Q4 2020 Arbor Realty Trust Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the fourth quarter and full year Arbor Realty Trust earnings Conference call.

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After the speaker's presentation, there will be a question and answer session.

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And I'd like to turn the call over to your speaker today, Paul What do you Chief Financial Officer. Please go ahead.

Okay. Thank you Keith and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter and year ended December 31, two.

And 20 with me on the call today is Ivan Kaufman, our President and Chief Executive Officer before we begin I need to inform you that statements made on this earnings call maybe deemed forward looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business financial condition liquidity.

<unk> results of operations plans and objectives. These statements are based on our beliefs assumptions and expectations of our future performance taking into account. The information currently available to us and factors that could cause actual results to differ materially from arbor's expectations and these forward looking statements are detailed on our SEC reports.

<unk> thousand listen listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today.

Undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today, where the occurrences of unanticipated events.

We also have one housekeeping items, we'd like to mention.

Historically, we have disclosed core earnings is an important non-GAAP financial metric to assess the performance of our business effective and the fourth quarter. We are changing the name from core earnings to distributable earnings as a result of discussions between the mortgage REIT industry and the SEC over the past several months to adopt terminology that is more descriptive.

And what this metric represents this is nothing more than a name change and not a change and how we calculate the metric district distributable earnings is calculated the same way, we calculated core earnings and the past I'll now turn the call over to Arbor's, President and CEO Ivan Kaufman.

Thank you Paul and thanks to.

Dave on for joining us on today's call.

Very excited today to discuss the significant success, we had and closing out what was an exceptional 2020.

As well as our plans and outlook for 2021, which we believe will be another outstanding year.

As you can see from this morning's press release, we had another record quarter.

Every one and 2000 Twenty's results for Fox one of the best years as a public company.

We are very well positioned to succeed and the current economic climate, which gives us great confidence and our ability to continue and have tremendous success in 'twenty and 'twenty. One we have built a viable operating platform focused on the right.

That asset class.

Class with very stable liability structures, stromal equivalents liquidity and active balance sheet and GSE agency business and many diversified income streams that generate strong earnings and dividends and every market cycle.

Business model also provides many diversified opportunities for growth.

And clearly puts us in a class by ourselves and allowed us to increase our dividend three times and 2020, while maintaining the lowest dividend payout ratio and the industry.

Over the last five years, we've delivered an annualized shareholder return of approximately 22% from here significantly outperforming up.

Our peers and each and every year, including the distinction of being the only commercial mortgage REIT and our space to deliver a positive shareholder return in 2020, despite the significant effects from the pandemic.

And the performance combined with the quality and diversity of our income streams, along with a track record of consistent.

Assistant earnings growth and industry low dividend payout ratio clearly differentiates us.

And is why we believe we are extremely undervalued and we should be trading and a substantial premium on price.

As I mentioned earlier, we had another record quarter without fourth quarter results from.

And the continued commitment and successful execution of our business strategy and a diverse platform we have developed.

These truly remarkable results have once again allowed us to increase our dividend to <unk> 33 cents a share.

This is our third consecutive quarterly dividend increase reflecting a 10% increase in 'twenty and.

Ah represents a payout ratio of around 70% compared to an industry average of 95% to 100%.

Before I discuss in more detail the growth and success, we had and all of our business platforms and I want to highlight some of our more significant and 2020 accomplishments which include.

Generating.

20th names for growth and our earnings, allowing us to increase our dividend three times, two and annual run rate and with all at 32, a share up from $1 20 per share, resulting and a nine straight years of consistent dividend growth with 19 increases over that time.

Delivering a shareholder total shareholder return of seven 4%.

So 2020 at 166, 6% cumulatively for the last five years with an annualized return of approximately 22%.

Achieving industry, leading are always of 19% a 30% increase over last year.

And do some record originations of nine point.

Set and 1 billion, a 20% increase from our 2019 numbers moved.

Moving up three positions and our league tables, finishing six and Fannie Mae dust production and number one and Fannie Mae small balance lending category for the second year in a row.

Producing record agency originations of 6.3 Bill.

44% increase over last year and.

Increasing our balance sheet portfolio, 28% and 2020 to $5 5 billion growing our servicing portfolio to 25 billion, a 23% increase from 2019 and 52% increase over the last three.

And she can.

Continue to be a market leader and then non recourse securitization arena closing and our largest CLO to date totaling 800 million with improved terms and flexibility.

And raising $250 million of accretive growth capital to fund, our growing pipeline and increase our earnings run rate.

To further highlight this incredible success I would like to talk about the significant growth we experienced in all areas of our business and how well positioned we are to continue this success going forward.

As Paul will discuss some more detail on distributable earnings for the fourth quarter were 49 cents per share.

<unk>, which is an incredible accomplishment and is a true testament to the value of our franchise and the many diverse income streams, we have created.

We continue to realize significant benefits from many areas of our diverse platform, including <unk>.

