan for which the Company had not recorded a provision for loan loss as of March 31, 2014 and 2013.

At March 31, 2014, the Company had a total of 14 loans with an aggregate carrying value, before loan loss reserves, of $201.4 million for which impairment reserves have been recorded. At December 31, 2013, the Company had a total of 15 loans with an aggregate carrying value, before loan loss reserves, of $207.5 million for which impairment reserves have been recorded. Additionally, the Company has seven loans with an unpaid principal balance totaling approximately $111.6 million at March 31, 2014, which mature in September 2014, that are collateralized by a land development project. The loans do not carry a pay rate of interest, but four of the loans with an unpaid principal balance totaling approximately $101.9 million entitle the Company to a weighted average accrual rate of interest of approximately 9.60%. During the fourth quarter of 2010, the Company suspended the recording of the accrual rate of interest on these loans, as these loans were impaired and management deemed the collection of this interest to be doubtful. The Company has recorded cumulative allowances for loan losses of $43.7 million related to these loans as of March 31, 2014. 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.

During the quarter ended March 31, 2014, the Company wrote off a mezzanine loan with a carrying value of $6.5 million and recorded a charge-off to previously recorded reserves of $5.7 million, and recorded a cash recovery of $0.8 million.

During the quarter ended March 31, 2013, the Company wrote off a bridge loan, two mezzanine loans and a junior participation loan with a total carrying value of $18.5 million and recorded a charge-off to previously recorded reserves of $18.5 million as well as a cash recovery of less than $0.1 million.

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A summary of the changes in the allowance for loan losses is as follows:

	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013

Allowance at beginning of the period	$	122,277,411		$	161,706,313
Provision for loan losses	1,000,000			2,500,000
Charge-offs	(5,668,342		)	(18,461,330		)
Recoveries of reserves	(865,657		)	(2,939		)
Allowance at end of the period	$	116,743,412		$	145,742,044

A summary of charge-offs and recoveries is as follows:

	Three Months Ended
	March 31, 2014			March 31, 2013

Charge-offs:
Multi-family	$	(5,668,342	)	$	(4,789,815	)
Hotel	—			(3,671,515		)
Condo	—			(10,000,000		)
Total	$	(5,668,342	)	$	(18,461,330	)

Recoveries:
Multi-family	$	(865,657	)	$	(2,939	)
Total	$	(865,657	)	$	(2,939	)

Net Charge-offs	$	(4,802,685	)	$	(18,458,391	)

Ratio of net charge-offs during the period to average loans and investments outstanding during the period	0.3		%	1.2		%

A summary of the Company’s impaired loans by asset class is as follows:

	March 31, 2014						Three Months Ended March 31, 2014
Asset Class	Unpaid Principal Balance		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized
Multi-family	$	59,201,774	$	58,662,687	$	44,252,698	$	62,468,774	$	213,741
Office	36,086,582		29,726,608		23,972,444		36,086,582		274,795
Land	116,443,178		113,059,998		48,518,270		116,264,564		—
Total	$	211,731,534	$	201,449,293	$	116,743,412	$	214,819,921	$	488,536

	December 31, 2013						Three Months Ended March 31, 2013
Asset Class	Unpaid Principal Balance		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized
Multi-family	$	65,735,773	$	65,186,623	$	50,786,697	$	59,714,651	$	949,080
Office	36,086,582		29,474,065		23,972,444		42,562,808		472,311
Land	116,085,950		112,810,558		47,518,270		139,050,225		—
Total	$	217,908,305	$	207,471,246	$	122,277,411	$	241,327,684	$	1,421,391

(1) Represents the unpaid principal balance of impaired loans less unearned revenue and other holdbacks and adjustments by asset class.

(2) Represents an average of the beginning and ending unpaid principal balance of each asset class.

