Arbor Realty Trust Inc.
10/30/2026 | Press release | Distributed by Public on 10/30/2026 07:01
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the unaudited consolidated interim financial statements, and related notes and the section entitled "Forward-Looking Statements" included herein.
Overview
Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, SFR and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred equity. We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.
Through our Agency Business, we originate, sell and service a range of multifamily finance products through Fannie Mae and Freddie Mac, Ginnie Mae, FHA and HUD. We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the GSE and HUD programs. We are an approved Fannie Mae DUS lender, seller/servicer nationally, a Freddie Mac Optigo® Conventional Loan and SBL lender, seller/servicer nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally. We also originate and retain the servicing rights on permanent financing loans that are generally underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as "Private Label" loans, and originate and sell finance products through CMBS programs. We either sell the Private Label loans instantaneously or pool and securitize them and sell certificates in the securitizations to third-party investors, while retaining the highest risk bottom tranche certificate of the securitization.
We conduct our operations to qualify as a REIT. A REIT is generally not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders; provided that at least 90% of its taxable income is distributed and provided that certain other requirements are met.
Our operating performance is primarily driven by the following factors:
Net interest income earned on our investments. Net interest income represents the amount by which the interest income earned on our assets exceeds the interest expense incurred on our borrowings. If the yield on our assets increases or the cost of borrowings decreases, this will have a positive impact on earnings. However, if the yield earned on our assets decreases or the cost of borrowings increases, this will have a negative impact on earnings. Net interest income is also directly impacted by the size and performance of our asset portfolio. We recognize the bulk of our net interest income from our Structured Business. Additionally, we recognize net interest income from loans originated through our Agency Business, which are generally sold within 60 days of origination.
Fees and other revenues recognized from originating, selling and servicing mortgage loans through the GSE and HUD programs. Revenue recognized from the origination and sale of mortgage loans consists of gains on sale of loans (net of any direct loan origination costs incurred), commitment fees, broker fees, loan assumption fees and loan origination fees. These gains and fees are collectively referred to as gain on sales, including fee-based services, net. We record income from MSRs at the time of commitment to the borrower, which represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate, with the recognition of a corresponding asset upon sale. We also record servicing revenue which consists of fees received for servicing mortgage loans, net of amortization on the MSR assets recorded. Although we have long-established relationships with the GSE and HUD agencies, our operating performance would be negatively impacted if our business relationships with these agencies deteriorate. Additionally, we also recognize revenue from originating, selling and servicing our Private Label loans.
One of our core business strategies is to generate additional agency lending opportunities by refinancing our multifamily balance sheet bridge loan portfolio when it is practical and appropriate to do so. We execute this strategy by underwriting the multifamily bridge loans we originate to a potential future agency financing. We then continue to work with our borrowers on this execution through the life cycle of the multifamily bridge loan. When effective, this strategy allows us to recapture refinancing opportunities, deleverage our balance sheet, and generate additional income streams through our capital-light Agency Business.
Income earned from other structured investments. Our other structured investments are primarily comprised of investments in equity affiliates, which represent unconsolidated joint venture investments formed to acquire, develop and/or sell real estate-related assets. Operating results from these investments can be difficult to predict and can vary significantly period-to-period. We also periodically receive distributions from our equity investments. It is difficult to forecast the timing of such payments, which can be substantial in any given quarter. We account for structured transactions within our Structured Business.
Credit quality of our loans and investments, including our servicing portfolio. Effective portfolio management is essential to maximize the performance and value of our loan and investment and servicing portfolios. Maintaining the credit quality of the loans in our portfolios is of critical importance. Loans that do not perform in accordance with their terms may have a negative impact on earnings and liquidity.
Significant Developments During the Third Quarter of 2026
Financing and Capital Markets Activity
•Closed a collateralized securitization vehicle (CLO 22) totaling $825.0 million, of which $730.1 million consisted of investment grade notes and $112.4 million of subordinate interests, including $17.5 million of the investment grade notes were retained by us; and
•Issued $375.0 million of 6.25% Convertible Notes due in 2029 and used the net proceeds to repurchase $114.3 million of our common stock, including $102.7 million through a prepaid forward transaction, and used the remaining proceeds, together with cash on hand, to redeem our outstanding $270.0 million 4.50% senior unsecured notes.
Structured Business Activity
•Balance sheet portfolio of $12.00 billion; loan runoff totaling $574.0 million outpaced loan originations of $459.2 million;
•We modified 6 loans with a total UPB of $192.1 million; and
•We sold five existing REO properties for $40.2 million and recognized an aggregate gain of $1.6 million and foreclosed on and took back the underlying collateral on one loan with a net carrying value of $13.0 million.
Agency Business Activity. Servicing portfolio of $36.80 billion (up $99.0 million) with loan originations totaling $907.0 million.
Suspension of Common Stock Dividend. In October 2026, our Board of Directors elected to suspend the quarterly common stock dividend effective immediately as part of our strategy to preserve capital and maintain financial flexibility to address upcoming debt maturities and support the resolution of legacy assets.
Current Market Conditions, Risks and Recent Trends
Interest rates remain elevated and continue to present significant challenges to the commercial real estate market. In September 2026, the Federal Reserve increased the federal funds rate by 25 basis points, bringing the target range for the federal funds rate to 3.75% to 4.00%. Market expectations suggest the possibility of additional rate increases during the remainder of 2026, although the timing and direction of future monetary policy actions remain uncertain. Despite relatively limited changes in short-term benchmark rates during 2026, longer-term treasury yields have increased significantly, resulting in higher borrowing costs, increased required investment returns, downward pressure on commercial real estate valuations and reduced transaction activity, particularly in the multifamily sector. These conditions have also extended the time required to resolve certain delinquent loans and REO assets. Current market expectations remain uncertain and have shifted during 2026, with the timing and direction of any additional monetary policy actions dependent on inflation, labor market conditions, economic growth and financial market conditions. Although short-term rates have declined from their peaks, the rate environment remains elevated, has persisted longer than anticipated and could persist even longer if inflation and other key economic indicators do not align with the Federal Reserve's expectations. Additionally, long-term rates remain volatile following the current administration's adoption of increased tariffs, related litigation, geopolitical developments, including the conflict involving Iran and related energy market volatility, and broader macroeconomic uncertainty. Expectations for long-term rates in 2026 remain mixed, reflecting uncertainty around long-term inflation, fiscal policy, increased federal spending and larger deficits, including the effects of the July 2025 enactment of the OBBBA, as described below. Accordingly, it remains difficult to predict where short- and long-term rates will settle during the remainder of 2026.
This prolonged rate environment, which has seen a recent significant increase, has resulted in, and may continue to result in, higher payment delinquencies and defaults, more loan modifications and foreclosures and declines in real estate values in certain asset classes, which have adversely affected, and may continue to adversely affect, our results of operations, financial condition, business prospects, liquidity and ability to make distributions to stockholders. These conditions have also made it more difficult to resolve delinquent loans, contributing to additional foreclosures and REO assets on our balance sheet. When we take title to assets through foreclosure, we generally seek to dispose of these assets through third-party sales. However, depending on market conditions and asset-specific factors, we may evaluate other alternatives, such as recapitalizations and joint venture structures, intended to optimize recoveries and reduce our REO exposure. These efforts may include enhanced property management, capital improvements and deferred maintenance, re-leasing vacant space, renewing or restructuring leases and other stabilization initiatives designed to improve occupancy, cash flow and marketability. Higher financing costs and lower property valuations have further constrained refinancing and disposition alternatives, extending the resolution of certain legacy loans and REO assets and contributing to increased specific credit loss reserves and REO impairments. These conditions could continue to delay recoveries and result in additional reserves or impairments. The continued challenging market environment and extended timeframe for resolving certain legacy assets have also increased our focus on preserving capital and maintaining adequate liquidity. Accordingly, we have taken additional measures to strengthen our liquidity position, including the suspension of our quarterly common stock dividend.