And I could growth and our GSE agency platform that continues to produce strong margins and increased.

And servicing fees.

And your growth and significant benefits from the size and scale of our balance sheet business strong performance of our multifamily focused portfolios with very few delinquencies and extremely low forbearance is and substantial income from our residential business.

And these reoccurring benefits.

Combined we're on versatile originations platform and strong pipeline and credit quality of our portfolio puts us in a unique position to be able to continue to produce significant distributable earnings going forward and we are appropriately positioned to excel in this environment.

We experienced significant growth and a G. S E agency.

And fifth swarm and 'twenty and 'twenty, we originated $2 7 billion and GSE agency loans, and the fourth quarter and $6 3 billion and the full year, both of which are new record levels equally important. We also have a very robust pipeline and as a result.

And we expect to produce strong origination.

Plas and volumes and the first quarter.

A main confident and our ability to continue to produce significant agency volumes in 'twenty and 'twenty one.

How would you see agency platform continues to offer a premium value as it requires limited capital and generate significant long dated predictable income streams and producers.

This significant annual cash flow and.

Additionally, at $24 6 billion GSE agency servicing portfolio, which grew 23% in 'twenty and 'twenty is mostly prepayment protected and generated a $112 million a year and growing and reoccurring cash flow, which is up 27.

Nation percent from 88 million annually last year.

And this is in addition to the strong gain on sale margins, we continue to generate from our origination platform, which combined with new and increasing servicing revenues will continue to contribute greatly to our earnings and dividends.

From a liquidity perspective, we're very.

Seven of our current cash and liquidity position of approximately 400 million, which provides us with adequate liquidity to navigate the current market conditions and gives us offensive capital to take advantage of accretive lending opportunities. This has allowed us to replace our run off and meaningfully grow our balance sheet loan book with high quality.

Please don't they family bridge loans that generate attractive returns and creates a substantial pipeline of future GSE agency origination volumes and long dated servicing revenues.

We are very pleased with a high quality balance sheet portfolio. We have built that is also financed with the appropriate liability structures.

And Bob balance sheet loan book, 28% and 2020 to $5 5 billion on $2 4 billion and new originations. This significant growth will continue to increase our run rate of net interest income going forward and also a very robust pipeline, which we believe will allow us to continue to grow our loan book in 'twenty and 'twenty one.

We grew on an increase on earnings.

It is also very important to highlight that off and 90% of our book cash Senior bridge loans and more importantly, 80% of our portfolio is in multifamily assets, which has been the most resilient asset class and all cycles and continues to significantly outperform perform all other act classes.

On asset classes, and this recession as well and.

Reflecting on 'twenty and 'twenty, we had an exceptionally Europe and clearly outperformed our peer group.

We are the best performing REIT five years, neuro and delivering at 22% annualized return over that time period.

Our team was extremely well positioned for this dislocation.

And that occurred and as a result, we suffered no dilution with substantial loss and value from issue on the dilutive rescue capital or high yielding debt to navigate through this recession.

We also set up for continued success and 'twenty 'twenty, one to a versatile operating and flat platform that is multifamily centric with a strong.

Cash pipeline significant servicing income sizable sizable balance sheet portfolio single family rental platform and.

Investment and the residential mortgage business and it has.

Resolved we are optimistic that this year, we will enter a dividend elite club of 10 straight years of dividend growth.

I will now turn the call over to Paul to take you through the financial results.

Thank you Ivan.

Ivan mentioned and we had another exceptional quarter, producing distributable earnings of $67 million or <unk> 49 per share from the fourth quarter. We also had a record year with distributable earnings of $1 75 per share in 2000.

And 20 or 28% increase over our 2019 results and these results translated into record high our lease of approximately 21% for the fourth quarter and 19% for the full year of 2020, which reflects a 30% increase over our 2019 rovs.

We also continue to benefit from several.

Positive aspects of our diverse business model, including significant growth and our agency and balance sheet business platforms LIBOR floors on a large portion of our balance sheet loan book and substantial income from our residential banking joint venture and these benefits clearly demonstrate the value of our operating platform and the diversity of our income streams and more importantly, it gives.

Confidence and our ability to continue to generate strong earnings and dividends and the future.

As we mentioned earlier, we had another phenomenal quarter from our residential banking business and as a result of continued historical low interest rate environment, we recorded $20 million of income from this investment and the fourth quarter, which contributed approximately <unk> 12.

The square on a tax effected basis to our distributable earnings the income from this investment further emphasizes the diversity of our income streams and acts as a natural hedge against declining interest rates, specifically earnings on our escrow balances and why.

We believe this investment will continue to contribute meaningfully to our distributable earnings going forward, we are expecting.

Ts to see some normal normalization and volumes and margins and this business and 2021 or.

Our adjusted book value at December 31 was approximately $10.35.

Adding back roughly 63 million of noncash general Cecil reserves on a tax affected basis. This is up six 3% from approximately.

