U.S. Markets close in 1 hr 12 mins

Edited Transcript of ABR earnings conference call or presentation 10-May-19 2:00pm GMT

Q1 2019 Arbor Realty Trust Inc Earnings Call

Uniondale May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Arbor Realty Trust Inc earnings conference call or presentation Friday, May 10, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ivan Kaufman

Arbor Realty Trust, Inc. - Chairman, President & CEO

* Paul Elenio

Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer

================================================================================

Conference Call Participants

================================================================================

* Jade Joseph Rahmani

Keefe, Bruyette, & Woods, Inc., Research Division - Director

* Leon G. Cooperman

Omega Advisors, Inc. - President, CEO & Chairman

* Richard Barry Shane

JP Morgan Chase & Co, Research Division - Senior Equity Analyst

* Ryan John Tomasello

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Steven Cole Delaney

JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the First Quarter 2019 Arbor Realty Trust Earnings Conference Call. (Operator Instructions) And as a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to Paul Elenio, Chief Financial Officer. Please go ahead.

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [2]

--------------------------------------------------------------------------------

Okay. Thank you. Good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, I will discuss the results for the quarter ended March 31, 2019. With me on this call today is Ivan Kaufman, our President and Chief Executive Officer.

Before we begin, I need to inform you that statements made in this earnings call may be 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, 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. Factors that could cause actual results to differ materially from Arbor's expectations in these forward looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events.

I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Paul, and thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had a great start to 2019 with strong first quarter results, which continues to demonstrate the diversity of our operating platform and the value of our franchise. As we mentioned on our last call, we are very pleased with the continued growth in our business, which provided us with a very strong baseline of predictable and favorable earnings heading into 2019. This strong baseline, combined with our first quarter success, has allowed us to, once again, increase our quarterly dividend by another 4% to $0.28 a share. At our current stock price, we are now trading at a dividend yield of approximately 8.5%, which we believe is not reflective of our true value.

Additionally, as promised, we did not -- we did provide a chart in our last investor deck, which demonstrates the considerable growth we produced in our servicing revenues, escrow earnings and net interest income from our balance sheet portfolio last year. It also illustrates the quality and diversity of our income streams, which differentiates us from our peers, and why we believe we should consistently trade at a lower dividend yield than our peer group. Furthermore, our first quarter growth also continues to increase our run rate of core earnings, making us very confident in our ability to increase our dividend in the future. To highlight this further, I would like to talk about the growth we experienced in both our business platforms.

In our Agency Business, we grew our servicing portfolio another 2% in the first quarter and 13% over last year, and is now at $18.9 billion. This portfolio generates a servicing fee of 45 basis points and has an average remaining life of 8.5 years, which reflects a 10% increase in duration over the last 2 years. As a result, we have created a very significant, predictable annuity of income of over $18 million growth annually and growing, the majority of which is prepayment protected. And this growth in our servicing portfolio also continues to increase annuity of income from our escrow balances, further contributing to our growing annual run rate of core earnings. We also originated $850 million of agency loans in the first quarter. This was slightly down from last year's first quarter volume of approximately $1 billion, mainly due as we mentioned on our last call to some of this year's first quarter volume being pulled into the fourth quarter of last year from the sharp drop in the 10 year at year end. More meaningfully, our pipeline is very strong, providing us with confidence in our ability to continue to grow our originations volume for the balance of the year. We're also very pleased in our ability to generate strong margins in our first quarter loan sales despite the extremely competitive landscape. And income stream from our agency platform continue to create significant diversity and a high level of certainty in our income sources.

With respect to our balance sheet business, we've experienced tremendous growth in our loan book. We grew this portfolio 24% in 2018 and another 4% in the first quarter on $416 million origination. We've also seen a sizable increase in our pipeline over the last few months, which allows us to continue to increase our run rate of net interest income going forward. We had a very strong start to the second quarter with $250 million of originations in April, and as a result of our strong pipeline, we elected to raise $90 million of 5.75% unsecured debt to fund the equity portion of these loans. This was very attractive capital, as it will be used to fund our pipeline of new investments and be immediately accretive to our core earnings. And again, the income generated from of our loan book is a significant component of our earnings, and based on our strong pipeline, we remain very confident in our ability to continue to grow this income stream.

Now, I would like to update you on the progress we are making in our single-family rental business. We believe this single-family rental market is a -- is as big as a multifamily market, and at this point, is very fragmented with a lot of unique financing opportunities available on that market. We continue to build out the infrastructure to develop this platform, and we are very committed to becoming a leader in this space. We believe this is a phenomenal business with enormous opportunities in both the bridge and permanent lending products, and we are very happy with the pipeline of opportunity we are seeing already. We clearly believe that by bringing capital to this business, we can quickly lever both off our originations capacity and capabilities and build this out to be a significant driver of yet another income stream and further diversify our lending platform.