We continue to apply disciplined underwriting and risk management practices and work closely with borrowers to protect portfolio quality and mitigate potential losses, including, where appropriate, modifying loan terms. However, given the current interest rate environment and inflationary pressures, we cannot assure that our loan portfolio will continue to perform in accordance with current contractual terms. Additionally, we have experienced occupancy pressures in certain markets at some underlying multifamily properties associated with
heightened immigration enforcement activity, which has adversely affected property cash flows and borrower payment performance. We continue to assess the extent and duration of these property specific effects.
An elevated rate environment generally benefits our net interest income because our structured loan portfolio exceeds our corresponding debt balances, the substantial majority of our loan portfolio is floating rate based on SOFR and a meaningful portion of our debt, including senior unsecured notes, is fixed rate. As a result, increases in interest income generally tend to outpace increases in interest expense, and earnings on our cash and escrow balances also benefit from higher rates. These benefits, however, have been increasingly offset by the adverse effects of a prolonged elevated rate environment, including higher delinquencies, more loan modifications and foreclosures, lower loan originations, reduced cash and escrow balances and pressure on certain commercial real estate values, which can result in higher reserves when collateral values are considered insufficient to fully repay loans. More recently, the increase in non-accruing loans and related reversals of previously accrued interest, together with additional borrowing costs associated with our financing activities, has adversely affected net interest income notwithstanding higher benchmark rates on performing floating rate loans. New delinquencies and the placement of loans on non-accrual status have reduced interest income and, in certain cases, resulted in the reversal of previously accrued interest. In addition, incremental borrowings and increased leverage used to support liquidity may increase interest expense, placing further pressure on net interest income until non-performing assets are resolved or returned to performing status.
The overall reductions in short-term interest rates have reduced, and are expected to continue to reduce, net interest income on our floating rate loan portfolio and earnings on our cash and escrow balances. In addition, if short-term interest rates decline, our interest income and earnings on cash and escrow balances could decline further, while the benefit to our interest expense may be limited to the extent our debt is fixed rate or does not reprice at the same pace. Conversely, if short-term or long-term rates continue to increase, or remain elevated for an extended period, borrower performance, collateral values, loan origination volumes, transaction activity and our ability to resolve delinquent loans could be further adversely affected. For additional information, see "Quantitative and Qualitative Disclosures about Market Risk" below.
Elevated and volatile interest rates, together with geopolitical uncertainty, including the conflict involving Iran, have also disrupted portions of the financial services, real estate and credit markets. These conditions have contributed to weaker performance in certain of our legacy assets, leading to increased defaults and delinquencies. If these conditions continue to affect our borrowers and their tenants, or if other risks described in our SEC filings materialize, our liquidity and capital resources could be further adversely affected. These continued challenging market conditions may also have an impact on the fair value of reporting units used in our annual goodwill assessment resulting in the possible recognition of a future goodwill impairment charge. Notwithstanding these conditions, we have continued to access capital through a variety of financing vehicles to support our operations and strengthen our business. In addition, while a majority of our cash is held at major financial institutions and balances frequently exceed insured limits, we mitigate this exposure by diversifying deposits across counterparties. Because these deposits are generally demand deposits maintained with institutions with reputable credit, we believe we bear minimal credit risk. Higher long-term borrowing rates have also reduced borrower refinancing alternatives and delayed certain Agency Business loan originations and closings, including transactions in our pipeline. These conditions have adversely affected transaction volumes and gain-on-sale opportunities and may continue to affect the timing and amount of related fee and mortgage servicing rights income.
We are a national originator with Fannie Mae and Freddie Mac, and the GSEs continue to be the most significant providers of capital to the multifamily market. FHFA set the 2026 Caps for Fannie Mae and Freddie Mac at $88 billion for each enterprise, or $176 billion in the aggregate, up from $73 billion for each enterprise in 2025. FHFA has stated that it will continue to monitor the market and may increase the 2026 Caps if warranted but will not reduce them if the market is smaller than initially projected. Loans supporting workforce housing, which preserve affordable rents in multifamily properties typically without public subsidies, will continue to be excluded from the 2026 Caps. In addition, at least 50% of multifamily volume must continue to support mission-driven affordable housing, with affordability levels ranging from 80% to 120% of area median income, depending on the market. Our GSE originations remain highly attractive executions because they generate significant gains on sale, non-cash gains related to MSRs and servicing revenues. At the same time, we cannot predict whether FHFA may impose stricter limitations on GSE multifamily production in the future.
On July 4, 2025, the OBBBA was enacted into law. The legislation includes significant changes to U.S. tax law and other policy areas that may affect our business and the broader commercial real estate finance markets. Based on our evaluation to date, we expect certain changes under the OBBBA, including changes affecting the application of Section 162(m), to increase our current tax expense and effective tax rate. In addition, a separate expansion of Section 162(m), enacted under prior law and scheduled to take effect in 2027, could further increase our annual effective tax rate and current tax expense, potentially materially. More broadly, elements of the OBBBA, including changes in federal spending, fiscal priorities and other policy provisions, may also influence capital markets, the interest rate environment and demand for commercial real estate finance. Because implementation of these tax and other provisions remains subject to further interpretation and guidance, the ultimate impact on our business, financial condition, results of operations and the real estate markets in general could differ from our current expectations.
Changes in Financial Condition
Assets - Comparison of balances at September 30, 2026 to December 31, 2025:
Our Structured loan and investment portfolio balance was $12.00 billion and $12.11 billion at September 30, 2026 and December 31, 2025, respectively. There was a slight decrease from December 31, 2025, which was primarily due to loans we foreclosed on and received ownership of the underlying collateral as REO assets and loan runoff exceeding loan originations by $59.0 million (see below for details).
The portfolio had a weighted average current interest pay rate of 6.54% and 6.49% at September 30, 2026 and December 31, 2025, respectively. Including certain fees earned and costs, the weighted average current interest rate was 6.97% and 7.08% at September 30, 2026 and December 31, 2025, respectively. Our debt that finances our Structured loan and investment portfolio totaled $10.75 billion and $10.46 billion at September 30, 2026 and December 31, 2025, respectively, with a weighted average funding cost of 6.40% and 6.16%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 6.69% and 6.45%, at September 30, 2026 and December 31, 2025, respectively.