$9 74, since last quarter, largely due to the significant earnings we generated as well as our fourth quarter capital raise and as a reminder, we have very little exposure to the asset classes that have been affected the most by the recession, such as retail and hospitality. Our total exposure to these asset classes is approximately $200 million.

Approximately 4% of our portfolio. We also believe we have adequately reserved for these assets and do not feel at this point and any material further impairment will be necessary, which gives us confidence that our adjusted book value of $10.35 accurately reflects the current impact of the recession.

Looking at our results from our GSE.

The agency business, we originated $2 7 billion and loans and recorded $2 4 billion and loan sales and the fourth quarter and the margins on our fourth quarter GSE agency loan sales was 141% compared to $1 six 3% for the third quarter, mainly due to the change and the mix of our loan products during the quarter and from lower margins.

<unk> on our Fannie business due to a higher average loan size and the fourth quarter, we recorded $69 million of mortgage servicing rights income related to $2 8 billion of committed loans, representing an average MSR rate of around 2.45%, which was down from two seven and 7% rate for the third quarter again, mainly.

Due to larger loan sizes and the fourth quarter.

Our servicing portfolio grew 9% this quarter and 23% and 2020 to $24 6 billion at December 31, with a weighted average servicing fee of 45 four basis points and and estimated remaining life of nine years. This portfolio will continue.

And to generate a predictable annuity of income going forward of around 120.

And $12 million gross annually, which is up approximately $24 million or 27% on an annual basis from the same time last year. Additionally, prepayment fees related to certain loans that have yield maintenance provisions was $2 7 million for the fourth quarter.

Compared to around 2 million from the third quarter.

We also continue to see very positive trends related to our GSE agency business collections.

Which we believe reflects the strength of our borrowers and the quality of our GSE agency portfolio. We only have a handful of delinquent loans outstanding and extremely low forbearance numbers and our portfolio through January.

Loans in forbearance represent less than 5% of our $18 3 billion Fannie book and around five 5% of our $4 9 billion Freddie Freddie loan book, which is relatively unchanged. Since October as we have had very few new requests for forbearance and the last several months and as a result of.

Greenlee low forbearance numbers, we have no material unrecovered servicing advances outstanding either.

And our balance sheet lending operations, we grew our portfolio, 28% to $5 5 billion and 2020 on $2 4 billion and originations.

And $5 5 billion investment portfolio had an all in yield of five.

These extra 8% at December 31, compared to $5, 93% at September 30, mainly due to higher rates on runoff as compared to new originations during the quarter. The average balance and our core investments was up to $5 1 billion. This quarter from $5 billion last quarter, mainly due to the full effect of our third quarter growth.

The average yield on these investments was six 4% for the fourth quarter compared to $5 nine 8% for the third quarter, mainly due to more acceleration of fees from early runoff and the fourth quarter, which was partially offset by higher interest rates on runoff as compared to originations and the fourth quarter.

Total debt on our core assets was approximately $4 nine.

Five point and at December 31, when oil and debt cost of approximately three 3% compared to a debt cost of around 3.19% at September 30.

The average balance on our debt facilities was up slightly to approximately $4 64 billion for the fourth quarter from $4 $5 9 billion for the third quarter, mostly due to financing.

And I and build a growth and our portfolio and the average cost of funds and on debt facilities was relatively flat at three 5% for the fourth quarter and three 6% for the third quarter.

Overall net interest spreads on our core assets increased slightly to $2, 99% this quarter compared to 292% last.

And answering and our overall spot net interest spread was down to 277% at December 31, compared to $2, 84% at September 30th.

Lastly, the average leverage ratio on our core lending assets, including the trust preferreds and perpetual preferred stock as equity was flat at 86% and both the third and fourth quarter.

Quarter on overall debt to equity ratio on a spot basis was also flat at $3 <unk> to one at both December 31, and September 30th excluding general seasonal reserves that completes our prepared remarks from this morning, and I'll now turn it back to the operator to take any questions. You may have at this time.

And Tom if you do have a question from.

And on one on your telephone keypad and you can always were withdraw your question by pressing the pound key we do ask that you. Please pickup your handset to allow optimal sound quality. Thank you.

We'll take today's first question from Steve Delaney with JMP Securities. Please go ahead.

Thanks.

Morning, Ivan and Paul.

Paul Congrats on a on a strong close to a year that I think would have been hard for us to imagine when we were sitting here last March for sure.

You mentioned several times in your remarks, you talked about diversity, so with my questions I'm going to go there away from the the two main agency and structured businesses if I may.

A couple of days ago, we saw a Bloomberg article talking about up a transaction that starwood was comparable are contemplating about a 300 million dollar.

Loans institutional loan on 1600 single family.

Properties and it looked like it was just going to be a single Barton and we're trying.

With a single borrower C and B S execution.

And so that's in the market and I know single family Realty, a single family rental Ivan its something <unk> been talking about for and I think about a year now and if you could just give us an update your thoughts about that product and opportunity and kind of work.

You know where your operations.

