Arbor Realty Trust

Good day, ladies and gentlemen, and welcome to the Q4 2018 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star and then zero on your touch-tone telephone. And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Paul Lineo, Chief Financial Officer. Please go ahead.

Okay, thank you, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter and year-ended December 31st, 2018. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risk 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 Auburn'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. Auburn 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 Arbus President and CEO, Ivan Kaufman.

Thank you, Paul, and thanks to everyone for joining us on today's call. We're very excited today to discuss the significant success we had in closing out 2018, as well as our plans and outlook for 2019. As you can see from this morning's press release, we had an exceptional fourth quarter with tremendous operating results, which continues to demonstrate the strength of our brand and the value of our operating franchise. Additionally, our income streams are very diversified and long-dated, providing a predictable and recurring annuity of core earnings, making us very comfortable with the level of our current dividend and confident in our ability to increase our dividend in the future. Our 2018 highlights were truly remarkable and exceeded our expectations. Some of the more significant accomplishments included generating substantial growth in our car earnings, allowing us to increase our dividend twice and significantly earlier than expected to an annual run rate of $1.08 a share, which represents a 29% increase in 2018, delivering a total shareholder return of 30% in 2018 and 26% annually for the last two years. achieving returns on equity of an excess of 13 percent, a 23 percent increase over our 2017 returns, producing record originations of $6.8 billion, an 8 percent increase from our record 2017 numbers, continuing to be a market leader in the small-balance lending arena, increasing our balance sheet 24 percent in 2018 to $3.3 billion, growing our servicing portfolio to $18.6 billion, a 15% increase from 2017, continuing to be a market leader in the non-recourse securitization arena, closing our 10th and largest CLO, totaling $560 million, and improving terms and flexibility, achieving significant economies of scale through substantially reduced debt costs, in all of our borrowing facilities, allowing us to maintain levered returns in excess of 13% in an extremely competitive environment. And effectively accessing accretive growth capital, raising $215 million, allowing us to fund our growing pipeline and increase our core earnings. The considerable growth we produce in our servicing revenues, escrow earnings, and that interest income from our balance sheet portfolio in 2018 has provided us with a very strong baseline of predictable and stable earnings heading into 2019. This makes us feel very comfortable with our current dividend and confident in our ability to grow our dividend in the future. We will be providing a chart with our next investor deck detailing our income sources on a year-over-year basis. This will illustrate the quality, diversity, and duration of our income streams, which differentiates us from our peers and why we believe we should be trading at a lower dividend yield than our peer group. To highlight this further, I would like to talk about the tremendous growth we had in both of our business platforms. In our agency business, we produce significant origination volumes with strong margins while maintaining our servicing fee and growing our servicing portfolio. We originated $1.6 billion in agency loans in the fourth quarter, which is the highest quarterly total in our history, and originated a record $5.1 billion in loans in 2018, representing a 15% increase over our 2017 volumes. We also finished as a top 10 Fannie Mae dust lender for the 12th consecutive year, a distinction only one other dust lender has achieved. And we were once again a top small balance lender for Fannie Mae and Freddie Mac as well. We also grew our servicing portfolio another 5 percent in the fourth quarter and over 35 percent in the last two years and are now at $18.6 billion. This portfolio generates a servicing fee of 45 basis points and has an average remaining life of eight and a half years, which reflects a 13% increase in duration over the last two years. As a result, we have created a very significant, long-dated, predictable annuity of income of over $80 million gross annually and growing the majority of which is prepayment protected. In addition, this growth has resulted in increases in our escrow balances that, combined with a significant increase in LIBOR, has considerably increased our earnings run rate associated with these balances leading into 2019. And these income streams, combined with the fee income we generate from our originations, has also created significant diversity and a high level of certainty in our income sources. With respect to our balance sheet business, we continue to focus on growing our loan book. We grew this portfolio 48% in 2017 and another 24% in 2018 on $1.7 billion in new originations, and we now have a $3.3 billion portfolio heading into 2019. The income generated from these assets is a significant component of our earnings, and based on our strong pipeline, we remain confident in our ability to continue to grow this income stream in the future. As I have discussed in the past, the market remains fiercely competitive, and we do expect this environment to continue throughout 2019. While this will result in some margin compression on our agency product, it will be somewhat offset by reduced commission expenses. We also continue to extend out the duration of our servicing portfolio and have been increasing our average loan size with larger deals that will drive down our servicing costs, creating more long-dated, predictable annuity of income. In addition, as we have talked about on our last few calls, we remain very committed to growing our presence in the single-family rental market We believe the single-family rental market is as big as the multi-family market and at this point is very fragmented and we are very committed to becoming a leader in this space. We were an active participant in the Freddie Mac SFR pilot program prior to its conclusion and we achieved a significant amount of success in a very short period of time. And we are now investing heavily to build out the appropriate infrastructure to develop this platform and are very pleased in our ability to generate a pipeline already. In addition, we announced earlier this week we hired Steve Katz as Chief Investment Officer of SFR to lead in continuing to develop this platform. Steve comes with over 25 years of experience in residential mortgage banking and recently was a Managing Director of residential loan trading and lending groups from Morgan Stanley. We're very, very excited to have Steve join our executive team and are looking forward to leveraging Steve's expertise and our national sales and operational platform to significantly grow this business and further diversify our lending platform. Overall, we're extremely pleased with our 2018 results and in the tremendous success we are having in growing our business. greatly enhancing the value of our franchise and the significant returns we have generated to our shareholders. Our results have been truly remarkable and have consistently outperformed our peers. We're also very excited about our ability to continue to grow our brand, expand our market presence, and feel we have created a very strong baseline of diversified, predictable core earnings heading into 2019. We're a complete operating franchise with a significant, diverse, capital-light agency business, which has allowed us to consistently increase our earnings and create more predictable, stable, and long-dated income streams. And again, we remain confident in our ability to continue to grow our dividend in the future and will continue to work very hard to maximize the return to our shareholders. I will now turn the call over to Paul to take you through our financial results.