Activity from our Structured Business portfolio is comprised of the following ($ in thousands):
| Three Months Ended September 30, 2026 | Nine Months Ended September 30, 2026 | |||||||||||||
| Loans originated | $ | 459,225 | $ | 1,915,794 | ||||||||||
| Number of loans | 12 | 32 | ||||||||||||
| Weighted average interest rate | 8.56 | % | 7.81 | % | ||||||||||
| Loan runoff | $ | 573,989 | $ | 1,974,767 | ||||||||||
| Number of loans | 17 | 65 | ||||||||||||
| Weighted average interest rate | 7.89 | % | 7.87 | % | ||||||||||
| Loans modified | $ | 192,142 | $ | 1,057,866 | ||||||||||
| Number of loans | 6 | 26 | ||||||||||||
| Loans extended | $ | 1,550,190 | $ | 3,927,731 | ||||||||||
| Number of loans | 55 | 171 | ||||||||||||
Loans held-for-sale from the Agency Business decreased $172.3 million, primarily from loan sales exceeding originations by $101.2 million as noted in the following table ($ in thousands):
| Three Months Ended September 30, 2026 | Nine Months Ended September 30, 2026 | ||||||||||||||||||||||
| Loan Originations | Loan Sales | Loan Originations | Loan Sales | ||||||||||||||||||||
| Fannie Mae | $ | 574,805 | $ | 625,440 | $ | 1,764,750 | $ | 1,937,747 | |||||||||||||||
| Freddie Mac | 185,679 | 294,503 | 705,212 | 707,437 | |||||||||||||||||||
| FHA | 129,456 | 41,170 | 183,046 | 109,067 | |||||||||||||||||||
| SFR - Fixed Rate | 17,039 | 17,039 | 38,311 | 38,311 | |||||||||||||||||||
| Total | $ | 906,979 | $ | 978,152 | $ | 2,691,319 | $ | 2,792,562 | |||||||||||||||
Investments in equity affiliates increased $14.1 million, primarily due to an investment in a multifamily property in the second quarter of 2026.
Real estate owned decreased $7.8 million, primarily due to the sale of eleven multifamily properties for $153.0 million and $60.2 million of impairment charges recorded in 2026, partially offset by the foreclosure of nine multifamily bridge loans totaling $184.6 million, through which we took back the underlying collateral, and $37.0 million of capital expenditures.
Other assets decreased $35.8 million, primarily due to the payoff of unsecured line of credit loans and a decrease in interest receivable mainly due to the collection of deferred interest on modified/delinquent loans.
Liabilities - Comparison of balances at September 30, 2026 to December 31, 2025:
Credit and repurchase facilities increased $27.2 million, primarily due to the transfer of loans into repurchase facilities from the unwind of CLO 17, partially offset by loans transferring into newly issued CLOs (CLO 21 and CLO 22).
Securitized debt increased $162.0 million, primarily due to the issuance of CLO 21 and CLO 22, partially offset by the unwind of CLO 17 and paydowns on our existing securitizations.
Senior unsecured notes decreased $439.6 million, primarily due to the redemptions of our $270.0 million 4.50% senior notes and our $175.0 million 5.00% senior notes.
In July 2026, we issued $375.0 million of our 6.25% Convertible Notes.
Notes payable - real estate owned increased $32.0 million, primarily due to the addition of notes payable on three new REO assets and additional financing received on two existing REO assets, partially offset by payoffs in connection with REO sales.
Allowance for loss sharing obligations increased $26.6 million, primarily due to specific and general CECL reserves taken in 2026 as a result of a softer outlook for commercial real estate during 2026.
Equity
See Note 16 for details of our stock transactions, dividends declared and deferred compensation transactions.
Agency Servicing Portfolio
The following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing revenue ($ in thousands):
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product | Portfolio UPB | Loan Count | Wtd. Avg. Age of Portfolio (years) | Wtd. Avg. Life of Portfolio (years) | Interest Rate Type | Wtd. Avg. Note Rate | Annualized Prepayments as a % of Portfolio (1) | Delinquencies as a % of Portfolio (2) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed | Adjustable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fannie Mae | $ | 24,545,520 | 2,635 | 4.5 | 5.0 | 97 | % | 3 | % | 4.72 | % | 2.74 | % | 4.09 | % | |||||||||||||||||||||||||||||||||||||||||
| Freddie Mac | 7,664,059 | 1,030 | 3.4 | 5.5 | 91 | % | 9 | % | 5.02 | % | 4.00 | % | 3.53 | % | ||||||||||||||||||||||||||||||||||||||||||
| Private Label | 2,461,505 | 152 | 5.1 | 3.8 | 100 | % | - | 4.18 | % | - | 4.13 | % | ||||||||||||||||||||||||||||||||||||||||||||
| FHA | 1,641,273 | 113 | 4.7 | 18.9 | 100 | % | - | 4.02 | % | 0.30 | % | - | ||||||||||||||||||||||||||||||||||||||||||||
| SFR - Fixed Rate | 255,087 | 45 | 3.3 | 3.9 | 100 | % | - | 5.93 | % | 1.88 | % | 1.76 | % | |||||||||||||||||||||||||||||||||||||||||||
| Bridge | 235,888 | 2 | 3.5 | 1.7 | 100 | % | - | 6.21 | % | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 36,803,332 | 3,977 | 4.3 | 5.6 | 96 | % | 4 | % | 4.74 | % | 2.69 | % | 3.75 | % | |||||||||||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fannie Mae | $ | 24,085,960 | 2,702 | 4.2 | 5.5 | 97 | % | 3 | % | 4.68 | % | 3.58 | % | 2.59 | % | |||||||||||||||||||||||||||||||||||||||||
| Freddie Mac | 7,455,088 | 1,109 | 3.1 | 5.9 | 90 | % | 10 | % | 4.98 | % | 3.63 | % | 3.96 | % | ||||||||||||||||||||||||||||||||||||||||||
| Private Label | 2,558,048 | 159 | 4.4 | 4.5 | 100 | % | - | 4.16 | % | 0.44 | % | 1.35 | % | |||||||||||||||||||||||||||||||||||||||||||
| FHA | 1,549,483 | 107 | 4.3 | 19.1 | 100 | % | - | 3.91 | % | 1.11 | % | - | ||||||||||||||||||||||||||||||||||||||||||||
| Bridge | 277,738 | 3 | 3.0 | 2.2 | 85 | % | 15 | % | 6.31 | % | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| SFR - Fixed Rate | 277,490 | 51 | 3.3 | 4.0 | 100 | % | - | 5.62 | % | 2.42 | % | 1.62 | % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 36,203,807 | 4,131 | 4.0 | 6.1 | 96 | % | 4 | % | 4.69 | % | 3.22 | % | 2.65 | % | |||||||||||||||||||||||||||||||||||||||||
(1)Prepayments reflect loans repaid prior to six months from the loan maturity. The majority of our loan servicing portfolio has a prepayment protection term and therefore, we may collect a prepayment fee which is included as a component of servicing revenue, net. See Note 5 for details.
(2)Delinquent loans reflect loans that are contractually 60 days or more past due. At September 30, 2026 and December 31, 2025, delinquent loans totaled $1.38 billion and $959.0 million, respectively. At September 30, 2026, there were three loans totaling $21.1 million in bankruptcy and forty-four loans totaling $475.4 million were foreclosed. At December 31, 2025, there were five loans totaling $56.0 million in bankruptcy and nineteen loans totaling $176.5 million were foreclosed.
Our Agency Business servicing portfolio represents commercial real estate loans, which are generally transferred or sold within 60 days from the date the loan is funded. Primarily all loans in our servicing portfolio are collateralized by multifamily properties. In addition, we are generally required to share in the risk of any losses associated with loans sold under the Fannie Mae DUS program, see Note 11.