And trying to Dan's as we sit here today. Thank you.

Sure, we have significantly ramped up and become the leader and.

Single family build to rent communities I believe we have.

Close to half a billion and on pipeline and.

And have an equal amount.

No underwriting and ready to close I would project that that volume will double and that is a great business for us we do the construction lending which turned into a break and then we do the ultimate securitization on those loans so each transaction.

And we get three turns on and I love that you were able.

<unk> stake.

And will it cost that you can build on multifamily.

With Covid and Youre seeing certainly and move towards less density and also what you are saying as well is that they are preferable option for people instead of buying a home if they don't have to dump and you'll if they think their trains and.

And don't.

Bill over to transaction close without being on option there great communities and working with a few developers that are really develop the skill set to be able to.

And bill those products and a very efficient way similar to what it costs from multifamily project and we love it and.

We're continuing to provide.

Wanted to go finance and for people, who are aggregating pools of single family rentals with the idea of ultimately doing on securitization.

Selling them off and pieces, depending on whether we think we can get to the securitization market and time on whether we want to just distribute those products.

So those are two avenues, we've invested and starting two.

And so they're starting to bear a lot of fruit right now and they're going to represent a significant amount of growth for the firm and.

We just love that business.

And there's the construction and bridge loans are they currently that are on the books. So they currently carried and the structured portfolio.

Yes.

Two years and I'll give you can answer that yes, hey, Steve So yes.

And as Ivan mentioned were.

And we're building a pretty strong build to rent business as well as the construction and to bridge, so when and if it's a bridge and the bridge product.

On the build to rent obviously funds over time, so you don't see a significant amount of that.

And the volume numbers, we present as the draws get done you do but the committed volume is something that's pretty significant but yes. It all ends up in the and the structured side of the business bucket for now and and.

And I happen to be cleared and and last part on this question Youre going to eventually youre going to go to a permanent loans.

But and.

You are in the process. So I guess, if some bridge loans mature getting to the point, where theyre stabilized and they're going to go into a permanent but you'd not to this point, we have not executed a securitization is that correct, but maybe that's a 2021 and they actually was they actually resemble very much multifamily loans summer.

Yellow zone, so I'm going on on top of them on the Labor program Oh, Okay. It doesn't need as whole and securitization and fits right and which is remarkable so it fits right into our business, while all in process and it.

It's just accretive to what we're doing okay.

Okay. Thank you for that clarity on.

The second piece is on the <unk> JV.

I mean, it's been a great year for that business, obviously seeing a lot of ipos in the index space could you just remind us on on Cardinal the channels that they are focused on whether it's direct or wholesale and you know the percentage of the business that is refi versus purchase and that there's a lot of.

Obviously concerned that revise will the refi side of the business will come down pretty materially not right away, but maybe by the end of 2021 banks.

First we've been extraordinarily cautious.

Cautious and the way we've been forecasting and the next year.

And are all of them for cash.

Quite a lot.

Every single quarter quarter by quarter by quarter, and that's been going on for quite some time with respect to the strategy. It's more of a retail strategy and not all energy, but we also diversifying and channels and Paul you can answer the financial related questions. Yeah. So it.

Cash, it's like you said, Steve its consumer direct and retail.

It has been and and probably continues to be for a period of time here are pretty big refi component as you know and I have the numbers in front of me, but it's it's it's really high percentage of the volume.

However, having said that the business is national across the country has.

It's and this retail presence is as you know homeownership is on the rise and so we do expect debt the refi business will slow down a bit and margins will compress a little bit, but we have a tremendous network and.

Tremendous infrastructure and a big focus on technology and believe that that business will do quite well on the home purchase side as well.

As a trim and right I mean, the ROA or so and saying right now they can it can it can go down by him and and revenue can go down quite a bit and still have incredible roe's. So thank you both from your comments.

Okay.

Well take our next question from Charlie arrest, a year with JP Morgan. Please go ahead.

Well Hey, good morning, guys. Thanks for taking the questions.

A bit of a follow up I guess to the first question in terms of the topic, but kind of looking at it through a different lens.

Given the focus on the New York area in particular.

It would be great to get your thoughts on on the competitive environment, there and and.

And I'm assuming.

Our family rentals as part of this but you know some of the unique challenges that New York City faces and in particular with regards to you know some.

Some of the demographic trends and and population shifts that are happening there.

Yeah first off we don't have a significant concentration and New York.

And what you're doing.

And that single Yorkers youre going through way.

A recalculation of of rental values as well as our sales values and you're seeing a lot of rentals, you're seeing a lot of sales and fact record numbers right now, but at a significantly reduced the sales price percentage as well as rental.

And at these new bases, we're quite quite bullish we like New York City, We think from September when the schools opened people go back to work you'll see.

And they can begin to return to normal you just have to underwrite appropriately for what the right rentals are and you have to take into consideration and potential for an increase.

And our real estate taxes.