As of March 31, 2014, four loans with an aggregate net carrying value of approximately $10.2 million, net of related loan loss reserves of $39.6 million, were classified as non-performing, all of which had loan loss reserves. Income from non-performing loans is generally recognized on a cash basis only to the extent it is received. Full

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income recognition will resume when the loan becomes contractually current and performance has recommenced. As of December 31, 2013, five loans with an aggregate net carrying value of approximately $10.7 million, net of related loan loss reserves of $39.6 million, were classified as non-performing, of which one loan with a carrying value of $0.6 million did not have a loan loss reserve.

A summary of the Company’s non-performing loans by asset class as of March 31, 2014 and December 31, 2013 is as follows:

	March 31, 2014						December 31, 2013
Asset Class	Carrying Value		Less Than 90 Days Past Due		Greater Than 90 Days Past Due		Carrying Value		Less Than 90 Days Past Due		Greater Than 90 Days Past Due

Multi-family	$	41,492,690	$	—	$	41,492,690	$	42,054,539	$	32,000,000	$	10,054,539
Office	8,277,821		—		8,277,821		8,277,844		—		8,277,844
Total	$	49,770,511	$	—	$	49,770,511	$	50,332,383	$	32,000,000	$	18,332,383

At March 31, 2014, the Company had not refinanced and/or modified or extended any loans which were considered by the Company to be troubled debt restructurings. During the quarter ended March 31, 2013, the Company did not refinance and/or modify any loans, however, two loans with a combined unpaid principal balance of $14.6 million that were extended during the period were considered to be trouble debt restructurings. The Company had no unfunded commitments on the modified and extended loans which were considered troubled debt restructurings as of March 31, 2013.

A summary of loan modifications and extensions by asset class that the Company considered to be troubled debt restructurings during the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31, 2014							Three Months Ended March 31, 2013
Asset Class	Number of Loans	Original Unpaid Principal Balance		Original Rate of Interest	Modified Unpaid Principal Balance		Modified Weighted Average Rate of Interest	Number of Loans	Original Unpaid Principal Balance		Original Weighted Average Rate of Interest		Modified Unpaid Principal Balance		Modified Weighted Average Rate of Interest

Multifamily	—	$	—	—	$	—	—	1	$	6,192,666	5.96	%	$	6,192,666	5.96	%
Office	—	—		—	—		—	1	8,400,000		8.24	%	8,400,000		8.24	%
Total	—	$	—	—	$	—	—	2	$	14,592,666	7.27	%	$	14,592,666	7.27	%

There were no loans in which the Company considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of March 31, 2014 and 2013 and no additional loans were considered to be impaired due to the Company’s troubled debt restructuring analysis for the three months ended March 31, 2014 and 2013. These loans were modified to increase the total recovery of the combined principal and interest from the loan.

As of March 31, 2014, the Company had total interest reserves of $15.6 million on 53 loans with an aggregate unpaid principal balance of $749.5 million and had a non-performing loan with an unpaid principal balance of $4.2 million with a funded interest reserve of $0.1 million.

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Note 4 — Securities

The following is a summary of the Company’s securities classified as available-for-sale at March 31, 2014:

	Face		Amortized		Cumulative Unrealized		Carrying Value / Estimated
	Value		Cost		Gain		Fair Value

Commercial mortgage-backed security (CMBS)	$	2,100,000	$	2,100,000	$	—	$	2,100,000
Common equity securities	—		58,789		617,288		676,077

Total available-for-sale securities	$	2,100,000	$	2,158,789	$	617,288	$	2,776,077

The following is a summary of the Company’s securities classified as available-for-sale at December 31, 2013:

	Face		Amortized		Cumulative Unrealized		Cumulative Unrealized			Carrying Value / Estimated
	Value		Cost		Gain		Loss			Fair Value

Residential mortgage-backed security (RMBS)	$	39,013,690	$	34,049,310	$	437,774	$	(6,298	)	$	34,480,786
Commercial mortgage-backed security (CMBS)	2,100,000		2,100,000		—		—			2,100,000
Common equity securities	—		58,789		676,077		—			734,866

Total available-for-sale securities	$	41,113,690	$	36,208,099	$	1,113,851	$	(6,298	)	$	37,315,652