Comparison of Results of Operations for the Three Months Ended September 30, 2026 and 2025
The following table provides our consolidated operating results ($ in thousands):
| Three Months Ended September 30, | Increase / (Decrease) | |||||||||||||||||||||||||
| 2026 | 2025 | Amount | Percent | |||||||||||||||||||||||
| Interest income | $ | 221,921 | $ | 223,001 | $ | (1,080) | 0 | % | ||||||||||||||||||
| Interest expense | 184,249 | 184,735 | (486) | 0 | % | |||||||||||||||||||||
| Net interest income | 37,672 | 38,266 | (594) | (2) | % | |||||||||||||||||||||
| Other revenue: | ||||||||||||||||||||||||||
| Gain on sales, including fee-based services, net | 10,925 | 23,340 | (12,415) | (53) | % | |||||||||||||||||||||
| Mortgage servicing rights | 11,078 | 15,538 | (4,460) | (29) | % | |||||||||||||||||||||
| Servicing revenue, net | 25,741 | 29,652 | (3,911) | (13) | % | |||||||||||||||||||||
| Property operating income | 7,873 | 4,189 | 3,684 | 88 | % | |||||||||||||||||||||
| Gain (loss) on derivative instruments, net | 279 | (2,206) | 2,485 | nm | ||||||||||||||||||||||
| Other income, net | 525 | 3,650 | (3,125) | (86) | % | |||||||||||||||||||||
| Total other revenue | 56,421 | 74,163 | (17,742) | (24) | % | |||||||||||||||||||||
| Other expenses: | ||||||||||||||||||||||||||
| Employee compensation and benefits | 42,524 | 44,169 | (1,645) | (4) | % | |||||||||||||||||||||
| Selling and administrative | 15,384 | 13,698 | 1,686 | 12 | % | |||||||||||||||||||||
| Property operating expenses | 11,804 | 7,296 | 4,508 | 62 | % | |||||||||||||||||||||
| Depreciation and amortization | 5,868 | 5,355 | 513 | 10 | % | |||||||||||||||||||||
| Impairment loss on real estate owned | 34,050 | - | 34,050 | nm | ||||||||||||||||||||||
| Provision for loss sharing, net | 12,625 | 8,256 | 4,369 | 53 | % | |||||||||||||||||||||
| Provision for credit losses, net | 55,506 | 19,694 | 35,812 | 182 | % | |||||||||||||||||||||
| Total other expenses | 177,761 | 98,468 | 79,293 | 81 | % | |||||||||||||||||||||
| (Loss) income before gain (loss) on real estate, (loss) income from equity affiliates and income taxes | (83,668) | 13,961 | (97,629) | nm | ||||||||||||||||||||||
| Gain (loss) on real estate | 1,574 | (555) | 2,129 | nm | ||||||||||||||||||||||
| (Loss) income from equity affiliates | (1,494) | 46,204 | (47,698) | nm | ||||||||||||||||||||||
| Benefit from (provision for) income taxes | 1,181 | (7,594) | 8,775 | nm | ||||||||||||||||||||||
| Net (loss) income | (82,407) | 52,016 | (134,423) | nm | ||||||||||||||||||||||
| Preferred stock dividends | 10,342 | 10,342 | - | - | ||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interest | (7,395) | 3,211 | (10,606) | nm | ||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (85,354) | $ | 38,463 | $ | (123,817) | nm | |||||||||||||||||||
________________________
nm - not meaningful
The following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and the corresponding weighted average yields ($ in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
|
Average Carrying Value (1) |
Interest Income / Expense |
W/A Yield / Financing Cost (2) |
Average Carrying Value (1) |
Interest Income / Expense |
W/A Yield / Financing Cost (2) |
||||||||||||||||||||||||||||||
| Structured Business interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Bridge loans | $ | 11,311,344 | $ | 189,798 | 6.66 | % | $ | 11,158,987 | $ | 190,070 | 6.76 | % | |||||||||||||||||||||||
| Mezzanine | 304,951 | 5,328 | 6.93 | % | 278,505 | 7,394 | 10.53 | % | |||||||||||||||||||||||||||
| Construction - Multifamily | 279,951 | 7,386 | 10.47 | % | 157,075 | 4,424 | 11.17 | % | |||||||||||||||||||||||||||
| Preferred equity investments | 218,478 | 6,205 | 11.27 | % | 164,095 | 4,199 | 10.15 | % | |||||||||||||||||||||||||||
| Other | - | - | - | 2,333 | 54 | 9.18 | % | ||||||||||||||||||||||||||||
| Core interest-earning assets | 12,114,724 | 208,717 | 6.84 | % | 11,760,995 | 206,141 | 6.95 | % | |||||||||||||||||||||||||||
| Cash equivalents | 202,221 | 1,991 | 3.91 | % | 242,727 | 2,113 | 3.45 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | $ | 12,316,945 | $ | 210,708 | 6.79 | % | $ | 12,003,722 | $ | 208,254 | 6.88 | % | |||||||||||||||||||||||
| Structured Business interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Credit and repurchase facilities | $ | 5,156,640 | $ | 88,013 | 6.77 | % | $ | 4,089,604 | $ | 76,735 | 7.44 | % | |||||||||||||||||||||||
| CLO | 3,346,637 | 50,802 | 6.02 | % | 3,889,945 | 65,412 | 6.67 | % | |||||||||||||||||||||||||||
| Unsecured debt | 2,041,794 | 38,168 | 7.42 | % | 1,798,397 | 30,413 | 6.71 | % | |||||||||||||||||||||||||||
| Trust preferred | 154,336 | 2,735 | 7.03 | % | 154,336 | 2,934 | 7.54 | % | |||||||||||||||||||||||||||
| Q Series securitization | - | - | - | 26,832 | 664 | 9.82 | % | ||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 10,699,407 | 179,718 | 6.66 | % | $ | 9,959,114 | 176,158 | 7.02 | % | |||||||||||||||||||||||||
| Net interest income | $ | 30,990 | $ | 32,096 | |||||||||||||||||||||||||||||||
________________________
(1)Based on UPB for loans, amortized cost for securities and principal amount of debt.
(2)Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.
Net Interest Income
The decrease in interest income was mainly due to a $3.5 million decrease in our Agency Business, partially offset by a $2.5 million increase from our Structured Business. The decrease in our Agency Business was primarily due to lower average loan balances resulting from reduced loan volume and lower interest earned on cash balances, partially offset by higher average yields. The increase in our Structured Business was primarily due to higher average loan balances, as loan originations exceeded runoff, partially offset by a decrease in average yields resulting mainly from an increase in non-performing loans and loan modifications.
The decrease in interest expense was mainly due to a $4.0 million decrease in our Agency Business, partially offset by a $3.6 million increase from our Structured Business. The decrease in our Agency Business was primarily due to lower average debt balances resulting from a decrease in our average loans held-for-sale. The increase in our Structured Business was primarily due to an increase in the average balance of our interest-bearing liabilities from an increase in the average loan portfolio and the issuance of convertible senior unsecured notes, partially offset by CLO debt paydowns and a reduction in the average cost of interest-bearing liabilities (mainly from a decrease in SOFR).
Agency Business Revenue
The decrease in gain on sales, including fee-based services, net was primarily due to a 52% decrease in loan sales volume ($1.05 billion) and by a 3% decrease in the sales margin from 1.15% to 1.12%. The decrease in the sales margin was mainly due to a decrease in the Fannie Mae sales margin, which includes the impact of larger portfolio deals in 2026 that produce lower margins.
The decrease in income from MSRs was primarily due to a 59% decrease in loan commitment volume ($1.18 billion), partially offset by a 73% increase in the MSR rate from 0.78% to 1.35%. The increase in the MSR rate was mainly due to a higher concentration of Fannie Mae loan commitment volume, which generate higher servicing fees.
The decrease in servicing revenue, net was primarily due to a decrease in earnings on escrow balances from lower average balances.
Other Income (Loss)
The increases in property operating income and expenses were due to the addition of several new REO assets.
The gain (loss) on derivative instruments in 2026 and 2025 were related to changes in the fair values of our forward sale commitments and swaps held by our Agency Business as a result of changes in market interest rates.
The decrease in other income, net was primarily due to increases in the fair value of our Private Label loans from our Agency Business recognized in 2025, as well as a decrease in loan modification fees.