So our portfolio is performing well, though we're optimistic that leasing will be done it'll be done and with some concessions and it will get done.

With reduce rental rates, so underwriting and appropriately getting right.

But as long as it's critical and giving the loans right amount of time to.

And hit those lease up numbers, but I think come September.

Look back and say Wow, we can return to normal fairly quickly and it'll.

And a new normal.

Yeah.

Okay got it thanks.

And.

Crush on one more I was wondering if you guys have ever disclosed.

Sort of a rough breakout of what percentage of your origination volumes, our two existing or previous arbor borrowers it feels like.

You know things are certainly improving more broadly, but the sector has really leaned on those preexisting relationships to.

And and volumes and.

I'm curious to get your thoughts on on on the mix of our previous borrowers versus new relationships.

Charlie and Paul we have not disclosed that in the past, but you know Ivan can certainly give some color. We obviously have tremendous relationships and do a significant amount of business with repeat borrowers but.

To drive certainly can give you some color on the market and and what's happening today and those areas.

Our business has built a repeat borrowers and keep in mind and the multifamily sector.

You know when you have a borrower and you often have a lot of limit as a cold cold bars, and you know you'll see a repeat.

And you know he's not just that particular G P. But on the limited who buy on the properties not uncommon for us to have 10 to 20 loans with a particular borrower and constantly we engage and with that particular bar, but that's that's the nature of our business and even when we do deal with mortgage brokers.

Good.

Our mortgage brokers and we're very loyal to us and us.

And repeat level of business from that and mortgage broker that's very consistent.

Thanks, very much guys I appreciate all the color.

Yeah.

Our next question is from Stephen laws with Raymond James. Please go ahead.

Gentlemen, good morning, Ivan and Paul.

You both touched on the strong volumes and and certainly last year closed with the you know the record volumes of $2 7 billion can you talk about year to date volume or expectations here that that.

And we should think about as we as we model out volumes for 'twenty one.

Sure.

Sure.

Yeah.

Yeah.

Alright, let me, let me start Steve and just giving you some color on how January closed out and then Ivan and I'll talk a little bit about globally, how how we view things for the rest of the year. So in January and we did about 500 million of agency loans I think if you go back and look at.

Our production in the past year and the second quarter, We did 1 billion four and the third quarter. We did it did 1 billion five and obviously and the fourth quarter and we put up amongst a number of $2 7 billion and.

So on a run rate right now, we're probably tracking to a 1 billion 4 billion five for the first quarter and possibly for the second quarter Ivan will give some color on where he.

He thinks the agency business goes from there on the balance sheet side. We've also been very active we've had a large balance sheet pipeline as well and I think in January and we did about $400 million to $450 million volume and we had about 50 million of run off. So we've had about 400 million and net growth and January two our book don't know what pace.

That happens it'll all depend on what ran off we see going forward and that's that's always a challenge, but our pipeline is very very strong and we're very confident we're going be able to grow this book pretty substantially in 2021 as well.

Yeah.

Yeah, we're off to a good start we have a great pipeline our oh.

Bridge pipeline and our balance sheet pipeline is extraordinarily strong where many people were very negatively impacted during the pandemic.

It didn't have the right liability structures didn't have the right banking relationships and we didn't Miss a beat and so we've gained market share we've gained a lot of momentum.

On the securitization market.

Mark what we believe is going to be extremely attractive going forward.

And I think that will continue.

Simple able on the lines, if not greater than what we did last year. So we'll see good growth and the balance sheet portfolio and hopefully a consistent level of building our pipeline and continue and at the levels that we closed in January if things remain.

I watched it.

Great. Thanks, Thank you both for the color on that.

Switching to other or the financing side and Paul can you talk about the recent CLO. The you know market reception and plans for future issuance and and how we should think about that this year.

Sure So as you know.

Let me let me let me let me Paul let me cover that a little bit I'm sure. Because you know, we really can't talk about going forward of what we're doing and and parents, what we do but the securitization market has tightened dramatically from where it was 30 days ago 60 days and 90 goes and tastes and why we think it has had and.

It is tight.

And almost as tight as it was pre COVID-19.

And you know we have probably the greatest brand and the CLO market.

We have a good collateral position on all lines and we've always maintained a very good percentage and mix of CLO debt to total debt. So we think that market is.

Titleist perfect, we got very aggressive to load up on balance sheet understanding that that market with tightened and we see.

Feel very optimistic about us being able to access that market.

Paul you want to add some color.

Exactly I was going to say it.

Steve and it's a big part of our strategy as you know we've been a serial.

As someone who has had a tremendous brand and reputation and as Ivan said, we are we manage and by looking at the market and seeing when we think it's it's appropriate to access that market and it's just part of our normal strategy and we continue to do that as we move forward and we'll see you know when and if we get there and and when it happens.

Sure.

Great I appreciate the comments this morning.

The next question is from Jade Rahmani with K B W. Please go ahead.

Thank you very much for taking the questions.

In terms of the structured finance business the on balance sheet business.