The following is a summary of the underlying credit rating of the Company’s available-for-sale debt securities at March 31, 2014 and December 31, 2013:

	March 31, 2014					December 31, 2013
		Amortized		Percent			Amortized		Percent
Rating (1)	#	Cost		of Total		#	Cost		of Total

AA+	—	$	—	—		1	$	93,715	—
CCC	—	—		—		1	18,417,402		51	%
CCC-	1	2,100,000		100	%	1	2,100,000		6	%
NR	—	—		—		7	15,538,193		43	%
	1	$	2,100,000	100	%	10	$	36,149,310	100	%

(1) Based on the rating published by Standard & Poor’s for each security. NR stands for “not rated.”

In the first quarter of 2014, the Company sold all of its RMBS investments which had an aggregate carrying value of $33.4 million, which is net of $0.7 million of principal paydowns received during the quarter, for approximately $33.9 million and recorded a net gain of $0.5 million to other income, net on the Company’s Consolidated Statement of Income, which includes the reclassification of a net unrealized gain of $0.4 million from accumulated other comprehensive loss on the Company’s Consolidated Balance Sheet. These RMBS investments were financed with two repurchase agreements totaling $25.3 million which were repaid with the proceeds. See Note 7 — “Debt Obligations” for further details.

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The Company owns a CMBS investment, purchased at a premium in 2010 for $2.1 million, which is collateralized by a portfolio of hotel properties. The CMBS investment bears interest at a spread of 89 basis points over LIBOR, has a stated maturity of 6.2 years, but has an estimated life of 0.2 years based on the extended maturity of the underlying asset and a fair value of $2.1 million at both March 31, 2014 and December 31, 2013.

The Company owns 2,939,465 shares of common stock of CV Holdings, Inc., formerly Realty Finance Corporation, a commercial real estate specialty finance company, which had a fair value of approximately $0.7 million at March 31, 2014 and December 31, 2013.

Available-for-sale securities are carried at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive loss. The Company evaluates these securities periodically to determine whether a decline in their value is other-than-temporary, though such a determination is not intended to indicate a permanent decline in value. The Company’s evaluation is based on its assessment of cash flows, which is supplemented by third-party research reports, internal review of the underlying assets securing the investments, levels of subordination and the ratings of the securities and the underlying collateral. The Company’s estimation of cash flows expected to be generated by the securities portfolio is based upon an internal review of the underlying mortgage loans securing the investments both on an absolute basis and compared to the Company’s initial underwriting for each investment and efforts are supplemented by third party research reports, third party market assessments and dialogue with market participants. Management closely monitors market conditions on which it bases such decisions. No impairment was recorded on the Company’s available-for-sale securities for the three months ended March 31, 2014 and 2013.

At December 31, 2013, the Company owned two RMBS investments with deteriorated credit quality that had a total aggregate carrying value of $25.8 million. These investments were sold in the first quarter of 2014 for $25.9 million.

The weighted average yield on the Company’s CMBS and RMBS investments based on their face values was 2.25% and 4.49%, including the amortization of premium and the accretion of discount, for the three months ended March 31, 2014 and 2013, respectively.

Note 5 — Investments in Equity Affiliates

The following is a summary of the Company’s investments in equity affiliates at March 31, 2014 and December 31, 2013:

	Investment in Equity Affiliates at				Unpaid Principal Balance of Loans to Equity Affiliates at
Equity Affiliates	March 31, 2014		December 31, 2013		March 31, 2014

Lightstone Value Plus REIT L.P.	$	1,894,727	$	1,894,727	$	—
West Shore Café	1,690,280		1,690,280		—
Issuers of Junior Subordinated Notes	578,000		578,000		—
JT Prime	425,000		425,000		—
930 Flushing & 80 Evergreen	92,199		92,199		23,045,561
Lexford Portfolio	100		100		115,861,000
450 West 33rd Street	—		—		—
Ritz-Carlton Club	—		—		—

Total	$	4,680,306	$	4,680,306	$	138,906,561

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The Company accounts for 450 West 33rd Street investments under the cost method of accounting and the remaining investments under the equity method.