Other Expenses
The decrease in employee compensation and benefits expense was primarily due to a decrease in commissions from lower GSE/Agency loan sales volume and lower compensation due to a reduction in overall headcount.
The increase in selling and administrative expenses was primarily due to increases in professional and legal fees related to elevated delinquent loan and foreclosure activity.
In 2026, we recorded a $34.1 million impairment loss related to certain REO assets that we acquired through foreclosure in prior periods, which represents the extent to which the carrying value exceeded its estimated fair value at the current period end.
The increase in the provision for loss sharing, net primarily reflects larger specific loan impairment reserves taken in 2026, in addition to a softer outlook for commercial real estate in 2026, compared to 2025.
The increase in the provision for credit losses, net primarily reflects larger specific loan impairment reserves taken in 2026, in addition to a softer outlook for commercial real estate in 2026, compared to 2025.
Gain (Loss) on Real Estate
The gain on real estate in 2026 represents an aggregate gain recognized on the sale of five REO properties; while in 2025, we sold an REO asset for $10.1 million and recognized a $0.6 million loss.
(Loss) Income from Equity Affiliates
Loss from equity affiliates in 2026 primarily reflects losses from several investments totaling $3.8 million, partially offset by income from other investments totaling $2.3 million, including $1.6 million related to a cash distribution received from our Lexford joint venture; while income from equity affiliates in 2025 primarily reflects $48.0 million of income recognized related to the cash distribution from Lexford.
Benefit from (Provision for) Income Taxes
In 2026, we recorded a tax benefit of $1.2 million, which consisted of a current tax provision of $1.0 million and a deferred tax benefit of $2.2 million. In 2025, we recorded a tax provision of $7.6 million, which consisted of a current tax provision of $9.4 million and a deferred tax benefit of $1.8 million.
Net (Loss) Income Attributable to Noncontrolling Interest
The noncontrolling interest relates to the outstanding OP Units (see Note 16). At September 30, 2026 and 2025, there were 16,165,771 and 16,173,761 OP Units outstanding, respectively, which represented 8.0% and 7.6%, respectively, of our outstanding stock.
Comparison of Results of Operations for the Nine Months Ended September 30, 2026 and 2025
The following table provides our consolidated operating results ($ in thousands):
| Nine Months Ended September 30, | Increase / (Decrease) | |||||||||||||||||||||||||
| 2026 | 2025 | Amount | Percent | |||||||||||||||||||||||
| Interest income | $ | 687,826 | $ | 703,997 | $ | (16,171) | (2) | % | ||||||||||||||||||
| Interest expense | 537,212 | 521,564 | 15,648 | 3 | % | |||||||||||||||||||||
| Net interest income | 150,614 | 182,433 | (31,819) | (17) | % | |||||||||||||||||||||
| Other revenue: | ||||||||||||||||||||||||||
| Gain on sales, including fee-based services, net | 38,607 | 49,779 | (11,172) | (22) | % | |||||||||||||||||||||
| Mortgage servicing rights | 32,849 | 34,598 | (1,749) | (5) | % | |||||||||||||||||||||
| Servicing revenue, net | 75,360 | 82,692 | (7,332) | (9) | % | |||||||||||||||||||||
| Property operating income | 24,246 | 14,028 | 10,218 | 73 | % | |||||||||||||||||||||
| Gain on derivative instruments, net | 827 | 1,413 | (586) | (41) | % | |||||||||||||||||||||
| Other income, net | 4,858 | 12,059 | (7,201) | (60) | % | |||||||||||||||||||||
| Total other revenue | 176,747 | 194,569 | (17,822) | (9) | % | |||||||||||||||||||||
| Other expenses: | ||||||||||||||||||||||||||
| Employee compensation and benefits | 135,304 | 131,386 | 3,918 | 3 | % | |||||||||||||||||||||
| Selling and administrative | 48,205 | 44,868 | 3,337 | 7 | % | |||||||||||||||||||||
| Property operating expenses | 36,438 | 17,572 | 18,866 | 107 | % | |||||||||||||||||||||
| Depreciation and amortization | 18,901 | 14,947 | 3,954 | 26 | % | |||||||||||||||||||||
| Impairment loss on real estate owned | 60,200 | - | 60,200 | nm | ||||||||||||||||||||||
| Provision for loss sharing, net | 30,634 | 14,258 | 16,376 | 115 | % | |||||||||||||||||||||
| Provision for credit losses, net | 99,485 | 47,773 | 51,712 | 108 | % | |||||||||||||||||||||
| Total other expenses | 429,167 | 270,804 | 158,363 | 58 | % | |||||||||||||||||||||
| (Loss) income before extinguishment of debt, loss on real estate, income from equity affiliates and income taxes | (101,806) | 106,198 | (208,004) | nm | ||||||||||||||||||||||
| Loss on extinguishment of debt | - | (2,319) | 2,319 | nm | ||||||||||||||||||||||
| Loss on real estate | (498) | (4,813) | 4,315 | (90) | % | |||||||||||||||||||||
| Income from equity affiliates | 4,810 | 47,224 | (42,414) | (90) | % | |||||||||||||||||||||
| Provision for income taxes | (4,054) | (14,583) | 10,529 | (72) | % | |||||||||||||||||||||
| Net (loss) income | (101,548) | 131,707 | (233,255) | nm | ||||||||||||||||||||||
| Preferred stock dividends | 31,027 | 31,027 | - | - | ||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interest | (10,507) | 7,828 | (18,335) | nm | ||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (122,068) | $ | 92,852 | $ | (214,920) | nm | |||||||||||||||||||
________________________
nm - not meaningful
The following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and the corresponding weighted average yields ($ in thousands):
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
|
Average Carrying Value (1) |
Interest Income / Expense |
W/A Yield / Financing Cost (2) |
Average Carrying Value (1) |
Interest Income / Expense |
W/A Yield / Financing Cost (2) |
||||||||||||||||||||||||||||||
| Structured Business interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Bridge loans | $ | 11,294,643 | $ | 592,014 | 7.01 | % | $ | 11,066,489 | $ | 625,717 | 7.56 | % | |||||||||||||||||||||||
| Mezzanine | 299,496 | 17,919 | 8.00 | % | 264,120 | 19,857 | 10.05 | % | |||||||||||||||||||||||||||
| Construction - Multifamily | 279,173 | 21,576 | 10.33 | % | 74,784 | 6,353 | 11.36 | % | |||||||||||||||||||||||||||
| Preferred equity investments | 207,631 | 17,208 | 11.08 | % | 154,385 | 11,524 | 9.98 | % | |||||||||||||||||||||||||||
| Other | - | - | - | 2,825 | 200 | 9.47 | % | ||||||||||||||||||||||||||||
| Core interest-earning assets | 12,080,943 | 648,717 | 7.18 | % | 11,562,603 | 663,651 | 7.67 | % | |||||||||||||||||||||||||||
| Cash equivalents | 211,819 | 5,596 | 3.53 | % | 181,203 | 4,669 | 3.44 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | $ | 12,292,762 | $ | 654,313 | 7.12 | % | $ | 11,743,806 | $ | 668,320 | 7.61 | % | |||||||||||||||||||||||
| Structured Business interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Credit and repurchase facilities | $ | 4,966,576 | $ | 251,573 | 6.77 | % | $ | 4,000,547 | $ | 224,533 | 7.50 | % | |||||||||||||||||||||||
| CLO | 3,404,798 | 153,844 | 6.04 | % | 3,822,730 | 187,685 | 6.56 | % | |||||||||||||||||||||||||||
| Unsecured debt | 2,007,490 | 109,132 | 7.27 | % | 1,622,106 | 80,321 | 6.62 | % | |||||||||||||||||||||||||||
| Trust preferred | 154,336 | 8,049 | 6.97 | % | 154,336 | 8,831 | 7.65 | % | |||||||||||||||||||||||||||
| Q Series securitization | - | - | - | 35,432 | 2,225 | 8.40 | % | ||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 10,533,200 | 522,598 | 6.63 | % | $ | 9,635,151 | 503,595 | 6.99 | % | |||||||||||||||||||||||||
| Net interest income | $ | 131,715 | $ | 164,725 | |||||||||||||||||||||||||||||||
________________________
(1)Based on UPB for loans, amortized cost for securities and principal amount of debt.