Two questions first what drove the almost $1 billion of originations, maybe you could give some color as to how many deals that and campus.

What percentage of repeat customers and how much for refinancings of existing deals.

And then secondly, how are you thinking about the ROE and that business given.

This compression that we're seeing and the stabilized asset types.

Yeah.

So with respect to refinancing of our own portfolio.

Small percentage, that's not something we've custom I really do and unless there's a accretive reason to us and to the borrower.

But that's not.

On a primary.

Primary aspect of our business, we're always pursued with a tremendous portion of it as a bridge to bridge, whether its how wrong or somebody else's.

With respect to the Roe's, we generally look for.

Around day anywhere between a 10 and a 14 with an average of a 12.

And what we originate to them, we actually think with where the securitization market is I think we can probably see a little bit of a lift and that relative to the volume that we've done and so on.

There's always like we would want on the last man standing most people were still looking at loans.

And they were very impaired by Covid.

Like you know being overleveraged and not being prepared and therefore really we're not in a position to originate new loans and allowed us to really step and particularly on the larger alongside a lot of a lot of firms without there being extraordinarily aggressive.

And they were originating a very tight spreads and without the right structure many of those.

Those firms got hurt kind of left a little bit of avoids flow gave us an opportunity to build some large loan positions with great trust from great pricing and <unk>.

Even though competition is returning to the market I think we've gained and you'll favor and new originations and those product with a good percentage of our product and repeat customers.

And just and just to add to that Oh items.

All of that is absolutely correct and from a from a number of transactions perspective, we did about 950 million of and a straight bridge loans, the rest where some of our S. F. Our business and on that 950, and we probably had 30 35 deals. So we did have some chunkier deals as Ivan.

You mentioned and their and as he said we are not a lot of that at all as a refinance some of it was but not that much and I love and returns are right and the area that Ivan was talking about.

And you said January our balance sheet production, and this 415 and $500 million.

We did we did about 450.

50, and January already and had about 50 million and run off so we had net growth.

In January of about $400 million that's correct.

It was a really strong and Jay I just wanted to.

And I.

With respect to our returns keep in mind that it's really exponential and away because our goal is to create and agency.

London, a loan out of that which gives us gain on sale and the wells.

Servicing revenue and so.

Now if we build on our balance sheet and fees, our agency business, which is part of our model and our franchise and city.

And that business can grow and grow the annuity on a long term basis. So there were times become exponential and movie.

And capture that business.

Right.

And what's the mix and multifamily and the bridge lending business, because I've always asked and commercial mortgage Reits why they don't have.

And exit strategy in terms of recapturing a once it goes out of transition and none of them have a good answer for that but it seems.

<unk> is unique.

Amongst that in terms of being able to refinance that flow.

Yeah, well, we are extraordinarily disciplined and our approach and I I mean, just off the cuff and Paul will correct me and I think 100% of on loans that we originated and the fourth quarter and so far on the first quarter were all multifamily.

Oh sure yeah, but generally it's almost an 80% to 90% is multifamily all multifamily loans that we originated on our bottom line.

On a on our balance sheet, our size with an agency takeout and that's our business model.

Yeah, and we and items right at 98% of the fourth quarter originations.

From multifamily of 100% and the first quarter origination so far where multifamily. So those percentages are always extremely high for us.

And we obviously get to take out if we can on the agency side as well.

In terms of the sustainability of the GSE volumes.

And.

Is there and refinance component that.

And you think it's likely to abate and coming quarters, if interest rates normalize and I know that their interest rate their I'm sorry their lending caps.

And where we're basically increased but seemed flat with what they did and 'twenty and 'twenty, so I'm not expecting their overall volumes to increase.

And a little worried about what happens if rates pick up from here. So.

And you think about the sustainability of the GSE business.

So I think it's important to note.

And then other asset classes and more.

Accordingly different on the single family business as the most multifamily.

On the loans.

And our originators are done on five seven and 10 year terms and many of them have done, especially the value add on you know one on for you at times. So there's a continued flow and pipeline of loans that have to be refinanced just based on historical maturities it's not.

It is those single family loans, which have a 30 year maturity on.

Interest rate driven or driven by home purchases. So that is a significant amount of business. We expect that the agencies out there $70 million to $80 million level, which is similar to where it was last year.

They will fill up we will have on market share and that'll be escrow.

So on market.

There are certain times when interest rates dip and all of them.

Like they did when they went down and 75 basis points on the 10 year that people get extraordinarily aggressive and they've moved very quickly and there's a bit of a jump.

And then there are times like now where rates jump up from 75 to 130 and people take a pause and they have to.

And they are.

125 basis points on a on on the 10 year with low threes is your interest rate.

Still at historical lows and anything that was originated over the last 10 years most of that will qualify for and accretive refinance the bars. So we're quite.

And quite optimistic I think the real question comes on the purchase side is there enough inventory out there on their transactions are going to grow is the purchase market going to be in 'twenty and 'twenty, one where it was in 2019, but it should be a robust big market on the multifamily side and we.