During the three months ended March 31, 2014, there was no material change in the Company’s investments in equity affiliates.

Note 6 — Real Estate Owned and Held-For-Sale

Real Estate Owned

	March 31, 2014									December 31, 2013
	Multifamily Portfolio			Hotel Portfolio			Total			Multifamily Portfolio			Hotel Portfolio			Total
Land	$	11,382,579		$	10,893,651		$	22,276,230		$	11,382,579		$	10,893,651		$	22,276,230
Building and intangible assets	46,539,291			62,233,855			108,773,146			46,115,430			61,632,645			107,748,075
Less: accumulated depreciation and amortization	(9,506,047		)	(10,752,103		)	(20,258,150		)	(8,598,915		)	(9,707,213		)	(18,306,128		)
Real estate owned, net	$	48,415,823		$	62,375,403		$	110,791,226		$	48,899,094		$	62,819,083		$	111,718,177

As of March 31, 2014 and December 31, 2013, the Company’s six multifamily properties (“Multifamily Portfolio”) had a weighted average occupancy rate of approximately 86% and 85%, respectively. During the first quarter of 2014, the Company determined that one of the properties exhibited indicators of impairment and performed an impairment analysis. As a result of this impairment analysis based on the indicators of value from the market participants, the Company recorded an impairment loss of $0.3 million in the Consolidated Statement of Income.

The Multifamily Portfolio had a mortgage note payable of $42.7 million as of March 31, 2014 and December 31, 2013.

For the three months ended March 31, 2014 and 2013, the Company’s five hotel properties in Florida (“Hotel Portfolio”) had a weighted average occupancy rate of approximately 58% and 61%, respectively, a weighted average daily rate of approximately $102 and $94, respectively, and a weighted average revenue per available room of approximately $59 and $58, respectively.

The Company’s real estate assets had restricted cash balances totaling $1.1 million and $0.9 million as of March 31, 2014 and December 31, 2013, respectively, due to escrow requirements.

Real Estate Held-For-Sale

The results of operations for properties classified as held-for-sale are reflected on the consolidated financial statements as discontinued operations and are summarized as follows:

	Three Months Ended March 31,
	2014		2013
Revenue:
Property operating income	$	596,573	$	561,106

Expenses:
Property operating expense	472,985		526,846
Depreciation	—		135,832
Income (loss) from discontinued operations	$	123,588	$	(101,572	)

During 2013, a property in the Multifamily Portfolio was classified as held-for-sale due to a proposed sale transaction. The corresponding results of operations were reclassified as discontinued operations for all prior periods presented. The property has a mortgage note payable of $11.0 million at March 31, 2014 and December 31, 2013.

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Note 7 — Debt Obligations

The Company utilizes various forms of short-term and long-term financing agreements to finance certain of its loans and investments. Borrowings underlying these arrangements are primarily secured by a significant amount of the Company’s loans and investments.

Repurchase Agreements and Credit Facilities

The following table outlines borrowings under the Company’s repurchase agreements and credit facilities as of March 31, 2014 and December 31, 2013:

	March 31, 2014						December 31, 2013
	Debt		Collateral		Weighted		Debt		Collateral		Weighted
	Carrying		Carrying		Average		Carrying		Carrying		Average
	Value		Value		Note Rate		Value		Value		Note Rate

$110.0 million warehousing credit facility	$	104,491,283	$	129,885,000	2.44	%	$	33,300,540	$	45,705,813	2.46	%
$50.0 million warehousing credit facility	49,218,180		71,674,000		2.69	%	30,838,180		46,774,000		2.70	%
$45.0 million warehousing credit facility	41,496,563		58,100,000		2.18	%	15,063,750		21,800,000		2.20	%
$33.0 million warehousing credit facility	33,000,000		55,000,000		2.69	%	33,000,000		55,000,000		2.45	%
$20.0 million revolving credit facility	20,000,000		—		8.50	%	20,000,000		—		8.50	%
Repurchase agreement	—		—		—		12,497,000		15,536,049		1.75	%
Repurchase agreement	—		—		—		14,425,553		18,944,735		2.00	%