(2)Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.
Net Interest Income
The decrease in interest income was mainly due to a $14.0 million decrease in our Structured Business. The decline was primarily due to a decrease in the average yield on our core interest-earning assets, partially offset by an increase in the average balance of our core interest-earning assets (loan originations exceeded runoff) and, to a lesser extent, higher average bank balances. The decrease in the average yield was mainly from a decline in SOFR, the reversal of interest income on non-performing loans and loan modifications at lower rates.
The increase in interest expense was mainly due to a $19.0 million increase from our Structured Business, primarily due to an increase in the average balance of our interest-bearing liabilities from an increase in the average loan portfolio and the issuance of senior unsecured notes. This was partially offset by CLO debt paydowns and a reduction in the average cost of interest-bearing liabilities (mainly from a decrease in SOFR).
Agency Business Revenue
The decrease in gain on sales, including fee-based services, net was primarily due to a 22% decrease in loan sales volume ($772.1 million).
The decrease in income from MSRs was primarily due to a 21% decrease in loan commitment volume ($736.7 million), partially offset by a 20% increase in the MSR rate from 0.99% to 1.19%. The increase in the MSR rate was mainly due to a higher concentration of Fannie Mae loan commitment volume, which generate higher servicing fees.
The decrease in servicing revenue, net was primarily due to a decrease in earnings on escrow balances from lower average balances and a decrease in the applicable interest rate, partially offset by an increase in servicing fees due to growth in our servicing portfolio.
Other Income (Loss)
The increases in property operating income and expenses were due to the addition of several new REO assets, which also resulted in an increase in depreciation and amortization.
The gains on derivative instruments in 2026 and 2025 were related to changes in the fair values of our forward sale commitments and swaps held by our Agency Business as a result of changes in market interest rates.
The decrease in other income, net was primarily due to increases in the fair value of our Private Label loans from our Agency Business recognized in 2025, as well as a decrease in loan modification fees.
Other Expenses
The increase in employee compensation and benefits expense was primarily due to higher salaries and incentive compensation associated with executive-level hires and merit-based compensation increases for existing employees. These increases were partially offset by a decrease in commissions from lower GSE/Agency loan sales volume and a reduction in overall headcount at the end of the second quarter of 2026.
The increase in selling and administrative expenses was primarily due to increases in professional and legal fees related to elevated delinquent loan and foreclosure activity.
In 2026, we recorded a $60.2 million impairment loss related to certain REO assets that we acquired through foreclosure in prior periods, which represents the extent to which the carrying value exceeded its estimated fair value at the current period end.
The increase in the provision for loss sharing, net primarily reflects larger specific loan impairment reserves taken in 2026, in addition to a softer outlook for commercial real estate in 2026, compared to 2025.
The increase in the provision for credit losses, net primarily reflects larger specific loan impairment reserves taken in 2026, in addition to a softer outlook for commercial real estate in 2026, compared to 2025.
Loss on Extinguishment of Debt
The loss on extinguishment of debt in 2025 reflects deferred financing fees recognized in connection with the unwind of CLOs.
Loss on Real Estate
The loss on real estate in 2026 primarily reflects net losses recognized on the sales of several REO assets. The loss on real estate in 2025 is comprised of a $4.7 million loss on below market debt related to financing on the sale of several REO assets and a $1.7 million loss on the foreclosure of loans we took back as REO assets, partially offset by a $1.6 million gain on REO sales.
Income from Equity Affiliates
Income from equity affiliates in 2026 primarily reflects $10.4 million of income recognized related to cash distributions received from our Lexford joint venture, partially offset by losses from several investments; while income from equity affiliates in 2025 primarily reflects $51.4 million of income recognized related to the cash distributions received from Lexford, partially offset by losses from our investments in AMAC III and a residential banking business totaling $4.4 million.
Provision for Income Taxes
In 2026, we recorded a tax provision of $4.1 million, which consisted of a current tax provision of $11.0 million and a deferred tax benefit of $6.9 million. In 2025, we recorded a tax provision of $14.6 million, which consisted of a current tax provision of $18.1 million and a deferred tax benefit of $3.5 million.
Net (Loss) Income Attributable to Noncontrolling Interest
The noncontrolling interest relates to the outstanding OP Units (see Note 16). At September 30, 2026 and 2025, there were 16,165,771 and 16,173,761 OP Units outstanding, respectively, which represented 8.0% and 7.6%, respectively, of our outstanding stock.
Liquidity and Capital Resources
Sources of Liquidity. Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing commitments to repay borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac's SBL program, operational liquidity requirements of the GSE agencies, fund new loans and investments, fund operating costs and distributions to our stockholders, fund capital expenditures and other property level costs associated with REO assets (including tenant improvements and rehabilitation/ renovation costs) and to fund draws due under unfunded loan
commitments, as well as other general business needs. Effective October 30, 2026, the dividend rate on our Series F preferred stock transitioned from 6.25% to a floating rate of three-month term SOFR plus 5.442%, which will result in an increase in our preferred stock dividend requirements based on current SOFR rates. Our primary sources of funds for liquidity consist of proceeds from equity and debt offerings, proceeds from CLOs and securitizations, debt facilities and cash flows from operations. We closely monitor our liquidity position, including upcoming debt maturities and cash requirements to operate and resolve our legacy portfolio. Our liquidity strategy includes retaining cash, realizing proceeds from loan repayments, loan sales and REO dispositions, and seeking additional borrowing capacity through financing and securitization transactions. The timing and amounts of these sources depend on market conditions, asset performance and execution of planned transactions, and there can be no assurance that projected liquidity will be adequate to meet our liquidity needs. In light of the challenging interest rate and credit environment, we are prioritizing liquidity and capital preservation, including maintaining resources to repay upcoming debt maturities. We expect to seek additional liquidity through loan repayments, sales of loans, dispositions of REO assets, improved utilization of existing financing arrangements, and capital retention through dividend suspension. The timing and proceeds of these actions depend on market conditions, borrower performance, counterparties and other factors and may differ from our expectations.
The elevated and volatile interest rates, together with geopolitical uncertainty, including the conflict involving Iran, have caused some disruptions in financial services, real estate and credit markets. As stated earlier, these conditions have contributed to weaker performance of certain of our legacy assets, leading to increased defaults, delinquencies and foreclosures. If these conditions continue to affect our borrowers and their tenants, or if other risks described in our SEC filings materialize, our liquidity and capital resources could be further adversely affected. Higher financing rates and weaker property level operating performance may reduce expected proceeds or extend the timing of loan and REO dispositions, while continued delinquencies and non-accrual status may reduce recurring cash receipts. Additional reserves and impairments do not themselves represent cash outflows, but underlying collateral shortfalls, funding commitments and resolution expenses may affect available liquidity. Accordingly, we may experience delays in converting certain legacy loans and REO assets into cash, and the proceeds ultimately realized may be lower than previously anticipated. These developments may increase the amount and duration of capital required to manage and resolve these assets.