We should be able to maintain and get out there.

Thank you and just last question on the credit side are.

Looking at the agency business.

I think you've said forbearance is and the Fannie Mae dusk portfolio, where 0.5% and and the Freddie Mac portfolio of five 2%. So a tenfold difference between Freddie and Fannie and I've asked.

Other folks like Walker and Dunlop.

And on and.

And the reasons why and that is somewhat standard relates to the average smaller loan size and the Freddie Mac portfolio, possibly and relates to the risk sharing and nature of dust.

And our strategy so.

What do you think the reason is for the higher forbearance and Freddie Mac and secondarily how are.

Are you worried at all about migration and that 5% forbearance into a future delinquencies.

So first our forbearance specific on the small balance have outperformed the rest of the rest of the group.

And Freddie Mac's forbearance.

And so it's a high and Fannie maes or policies a little bit different.

With respect to any potential losses that come from these are we're not concerned at all and we think the properties are well on the money.

Income September things will return to normal and we're fairly comfortable that we're in a good position on.

As loans and I think there was a level of dislocation bar supply from forbearance properties and returning to normal but keep in mind and Theres a lot of cap rate compression right now on the multifamily side. So even if you have a little softening on rents and a little rent decline and even little vacancy that's really offset by cap.

And compression. So we think the values are pretty stable and the demand for investors to buy and multifamily is really outrageous.

Outrageous and we're very very comfortable with our portfolio.

Thank you.

Yeah.

Our next question is from Lee Cooperman with Omega.

Amiga family Office. Please go ahead.

And let me just first to congratulate you and your team I have and you guys have done a terrific job for the shareholders and you stand out and a class by itself and I think you deserve a shout out and I'll give you that.

Now, let me move on to more relevant and stuff.

Let's talk a little bit about capital adequacy.

And your cost of equity versus your return on equity on several times and the call and you've said this in the past and you've proven to be 100% right. You felt your stock was substantially undervalued, yet you've been willing to sell stock to finance your growth.

The answers yourself something cheap because you think you can reinvest the money and even more attractive terms. So.

Maybe you could spend a little time talking about.

Your return on every dollar you raised what kind of return can you generate on that dollar incrementally and.

And and any thoughts on that would be very interesting to me.

So you know we're raising capital.

And so you'll find on graph so and then.

This particular business, we have to evaluate whether we're gonna have run off and on balance sheet portfolio and what we can add to it and whether we can add to little creatively and.

And if we can increase on our on our.

Balance sheet portfolio and get a return.

North of 12 and as.

As much as 15, sometimes.

And well evaluate whether it's worth raising capital to fund that growth, if there's growth and on balance sheet and it's really just a mathematical analysis that Paul performs and he makes it to say and what we should price our loans and how accretive it is and whether it's worthwhile, bringing in and growing the balance sheet and accretive returns.

And so it's a mathematical analysis, Paul do you want to comment on that sure that's right and highly and yeah. So.

We have a pretty robust pipeline and the only question is where does runoff go and if runoff is stronger than we have those dollars to fund the growth. If it's not then we assess whether we want to do loans that those yields and.

Capital at these prices or whatever prices, we are and historically as you know Lee we have done as you said a great job of being real good stewards of capital with high insider ownership. So its and analysis, we do and if we think we can raise capital at accretive prices to fund loans that generate let's say a 13 to 14 Roe.

<unk> cash or 12 to 15, as Ivan said and that's and analysis, we do and look at it and say if it's accretive and we go forward and that's exactly how the analysis works and we do think that we can raise capital to fund growth that would be 13% to 15% and on ROA.

So when you so shares just because you think you can reinvest the money.

And would be accretive even though the stock is undervalued and your view.

Okay.

Well.

And it all depends on whether or not the accretive and will help our growth and she funds on our balance sheet and have a longer term growth that's true.

Clearly extends and your balance sheet. Your book value was 10 35, you're stuck.

On either everything over 16, so its extent yourselves stock well in excess of book value, which you've not been able to do and the past and its accretive but on the other hand, and you're selling something that you think is worth more than you're selling it.

And it only makes sense. If you can basically investing money at a return that enhances the overall picture of the company, which you've been able to do.

And so you're saying you can invest at 12 to 15 ROE is that after the leverage you employ.

Yes, yes, yes, and yes, so as I mentioned earlier.

Keep in mind that that 12 to 15, and there's really greater than that when we capture and loans and it's more like a 30% to 40% return. So if we can.

Our recapture of 60% to 70% of what were originating right and create long term annuity growth and it's the best capital raise we can do and that goes into our analysis as well.

And that's where I was going next we're having is on the and loan we're capturing a lot of debt bridge business Lee into Fannie Mae and agency and loans.

Loans, which not only gives us gain on sale, but it gives US 910 years of servicing that's prepayment protected and locked out at a higher multiple so that is all factored into the equation as well.