Total repurchase agreements and credit facilities	$	248,206,026	$	314,659,000	2.98	%	$	159,125,023	$	203,760,597	3.16	%

At March 31, 2014 and December 31, 2013, the weighted average note rate for the Company’s repurchase agreements and credit facilities was 2.98% and 3.16%, respectively. There were no interest rate swaps on these facilities at March 31, 2014 and December 31, 2013. Including certain fees and costs, the weighted average note rate was 3.26% and 3.57% at March 31, 2014 and December 31, 2013, respectively.

In July 2011, the Company entered into a two year, $50.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties. In 2013, the Company amended the facility increasing the committed amount to $75.0 million, decreased the rate of interest from 275 basis points over LIBOR to 225 basis points over LIBOR and decreased certain commitment, warehousing and non-use fees. In March 2014, the facility’s committed amount was increased to $110.0 million, which includes a temporary increase of $10.0 million until June 2014 and requires a 0.13% commitment fee. The facility has a maximum advance rate of 75% and contains several restrictions including full repayment of an advance if a loan becomes 60 days past due, is in default or is written down by the Company. The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth which includes junior subordinated notes as equity of $150.0 million, maximum total liabilities less subordinate debt of $2.0 billion, as well as certain other debt service coverage ratios and debt to equity ratios. The facility has a compensating balance requirement of $50.0 million to be maintained by the Company and its affiliates. At March 31, 2014, the outstanding balance of this facility was $104.5 million. In April 2014, the facility’s $10.0 million temporary increase was repaid as part of the issuance of the Company’s third CLO.

In February 2013, the Company entered into a one year, $50.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties. In April 2014, the Company amended the facility, increasing the committed amount to $75.0 million. The facility bears interest at a rate of 225 basis points over LIBOR which was originally 250 basis points over LIBOR, upon closing, requires a 35 basis point commitment fee, which was originally 12.5 basis points, upon closing, matures in March 2015, has warehousing and non-use fees

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

and allows for an original warehousing period of up to 24 months from the initial advance on an asset. The facility has a maximum advance rate of 75% and contains certain restrictions including partial prepayment of an advance if a loan becomes 90 days past due or in the process of foreclosure, subject to certain conditions. The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth which includes junior subordinated notes as equity of $150.0 million, maximum total liabilities less subordinate debt of $2.0 billion, as well as certain other debt service coverage ratios and debt to equity ratios. At March 31, 2014, the outstanding balance of this facility was $49.2 million.

In June 2013, the Company entered into a one year, $40.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties, including a $10.0 million sublimit to finance retail and office properties. In February 2014, the Company amended the facility, increasing the committed amount to $45.0 million, and in April 2014 the committed amount was raised to $60.0 million. The facility bears interest at a rate of 200 basis points over LIBOR, matures in April 2015, has warehousing fees and allows for an original warehousing period of up to 24 months from the initial advance on an asset. The facility has a maximum advance rate of 70% or 75%, depending on the property type, and contains certain restrictions including prepayment of an advance if a loan becomes 60 days past due or in the process of foreclosure, subject to certain conditions. The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth of $150.0 million, as well as a minimum debt service coverage ratio. At March 31, 2014, the outstanding balance of this facility was $41.5 million.

In December 2013, the Company entered into a $33.0 million warehouse facility with a financial institution to finance the first mortgage loan on a multifamily property. The facility bears interest at a rate of 225 basis points over LIBOR which increased to 250 basis points over LIBOR in February 2014, requires up to a 45 basis point commitment fee and matures in November 2015 with a one year extension option. The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth which includes junior subordinated notes as equity of $150.0 million, maximum total liabilities less subordinate debt of $2.0 billion, as well as certain other debt service coverage ratios and debt to equity ratios. At March 31, 2014, the outstanding balance of this facility was $33.0 million. In April 2014, the facility was repaid in full as part of the issuance of the Company’s third CLO.

