Arbor Realty Trust (ABR) Q2 FY26 earnings call: guidance and Q&A

With the stock trading at a significant discount to book value despite buybacks, would the company consider strategic alternatives like going private?

Management stated their job is to maximize shareholder value and that strategic alternatives are considered to achieve this.

“Listen, our job is always to maximize shareholder value. There's a lot of paths to be able to do that. And clearly, that is more to do alternatives we consider in terms of maximizing shareholder value.”

asked by Christopher Muller · answered by Ivan Kaufman

Given the previous target of $250M-$300M REO by year-end and current foreclosure rates, are foreclosures expected to slow, or REO sales accelerate?

Management is working on accelerating REO sales, which are impacted by interest rate volatility. They are also aggressive with borrowers, converting nonperforming loans to REO, which can cause volatility. The goal is to dispose of REOs quickly, marking them to market. Paul clarified that $40M of the $120M new REO were strategic flips, not held assets.

“I think we're working on all cylinders. We are definitely looking to accelerate our sale of REO assets. And that does get impacted as is volatility with interest rates.”

asked by Christopher Muller · answered by Ivan Kaufman

How quickly does the REO sales market react to changes in interest rates, specifically if rates decline in H2 FY26?

Liquidity returns very quickly when rates decline, leading to a dramatic acceleration in dispositions of delinquencies and REO. Conversely, rising rates create negative sentiment and make sales harder.

“I mean liquidity returns very, very quickly and the sentiment changes when rates go up, you get a negative sentiment and it gets hard to move them when rates come down, it becomes very positive, and it's very dramatic.”

asked by Christopher Muller · answered by Ivan Kaufman

What types of buyers are acquiring REO assets, and what percentage of seller financing is provided for these sales?

Preferred buyers are existing borrower base with market expertise, often leading to consensual, simultaneous transactions to avoid friction costs. Seller financing is generally provided (75%-85% loan to capitalization) to ensure certainty of execution, as time can be detrimental to asset value. Cash offers are also accepted.

“Generally, what we like to do is to go to our existing borrower base who have knowledge and expertise in these markets that we have experience with. That's usually our first look.”

asked by Richard Shane · answered by Ivan Kaufman

Can management discuss the fluctuation in agency gain on sale margins and provide an outlook for quarter-to-date and future periods?

Margins are affected by a shift towards larger loans and higher-quality assets, driven by agency directives. Larger transactions have lower fees and margins but also lower labor and commission costs. The 1.33% margin seen in Q2 is likely indicative of future quarters, possibly a "tad lower or higher," as the company upscales its borrower and asset class profile for better risk-adjusted returns.

“I would say the margins are probably in the range that you saw this quarter going forward, maybe a tad lower in some quarters, maybe a tad higher. But I would say the 186 margins are not here for the next few quarters as when I look at our forward pipeline, we have -- as Ivan said, we have a lot of larger deals.”

asked by Richard Shane · answered by Paul Elenio

Will balance sheet loans also become larger to match the agency side, and what will be the new normal loan size?

Yes, the balance sheet side will match the agency execution with larger loans. The bridge lending market is highly competitive on spread, proceeds, and structure. The minimum loan size is probably $25 million, with an average of $50 million-plus expected.

“There's no question about it that the balance sheet side has to match the agency the execution. That's correct.”

asked by Richard Shane · answered by Ivan Kaufman

What drove the increase in GSE risk sharing, and have there been any material loan repurchase requests from the GSEs?

There has been an increase in delinquencies in the Fannie Mae world (3.3% of the book), which is expected at the bottom of the cycle. The company has $82 million in reserves for this, including $51 million specific reserves. Only one immaterial $4 million asset repurchase request has been received, with no expected loss.

“So we have seen, and I think all lenders have seen in the [ Fannie ] world, an increase in the delinquencies and the loss share needed to handle those delinquencies. I think delinquencies on the agency side and the [ Fannie ] side are about 3.3% of our book.”

asked by Jade Rahmani · answered by Paul Elenio

What is the outlook for net interest income and its trajectory, considering current factors?

Aggressive resolution of delinquencies and the legacy book will pressure short-term earnings, with distributable earnings expected to be in the $0.15-$0.17 range for the next 2-3 quarters. This is offset by significant expense reductions and accretive stock buybacks. Growth in run-rate income is expected in 2027 as delinquent assets convert to performing loans. Net income might see some losses due to increased reserves.

“I think we're expecting distributable earnings to be in this range, probably in the 15 to 17 range over the next 2 or 3 quarters until we get a lot of this behind us. And then like I said in my commentary, we expect that we'll start to see some movement up in 2027 as we make more meaningful progress.”

asked by Crispin Love · answered by Paul Elenio