Overall, we are very pleased with our first quarter results and the continued growth in our business, which clearly demonstrates diversity and value of our operating platform. We are also very comfortable with the stability of our dividend and optimistic based on our baseline revenues and the current status of our pipeline that we will be able to continue to grow our dividend.

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

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [4]

--------------------------------------------------------------------------------

Okay. Thank you, Ivan. As our press release this morning indicated, we had a very strong first quarter, generating AFFO of $35.5 million or $0.33 per share. These results reflect an annualized return on average common equity of 14.5%, which continues to increase consistently from the substantial portion of our earnings that are being generated by a growing capital-light Agency Business and from the additional cost efficiencies we are experiencing as we continue to scale our balance sheet business. As Ivan mentioned, we're very pleased with our ability to increase our quarterly dividend to $0.28 a share, reflecting a 12% increase from a year ago and remain confident in our ability to increase our dividend in the future as our annual run rate of core earnings continues to grow.

Looking at our results from our Agency Business, we generated approximately $13 million of pretax income in the first quarter on approximately $850 million in originations and $1.1 billion in loan sales. The margins on our first quarter sales was 1.49%, including miscellaneous fees compared to 1.13%, all in margin on our fourth quarter sales, mostly due to some large portfolio deals that we closed in the fourth quarter, which generally have a lower margin. We also recorded $14 million of mortgage servicing right income related to $847 million of committed loans during the first quarter, representing an average mortgage servicing rights rate of around 1.68%. Our servicing portfolio also grew another 2% during the quarter to $18.9 billion at March 31, with a weighted average servicing fee of approximately 45 basis points and an estimated remaining life of 8.7 years. This portfolio will continue to generate a predictable annuity of income going forward of around $84 million gross annually, which is up approximately $5 million on annual basis from the same time last year. Additionally, early runoff in our servicing book continues to produce prepayment fees related to certain loans that have yield maintenance provisions. This accounted for $5 million of prepayment fees in the first quarter, which was down from $6 million in the fourth quarter.

The earnings associated with our escrow balances also continue to grow and contributed meaningfully to our growing recurring income streams. We currently have approximately $800 million of escrow balances, which are earning slightly less than 1 month LIBOR, and our earnings associated with these balances are up approximately $9 million on an annual run rate as compared to the same time last year. In our balance sheet lending operation, we grew our portfolio another 4% to $3.4 billion, and based on our current pipeline, we remain extremely confident in our ability to continue to grow our balance sheet investment portfolio in the future. Our $3.4 billion investment portfolio had an all-in yield of approximately 7.71% at March 31 compared to 7.66% at December 31. The average balance on our core investments was up from $3.2 billion last quarter to $3.3 billion this quarter due to our fourth quarter and first quarter growth. And the average yield on these investments was up slightly to 7.84% for the first quarter compared to 7.76% for the fourth quarter, mainly due to increase in the average LIBOR rate, partially offset by less accelerated fees from early runoff this quarter.

Total debt on our core assets was approximately $3.1 billion at March 31, with an all-in debt cost of approximately 5.22% compared to a debt cost of around 5.24% at December 31. The average balance on our debt facilities was up to approximately $3 billion for the first quarter and $2.9 billion for the fourth quarter due to financing our portfolio growth. And the average cost of funds in our debt facilities increased to approximately 5.24% for the quarter compared to 5.12% for the fourth quarter due to an increase in the average LIBOR rate.

Overall, net interest spreads in our core assets were down slightly to 2.60% this quarter compared to 2.64% last quarter, mainly due to more acceleration of fees from early runoff in the fourth quarter and our overall spot net interest spread was up to 2.49% at March 31 compared to 2.42% at December 31.

And lastly, the average leverage ratio on our core lending assets, including the trust preferreds and perpetual preferred stock as equity was flat at approximately 79% for both the first and fourth quarters. And our overall debt-to-equity ratio on a spot basis including the (inaudible) trust preferreds and perpetual preferred stock as equity was up slightly to 2.4:1 at March 31 from 2.3:1 at December 31, mainly due to the $90 million of unsecured debt we issued in March.

That completes our prepared remarks for this morning. And now I'll turn it back to the operator to take any questions you may have at this time. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from Steve Delaney of JMP Securities.