In October 2026, our Board of Directors elected to suspend the quarterly common stock dividend effective immediately. This decision was made to preserve capital and maintaining financial flexibility to address upcoming debt maturities and support the resolution of legacy assets.
As described in Note 10, certain of our repurchase facilities include margin call provisions associated with changes in interest spreads which are designed to limit the lenders credit exposure. If we experience significant decreases in the value of the properties serving as collateral under these repurchase agreements, which is set by the lenders based on current market conditions, the lenders have the right to require us to repay all, or a portion, of the funds advanced, or provide additional collateral. While we expect to extend or renew all of our facilities as they mature, we cannot provide assurance that they will be extended or renewed on as favorable terms. As we pursue additional leverage and other financing efficiencies, we may incur increased interest expense, collateral requirements or refinancing exposure. Our ability to access this capacity remains subject to lender terms, eligible collateral and compliance with applicable covenants.
We had $11.01 billion in total structured debt outstanding at September 30, 2026. Of this total, $5.79 billion, or 53%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes. The remaining $5.22 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with. At September 30, 2026, we had $2.24 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads.
In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $36.80 billion agency servicing portfolio at September 30, 2026, which is mostly prepayment protected, and escrow/cash balances that generates approximately $197 million per year in recurring gross cash flow. Although servicing fees provide recurring cash receipts, lower interest earned on escrow balances, elevated agency delinquencies and slower loan production may affect the level and growth of cash flows from the Agency Business. While this servicing portfolio is an important recurring source of operating cash flow, it does not eliminate our exposure to weaker origination activity, lower escrow earnings or losses and cash demands arising from the Structured Business.
To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. However, we believe that our capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital and liquidity requirements. Our Board of Directors suspended quarterly common stock dividends as part of our strategy to preserve capital and increase liquidity available to repay upcoming debt maturities, fund our operations and facilitate the resolution of legacy loans and REO assets. The suspension will reduce cash requirements for common stock distributions, subject to distributions that may be necessary to satisfy applicable REIT requirements.
Cash Flows. Cash flows provided by operating activities totaled $351.5 million during the nine months ended September 30, 2026 and consisted primarily of net cash inflows of $168.3 million from loan sales exceeding loan originations in our Agency Business and the benefit of non-cash expenses included in our net loss, principally provisions for credit losses and loss-sharing obligations of $130.1 million, depreciation and amortization of $84.1 million and impairment losses on REO assets of $60.2 million.
Cash flows used in investing activities totaled $0.6 million during the nine months ended September 30, 2026 and consisted primarily of net cash outflows of $26.9 million related to REO activity and net contributions of $20.1 million related to certain equity affiliates (contributions exceeded distributions), partially offset by $32.0 million of net cash inflows in connection with loan and investment activity (Structured Business loan payoffs and paydowns totaling $2.06 billion exceeded originations totaling $2.02 billion).
Cash flows used in financing activities totaled $210.6 million during the nine months ended September 30, 2026 and consisted primarily of $445.0 million payoff of our senior notes, $166.8 million of common stock repurchases and $163.7 million of distributions to our stockholders and OP Unit holders, partially offset by net cash inflows of $375.0 million from issuance of convertible senior notes, $168.6 million of net securitized debt activity (proceeds exceeded payoffs and paydowns), and $56.5 million from debt facility activities (financed loan originations were greater than facility paydowns).
Unencumbered Assets. At September 30, 2026, we had total unencumbered assets with a carrying value of $2.83 billion, consisting of cash and cash equivalents of $439.7 million, loans of $692.0 million, securitization investments of $971.9 million, MSRs of $315.0 million and $409.9 million of other assets not encumbered by any portion of secured indebtedness. Our unencumbered assets to unsecured debt ratio was 1.43x at September 30, 2026, compared to the minimum of 1.20x required by our outstanding $400.0 million 8.50% senior unsecured notes due in December 2028 and our outstanding $500.0 million 7.875% senior unsecured notes due in July 2030.
Agency Business Requirements. The Agency Business is subject to supervision by certain regulatory agencies. Among other things, these agencies require us to meet certain minimum net worth, operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations and compliance with reporting requirements. Our adjusted net worth and operational liquidity exceeded the agencies' requirements at September 30, 2026. Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $75.0 million and cash. See Note 14 for details about our performance regarding these requirements.
We also enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors. These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note 12.
Debt Facilities. We maintain various forms of short-term and long-term financing arrangements. Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and investments and substantially all our loans held-for-sale. The following is a summary of our debt facilities ($ in thousands):
| Debt Instruments | September 30, 2026 | |||||||||||||||||||||||||
| Commitment | UPB (1) | Available | Maturity Dates (2) | |||||||||||||||||||||||
| Structured Business | ||||||||||||||||||||||||||
| Credit and repurchase facilities (3) | $ | 8,229,354 | $ | 4,964,837 | $ | 3,264,517 | 2026 - 2029 | |||||||||||||||||||
| Securitized debt (4) | 3,654,375 | 3,654,375 | - | 2026 - 2030 | ||||||||||||||||||||||
| Senior unsecured notes | 1,605,000 | 1,605,000 | - | 2027 - 2030 | ||||||||||||||||||||||
| Convertible senior unsecured notes | 375,000 | 375,000 | - | 2029 | ||||||||||||||||||||||
| Junior subordinated notes | 154,336 | 154,336 | - | 2034 - 2037 | ||||||||||||||||||||||
| Notes payable - real estate owned | 254,977 | 254,977 | - | 2026 - 2027 | ||||||||||||||||||||||
| Structured Business total | 14,273,042 | 11,008,525 | 3,264,517 | |||||||||||||||||||||||
| Agency Business | ||||||||||||||||||||||||||
| Credit and repurchase facilities (3)(5) | 1,750,000 | 223,237 | 1,526,763 | 2026 - 2027 | ||||||||||||||||||||||
| Consolidated total | $ | 16,023,042 | $ | 11,231,762 | $ | 4,791,280 | ||||||||||||||||||||
________________________
(1)Excludes the impact of deferred financing costs.
(2)See Note 14 for a breakdown of debt maturities by year. These maturity dates exclude extension options.
(3)Commitment totals exclude available overadvances.
(4)Maturity dates represent the weighted average remaining maturity based on the underlying collateral at September 30, 2026.
(5)The $750 million As Soon as Pooled ® Plus ("ASAP") agreement we have with Fannie Mae has no expiration date.
We utilize our credit and repurchase facilities primarily to finance our loan originations on a short-term basis prior to loan securitizations, including through CLOs. The timing, size and frequency of our securitizations impact the balances of these borrowings and produce some fluctuations. The following table provides additional information regarding the balances of our borrowings ($ in thousands):
| Quarter Ended | Quarterly Average UPB | End of Period UPB | Maximum UPB at Any Month End | |||||||||||||||||
| September 30, 2026 | $ | 5,440,864 | $ | 5,188,074 | $ | 5,923,617 | ||||||||||||||
| June 30, 2026 | 5,399,362 | 5,821,983 | 5,904,505 | |||||||||||||||||
| March 31, 2026 | 5,005,616 | 4,977,857 | 5,319,936 | |||||||||||||||||
| December 31, 2025 | 4,917,924 | 5,161,707 | 5,556,285 | |||||||||||||||||
| September 30, 2025 | 4,633,344 | 4,133,965 | 5,553,722 | |||||||||||||||||
Our debt facilities, including their restrictive covenants, are described in Note 10.
Off-Balance Sheet Arrangements. At September 30, 2026, we had no off-balance sheet arrangements.