In May 2012, the Company entered into a $15.0 million committed revolving line of credit with a one year term maturing in May 2013, which is secured by a portion of the bonds originally issued by the Company’s CDO entities that have been repurchased by the Company. This facility has a 1% commitment fee, a 1% non-use fee and pays interest at a fixed rate of 8% on any drawn portion of the line. The facility has a debt service coverage ratio requirement for the posting of collateral. In January 2013, the Company amended the facility, increasing the committed amount to $20.0 million and a fixed rate of interest of 8.5% on any drawn portion of the $20.0 million commitment. The amendment also included a one year extension option upon maturity in May 2013 and required a 1% commitment fee and a 1% non-use fee. In May 2013, the Company extended the facility to a maturity in May 2014 with a one year extension option and a 1% extension fee, as well as amended the facility to have an 8.5% non-use fee on the first $5.0 million not borrowed and a 1% non-use fee on the remaining funds not borrowed. At March 31, 2014, the outstanding balance of this facility was $20.0 million.

In July 2011, the Company entered into a repurchase agreement with a financial institution to finance the purchase of RMBS investments. During the three months ended March 31, 2014, the Company paid off the remaining balance of $12.5 million due to the sale of its RMBS investments as well as principal paydowns received. See Note 4 — “Securities” for further details. The facility generally financed between 60% and 90% of the value of each investment, had a rolling monthly term, and bore interest at a rate of 125 to 200 basis points over LIBOR.

In June 2012, the Company entered into a repurchase agreement with a financial institution to finance the purchase of RMBS investments. During the three months ended March 31, 2014, the Company paid off the remaining balance of $14.4 million due to the sale of its RMBS investments as well as principal paydowns received. The facility generally financed between 75% and 80% of the value of the investment, had a rolling monthly term, and bore interest at a rate of 180 to185 basis points over LIBOR.

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

Collateralized Debt Obligations

The following table outlines borrowings and the corresponding collateral under the Company’s collateralized debt obligations as of March 31, 2014:

	Debt				Collateral
					Loans				Cash
	Face		Carrying		Unpaid		Carrying		Restricted		Collateral
	Value		Value		Principal (1)		Value (1)		Cash (2)		At-Risk (3)

CDO I	$	95,135,611	$	100,728,870	$	252,974,537	$	205,536,923	$	265,957	$	191,605,030

CDO II	194,230,380		199,976,397		290,482,463		241,289,151		71,571,783		123,050,208

CDO III	210,519,572		219,065,707		332,248,731		301,726,802		907,953		166,106,827

Total CDOs	$	499,885,563	$	519,770,974	$	875,705,731	$	748,552,876	$	72,745,693	$	480,762,065

CDO I — Issued four investment grade tranches in January 2005 with a reinvestment period through April 2009 and a stated maturity date of February 2040. Interest is variable based on three-month LIBOR; the weighted average note rate was 3.10%.

CDO II — Issued nine investment grade tranches in January 2006 with a reinvestment period through April 2011 and a stated maturity date of April 2038. Interest is variable based on three-month LIBOR; the weighted average note rate was 3.37%.

CDO III — Issued ten investment grade tranches in December 2006 with a reinvestment period through January 2012 and a stated maturity date of January 2042. Interest is variable based on three-month LIBOR; the weighted average note rate was 0.82%.

The following table outlines borrowings and the corresponding collateral under the Company’s collateralized debt obligations as of December 31, 2013:

	Debt				Collateral
					Loans				Cash
	Face		Carrying		Unpaid		Carrying		Restricted		Collateral
	Value		Value		Principal (1)		Value (1)		Cash (2)		At-Risk (3)

CDO I	$	126,753,077	$	132,399,560	$	284,758,473	$	237,194,618	$	79,986	$	179,466,954

CDO II	196,046,587		201,847,417		362,150,693		312,859,875		1,719,760		187,213,841

CDO III	296,754,194		305,376,004		395,783,494		365,236,505		23,607,813		240,503,823