--------------------------------------------------------------------------------

Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst [2]

--------------------------------------------------------------------------------

Congratulations on a strong start to 2019. Apologies that I'm on the road, so my questions [either are] going to be pretty much big picture because I haven't been through the weeds yet. One thing we picked up in the first quarter, Fannie Mae of course has stepped up on small balance, and I believe they've raised their lending limit to $6 million. We also heard they were being very aggressive on pricing. You're obviously a big player with Fannie, but I recall that Arbor's like #1 with Freddie or has been with Freddie in small balance. So my question is, what does Fannie's Mae -- Fannie Mae's assertiveness here mean for your business both near term and long run?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

So Freddie definitely has been much more aggressive. They have built that platform up, and as you know, we were instrumental in helping them develop that platform and have consistently been producing a significant percentage. Fannie Mae has put a greater effort into it. They will grow that business a little bit more. And I think they'll compete to some extent with Freddie, but they're a little bit more effective on their 10-year product. So I think between the two of them, Freddie did $8 billion last year, Fannie Mae made [maybe] $2 billion to $3 billion. So maybe there's another 10% within that market. We'll do more with the Fannie. I think last year, we were also one of the leading providers with Fannie, we'll continue to do so. So that market will continue to grow. And as you know, that's also excluded from the cap. And if there's any pressure on the cap, that's a component that will continue to grow.

--------------------------------------------------------------------------------

Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research and Senior Research Analyst [4]

--------------------------------------------------------------------------------

Sounds like it's just more opportunities to serve a broader array of clients too given the difference in product focus, et cetera. So thank you for that. I'm sure you get other questions about this, on credit. We're definitely starting to see some cracks. I think this is the first quarter as the commercial REITs have reported it. I can think of one that had no credit issue, but it seems like everybody's had something. Hotels in particular seem to be -- being taken back, right and left. I guess, you haven't said anything about your portfolio and Chris [has been through the queue] . It doesn't sound like you had any necessarily, I mean, new credit issues to alert us to. But just what you're seeing in the market in terms of are you starting to see and hear of more foreclosures, properties struggling, and I don't know whether it's a question of overbuilding or these value-add people just basically overpaying. And then the business plan's not working out? Stepping back and just -- for someone who's been in real estate his whole life, I'm just curious if this increase in foreclosures and loan problems, whether that surprises you, or do you -- did you sort of see it coming?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [5]

--------------------------------------------------------------------------------

So the fact is we have seen it coming, and if you go back several quarters, we gave guidance this year on our Agency platform to have kind of flat growth over last year. And we're doing that specifically for 2 reasons. Number one is we think credit is an issue, and we're being selective and cautious during this pivotal period of time. And you'll see other lenders perhaps have growth in their agency book. I think they're being aggressive on price and on credit. We've chosen to be conservative on credit and also trying to preserve our margins, which is a little bit unusual in a market that's volume driven and is very reflective of that issue. We do believe that there's a level of aggressiveness in the market. There's a lot of liquidity. And you have to proceed with extreme caution. And the extreme caution comes from the borrowers having the ability to stretch lenders out, and most importantly, is a lot of new sponsors entering the arena. And then being able to have access to credit without the track record and the credibility and that's where we have a high level of concern. So I think it's justified in acknowledging that we're in a point in time in the cycle that we should be concerned. And what's bailed people out and will bail people out is if rent growth continues. We've had 10 years of straight rent growth on the multi-family sector. Fundamentals still looks fairly good, specifically in the areas that we traffic, which is B&C market, workforce housing, where you [can't] reproduce that product [in its] limited supply. And I've spoken about in the past, our concern would be more on the upper end. And the bailout did come last year for some people when the 10-year drop from $325 million to $350 million to $235 million to $275 million, that made a big difference to people. But I would say everybody should proceed with a high level of caution.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question comes from Jade Rahmani of KBW.

--------------------------------------------------------------------------------

Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [7]

--------------------------------------------------------------------------------

This is Ryan Tomasello on for Jade. Just given the changes at the FHFA with new leadership and the strong start we've seen to the year with the GSE volumes. Ivan, just wondering if you're hearing anything on whether the FHFA plans to make any changes to the caps over the next couple of quarters. And overall, for the market, where you expect market-wide volumes to potentially shake out for the year?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [8]

--------------------------------------------------------------------------------

I think that there is an expectation that the FHFA will recognize that it's a bigger market and will adjust their caps to a reasonable degree. And the market is a little bit bigger. With respect to us, I think, we delivered to Fannie Mae as a percentage more product than any other lender, which was excluded from the cap because we focused on small balance, because we focus on workforce housing. So I think we had -- 61% of our deliveries were outside the cap, which is pretty good. You have a new leader in the FHFA. I'm not sure how or what his reaction is going to be. He may not totally accommodate the market. But I believe they're going to acknowledge that the market is a little bit bigger and accordingly should make the adjustments to reflect a bit of a bigger market.