Inflation. Interest rates remain elevated and continue to present significant challenges to the commercial real estate market. In September 2026, the Federal Reserve increased the federal funds rate by 25 basis points bringing the target range for the federal funds rate to 3.75% to 4.00%. Despite relatively limited changes in short-term benchmark rates during 2026, longer-term treasury yields have increased significantly, resulting in higher borrowing costs, downward pressure on commercial real estate valuations and reduced transaction activity. Current market expectations remain uncertain and have shifted during 2026, with the timing and direction of any additional monetary policy actions dependent on inflation, labor market conditions, economic growth and financial market conditions. Although short-term rates have declined from their peaks, the rate environment remains elevated, has remained elevated longer than anticipated and could persist even longer if inflation and other key economic indicators do not align with the Federal Reserve's expectations. Additionally, long-term rates remain volatile following the current administration's adoption of increased tariffs, related litigation, geopolitical developments, including the conflict involving Iran and related energy market volatility, and broader macroeconomic uncertainty. Expectations for long-term rates in 2026 remain mixed, reflecting uncertainty around long-term inflation, fiscal policy, increased federal spending and larger deficits, including the effects of the OBBBA. Accordingly, it remains difficult to predict where short- and long-term rates will settle during the remainder of 2026.
This prolonged rate environment has resulted in, and may continue to result in, higher payment delinquencies and defaults, more loan modifications and foreclosures and declines in real estate values in certain asset classes, which have adversely affected, and may continue to adversely affect, our results of operations, financial condition, business prospects, liquidity and ability to make distributions to stockholders. It has also made it more difficult to resolve delinquent loans, contributing to additional foreclosures and REO assets on our balance sheet, all of which could have a further material adverse effect on our business.
For additional details, see "Current Market Conditions, Risks and Recent Trends" above and "Quantitative and Qualitative Disclosures about Market Risk" below.
Contractual Obligations. During the nine months ended September 30, 2026, the following significant changes were made to our contractual obligations disclosed in our 2025 Annual Report:
•Closed two CLOs (CLO 21/CLO 22) totaling $1.59 billion of notes issued, of which $201.0 million of notes were retained by us;
•Unwound CLO 17, repaying $787.0 million of outstanding notes;
•Modified existing debt facilities resulting in a net increase in the committed amount by approximately $600 million;
•Redeemed our 4.50% senior notes totaling $270.0 million and our 5.00% senior notes totaling $175.0 million;
•Issued $375.0 million of 6.25% Convertible Notes;
•Entered into a new $300.0 million credit facility; and
•Paid down outstanding notes on existing securitizations totaling $224.5 million.
Refer to Note 14 for a description of our debt maturities by year and unfunded commitments at September 30, 2026.
Derivative Financial Instruments
We enter into derivative financial instruments in the normal course of business to manage the potential loss exposure caused by fluctuations of interest rates. See Note 12 for details.
Critical Accounting Policies
Refer to Note 2 of the Notes to Consolidated Financial Statements in our 2025 Annual Report for a discussion of our critical accounting policies. During the nine months ended September 30, 2026, there were no material changes to these policies.
Non-GAAP Financial Measures
Distributable (Loss) Earnings. We are presenting distributable earnings because we believe it is an important supplemental measure of our operating performance and is useful to investors, analysts and other parties in the evaluation of REITs and their ability to provide dividends to stockholders. Dividends are one of the principal reasons investors invest in REITs. To maintain REIT status, REITs are required to distribute at least 90% of their REIT-taxable income. We consider distributable earnings in determining our quarterly dividend and believe that, over time, distributable earnings is a useful indicator of our dividends per share.
We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, changes in fair value of GSE-related derivatives that temporarily flow through earnings, deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), gains/losses on the receipt of real estate from the settlement of loans and subsequent impairment losses on real estate owned prior to the sale of the real estate. We also add back one-time charges such as acquisition costs and one-time gains/losses on the early extinguishment of debt and redemption of preferred stock.
We reduce distributable earnings for realized losses in the period we determine that a loan is deemed nonrecoverable in whole or in part. Loans are deemed nonrecoverable upon the earlier of: (1) when the loan receivable is repaid, or in the case of foreclosure, when the underlying asset is sold at which time any impairments and/or cumulative depreciation expense are realized; or (2) when we determine that it is nearly certain that all amounts due will not be collected. The realized loss amount is equal to the difference between the cash received, or expected to be received, and the book value of the asset.
Distributable earnings is not intended to be an indication of our cash flows from operating activities (determined in accordance with GAAP) or a measure of our liquidity, nor is it entirely indicative of funding our cash needs, including our ability to make cash distributions. Our calculation of distributable earnings may be different from the calculations used by other companies and, therefore, comparability may be limited.
Distributable (loss) earnings are as follows ($ in thousands, except share and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (85,354) | $ | 38,463 | $ | (122,068) | $ | 92,852 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Net (loss) income attributable to noncontrolling interest | (7,395) | 3,211 | (10,507) | 7,828 | |||||||||||||||||||
| Income from mortgage servicing rights | (11,078) | (15,538) | (32,849) | (34,598) | |||||||||||||||||||
| Deferred tax benefit | (2,179) | (1,791) | (6,970) | (3,532) | |||||||||||||||||||
| Amortization and write-offs of MSRs | 20,082 | 18,906 | 60,515 | 59,595 | |||||||||||||||||||
| Depreciation and amortization | 6,813 | 6,089 | 21,503 | 17,240 | |||||||||||||||||||
| Loss on extinguishment of debt | - | - | - | 2,319 | |||||||||||||||||||
| Provision for credit losses, net | 46,783 | 18,381 | 66,437 | 27,572 | |||||||||||||||||||
| Loss (gain) on derivative instruments, net | 1,943 | 2,110 | 2,763 | (3,261) | |||||||||||||||||||
| Loss on real estate | 20,392 | 369 | 38,310 | 5,035 | |||||||||||||||||||
| Stock-based compensation | 3,111 | 2,738 | 12,140 | 11,284 | |||||||||||||||||||
| Distributable (loss) earnings (1) | $ | (6,882) | $ | 72,938 | $ | 29,274 | $ | 182,334 | |||||||||||||||
| Diluted weighted average shares outstanding - GAAP (2)(3) | 168,916,898 | 210,517,762 | 184,546,941 | 208,807,751 | |||||||||||||||||||
| Add: Dilutive effect of OP Units and RSUs (1)(3) | 16,167,704 | - | 17,085,930 | - | |||||||||||||||||||
| Diluted weighted average shares outstanding - Non-GAAP (1)(2)(3) | 185,084,602 | 210,517,762 | 201,632,871 | 208,807,751 | |||||||||||||||||||
| Diluted distributable (loss) earnings per share (1)(3) | $ | (0.04) | $ | 0.35 | $ | 0.15 | $ | 0.87 | |||||||||||||||
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(1)Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis.
(2)The diluted weighted average shares outstanding are adjusted to exclude the potential shares issuable upon conversion and settlement of our 7.50% convertible senior notes principal balance, which were fully settled in the third quarter of 2025. No adjustment was necessary for the three and nine months ended September 30, 2025, as their effect was anti-dilutive and not reflected in the diluted weighted average shares outstanding.
(3)For purposes of calculating diluted distributable earnings per share, diluted weighted average shares outstanding include the effect of potentially dilutive securities to the extent such securities are dilutive to distributable earnings, notwithstanding that such securities are excluded from diluted GAAP earnings per common share for the three and nine months ended September 30, 2026 because their effect would be anti-dilutive due to the GAAP net loss incurred during those periods.
Arbor Realty Trust Inc. published this content on October 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 30, 2026 at 13:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]