And I want to congratulate you guys and negotiate and really traversing and environment very difficult environment and extraordinarily well congratulations.

Thank you Li that's a lovely.

<unk>.

We'll go next to Matthew Howlett with Wolfe Research. Please go ahead.

Oh, Hey, guys. Thanks for taking my question two questions if I may.

You've got great momentum on the agency EBIT. So just wanted confirmed there is obviously and mission driven.

We will now we're at 50% and the volume out to be with lenders at 80% of the median income I just wanted to.

Double check on the conformity of your volume versus debt those new caps, and then I think I read that Fannie and Coors increase and new GC on them the multifamily business.

Both of them clearly said that they're gonna have to start operating on the new Calabria is new.

New cap.

Capital requirement, which was higher than the prior one but that would have an impact on any gain on sale margins. That's the first part.

Well with respect to the mission driven.

If went up and number one mission driven business from the top tier.

And we've been very very mission, driven and we focus on.

And the workforce housing.

Which has been the space for and with a lot of emphasis on the small balance loans, which also fits our criteria. So we're one of their top clients and that space and that bodes well for us.

So we fit that criteria.

Got it and what was your second.

Second question.

It was on the did you see and they're both entities are going to start conforming to their new capital requirements and that we're unveiled and November whether or not that would pressure any margins going forward. If they do they do adjust a G Phillips and listen I I I I think what the agencies are going on.

There was a an originator or 70 or 80 billion on adjusted is up and down depending on what their volumes are and we're gonna get on market share and as you.

And Fred we have our own private label program, so to the extent the.

And he has he has widened a little bit we'll do more volume on a private label.

And well program, which will well position for so I think regardless of the environment, we have the tools to be very effective.

Got it and.

And second question on just a follow on on Lee's question.

And I look at your capital structure, and particularly on your preferreds and some of the unsecured debt and they come and do it.

And a lot higher costs, and where you could issue today and I'm, assuming as you grow it's going to even improve I meant and I'm looking at 8% coupons on preferreds and.

And you're probably at some point could issue at 6% and and the unsecured debt is a little bit higher choose from stuff. That's due what can you tell me about what you can do with the balance sheet on on those sides of the balance sheet.

Can you call on the preferred callable and I know you have to make make whole premiums on the unsecured stuff, but what could you do to lower the cost of your debt capital and your preferred equity capital and maybe issue on those channels as opposed to Shirley.

Sure. So let me handle the preferred side, you're you're 100% right Matt It is callable the.

Preferred it had a call protection that call protection has expired and it's only $90 million, but it is callable is trading at a coupon above eight.

I've been looking at the market, it's possible to to introduce a new instrument like that and maybe and the sixes, maybe maybe even better as things starting to tighten and.

And there's another area as well right because there is an arb here right now our dividend yield is still higher than we want it to be and we think we're undervalued and if we were able to get a premium value at some point Theres also an arb on taking that out with equity if the dividend yield is inside of that but right. Now. We're just we're looking at that it's very small.

We'll continue to manage that it won't have a massive impact on our cost of funds, but it is something we are watching the other areas. As you said the senior unsecured notes and kind of all locked out and we've got tremendous rates on that piece of paper those pieces of paper. So we're in a good spot right now on that and as Ivan mentioned.

As we continue to March.

<unk> forward, we will see.

And how successful we are and the future as we have been and accessing the securitization market, which continues to drive down our cost of funds. Those are the things. We look at we continue to work with our banking lines and making sure. We continue to get the tightest spreads and the tightest pricing and we've made significant improvements there as well.

And just part of our culture and that's just part of how we run our business.

That's great and I brought because you're just getting back to the preferred and I know, it's a small issue, but do you think you could do on the gross of the company no debt.

Go to the balance sheet could take you could improve the.

And that you couldn't kristian, maybe 100 and $200 million and size and do a 6% sales it seems it would be <unk>.

Okay.

And Thats accretive to your investment business, just curious on how high you can take it.

Yeah, I'd have to look at it and I've looked at it a while ago and it was and the high <unk> as Dan and I think it's tightened since then and I'd have to look at how much we can add.

But again, the preferred isn't isn't com and its preferred but it's a good instrument and youre going to add call protection.

When you do it so you have to balance the new call protection with the rate and I think youre right. I think we can be well inside this number and it's something we're going to look at.

I really appreciate it thanks.

And so appear we have no further questions on return on the Florida, Ivan Kaufman for any closing comments.

And two it okay, well thanks, everybody for your participation and more importantly for your support drilling a very very difficult and we had a record year in 2020.

Great fourth quarter actually a record fourth quarter.

We're off to a great start in 'twenty and 'twenty, one and my goal is to add to that the dividend elite club and have 10 straight years.

On dividend growth and I feel very optimistic about our village will achieve that.

From a great day, everybody and a great weekend and they will stay.

Stay safe everyone.

Okay.

This will conclude today's program. Thank you for your participation you may now disconnect.

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