--------------------------------------------------------------------------------

Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [9]

--------------------------------------------------------------------------------

That's helpful commentary. And we've also heard from some industry sources that Fannie is trying to dial back their volumes a bit given their strength in the first quarter and no increased spreads. I was wondering if this is [commiserate] with what you've -- you're seeing currently in the market. And if that's true, if you expect the higher mix of Freddie going forward in the near term?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [10]

--------------------------------------------------------------------------------

Well, I think both the agencies are going to dial back, but we applaud them for what they are doing. It's to our benefit, and it's to the market's benefit. If they're going to dial back on credit, and they're going to dial back on pricing, all of which will be to our benefit. And it's in line with our strategy. So to the extent they dial back, our servicing and guarantee fees will be little stronger. And we would like them to. And that's their initial signaling, and that would be -- have a positive effect on us.

--------------------------------------------------------------------------------

Ryan John Tomasello, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [11]

--------------------------------------------------------------------------------

And then just following up on Steve's comments on -- questions on credit. We saw the new disclosure in the queue on your servicing portfolio. While still low, it does look like delinquencies did tick up modestly quarter-over-quarter there. So I was wondering if you can just talk about how those metrics have trended historically and with regards to your servicing portfolio in particular, if you are anticipating a modest seasoning if delinquencies increase as that collateral continues to season.

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [12]

--------------------------------------------------------------------------------

Ryan, it's Paul. We do not expect that. Delinquencies are very, very low. The only real delinquencies we have are on legacy assets that are in the special asset management part of the servicing of Fannie Mae that we settle losses on. We have reserved roughly $3 million for specific reserves related to those loans. Those loans have been outstanding for a while, just has to do with timing and the presentation in the queue, but those loans have been outstanding for a while. And we don't really have any delinquencies to speak of outside those legacy assets that we have on our books for a while and are working through those lost shares that are (inaudible) on our balance sheet at this point. But overall, servicing portfolio is in -- credit's been super benign as you can see from the numbers and has been performing quite well.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

And our next question comes from Rick Shane from JPMorgan.

--------------------------------------------------------------------------------

Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [14]

--------------------------------------------------------------------------------

Just a couple of quick things. We noticed that the stock-based comp expense was up on a percentage basis of overall comp. I'm wondering if that -- I realized there's some seasonality related divesting, I'm wondering if that is a function of the stock price? Or if there's a little bit of a shift in comp structure?

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [15]

--------------------------------------------------------------------------------

No. Rick, it's more related to seasonality. We issue our restrictive stock grants to our employees and our directors in the first quarter of every year. So if you go back and look at the first quarter, it may be up a little bit because of the size of our staff and the increase in our staff and getting people to come on board and using some of that to attract our talent. But for the most part, it should be pretty consistent with prior years, again, up a little bit as we attract more talent and use our currency to do that. But for the most part, it's just the seasonality thing.

--------------------------------------------------------------------------------

Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [16]

--------------------------------------------------------------------------------

Got it. Yes. The reason I asked the question is that last year it was about 8.6% of comp, this year it was about 11.8%. So that's what I'm trying to figure out if [it fits] . I realize there is a seasonality to it, but on a percentage basis, it also increased year-over-year.

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [17]

--------------------------------------------------------------------------------

Yes. It has to do with -- as I mentioned, as we attracted more talent to grow certain areas of our business, we've used that currency as [local call] , sign-on bonuses to get people on, and that has grown it a little bit. But it's -- again, I don't think it's materially different than the past. But that is some of the reason you're seeing that.

--------------------------------------------------------------------------------

Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [18]

--------------------------------------------------------------------------------

Got it. Okay. Perfect. The other thing we noticed was the MSR cap rate went down a little bit this quarter. Just curious what's driving that.

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [19]

--------------------------------------------------------------------------------

Yes. It's just a little bit distorted because you have to break apart the number. So on the committed volume -- the committed loans we had in the quarter of $847 million, $100 million were CMBS conduit deal. So they have no servicing fee attached to them. So if you [restrict] that out and do the MSR rate on the agency book, that was not CMBS, that ratio would've been about 191. And that's about what we projected it would be going forward. And what I told you, it probably was on an unadjusted basis in the fourth quarter. So if you just look at the numbers and dive into them, you'll see that the CMBS volume was up in the first quarter more than it was in the fourth or prior quarters, so it's just distorting the overall number. But on the non-CMBS agency product, it did come in about 191.

--------------------------------------------------------------------------------

Richard Barry Shane, JP Morgan Chase & Co, Research Division - Senior Equity Analyst [20]

--------------------------------------------------------------------------------

Got it. Okay. That makes sense. And then last question related to that increase. We've seen a steady increase on the CMBS conduit side. Is that going to be something we should continue to model in?

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [21]

--------------------------------------------------------------------------------

No. I just think it's -- as we service our borrowers from time to time, we -- they have need for certain product, and we execute the product based on their needs. But I would not say that, that's a meaningful part of the business plan going forward.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

(Operator Instructions) And our next question comes from Lee Cooperman from Omega Advisors.

--------------------------------------------------------------------------------

Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [23]

--------------------------------------------------------------------------------

I add my congratulations to everywhere else's, very nice quarter. You've done a great job running the company. I have one question. How do you feel about your capital adequacy? Do you think you need more money to run the business? Or you have adequate capital to run the business as you put in to run it?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [24]

--------------------------------------------------------------------------------

I think a lot has to do with our pipeline and the likelihood of our pipeline closing. And benefit is as we get more certainty in the growth of our pipeline, we'll raise capital, whether it'd be debt or equity to match what's occurring. So our pipeline is pretty robust. But the certainty of closing is what we evaluate. And now we'll dictate our capital needs and clearly when we're closing loans and getting a load of mid-teens return it'd be very accretive. And we'll just pick up best combination that will fuel our business at the proper time.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

And our next question comes from Jade Rahmani from KBW. [

--------------------------------------------------------------------------------

Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [26]

--------------------------------------------------------------------------------

]

Just was wondering if you can discuss the internal approval process with respect to making loans and other investments with related parties and which management has an interest. We noticed the $300 million -- sorry, the $30 million that you committed to a related party investing fund, and there's also a number of other related party lending at the queue. So just was wondering if you can comment on the internal process with respect to that.

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [27]

--------------------------------------------------------------------------------

Sure. We have a related party policy that is internal. Here, I don't have it in front of me. And ultimately we follow a specific policy and then it goes for Board approval. And each and every transaction that is related party go through our policy and through Board approval. And the transactions are evaluated by the Board on a quarterly basis. Just had the Board meeting for performance and a hearing for those policies.

--------------------------------------------------------------------------------

Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [28]

--------------------------------------------------------------------------------

Okay. And then just as...

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [29]

--------------------------------------------------------------------------------

And it's done by the independent directors of the Board.

--------------------------------------------------------------------------------

Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [30]

--------------------------------------------------------------------------------

Great. And then just one more on technology. One of your agency peers recently acquired a technology company to improve their underwriting and servicing efficiency. So I just was wondering if you guys could highlight some of the investments Arbor is making in technology. And if -- given the size of the servicing book and the history there, if you see data as potentially something that you can monetize in the future if there was some sort of license agreements or otherwise?

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [31]

--------------------------------------------------------------------------------

So we have no intention of monetizing our data through licensing agreements, they are proprietary. And the secrecy and privacy of our borrowers is really critical to them and to us. But more importantly, this is a global approach and a macro approach for our firm. We've invested very heavily in senior and executive management and building out the infrastructure to have a complete technology approach from solicitation, capture and lead capture of the data and making sure it's consistent from the origination and sales process, through underwriting, through closing, through servicing and available throughout the organization to create the right information flow, the right data sources and as significantly as you focused on is, the right efficiencies in terms of cost of doing business. And we have a 5-year plan here. And it's a very, very significant component of the way we are growing our business. [

--------------------------------------------------------------------------------

Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [32]

--------------------------------------------------------------------------------

]

And just one last housekeeping item. Paul, what was the commission expense in the quarter for the agency originations?

--------------------------------------------------------------------------------

Paul Elenio, Arbor Realty Trust, Inc. - Executive VP, CFO & Treasurer [33]

--------------------------------------------------------------------------------

Sure. The commission expense for the quarter was about 37.5%. As you know, resets in the first quarter year end you play a little catch up and then figure out where it ends up. It was up a little bit from last quarter, obviously, because we're resetting into 2019, but also because our margins were up. So as our margins increased, and we were able to hold strong margins, the commission rate goes up as well. But it was 37.5%.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(Operator Instructions) And I'm showing no further questions at this time. I'd like to turn the conference back over to Ivan Kaufman for closing remarks.

--------------------------------------------------------------------------------

Ivan Kaufman, Arbor Realty Trust, Inc. - Chairman, President & CEO [35]

--------------------------------------------------------------------------------

Okay. Thank you, everybody for your time today. We're off to a great start for the year. We're very pleased with the way things are going and the size of our pipeline. And I hope the rest of the year is very positive. Have a great day, everybody.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.