Arbor Realty Trust

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2019 Arbor Realty Trust earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that portion of the call, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and 0. Now it's my pleasure to turn the conference over to your Chief Financial Officer, Paul Elenio. Please go ahead.

Okay, thank you, Carmen, 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-end of December 31st, 2019. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. And before we begin, I just want to inform you that Ivan is in transit due to some unforeseen travel issues this morning, as is Audio sounds clear, but to the extent that we lose him, I'll pick up his prepared remarks, and then we'll get him back. So before we begin, I need to inform you that statements made in the earnings call may be deemed forward-looking statements that are subject to risk and uncertainties, including information about possible 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 occurrence of unanticipated events. I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

Thank you, Paul, and thanks, everyone, for joining us on today's call. We are very excited today to discuss the significant success we had in closing out 2019, as well as our plans and outlook for 2020. As you can see from this morning's press release, we had an outstanding fourth quarter with tremendous operating results, which continues to demonstrate the strength of our brand and the value of our operating franchise. Additionally, the significant growth we had experienced in 2019 has provided us with a very strong baseline of predictable and stable core earnings heading into 2020, making us very confident in our ability to comfortably maintain our dividend as well as grow it in the future. Over the last five years, we have delivered annualized shareholder returns of approximately 30%, significantly outperforming our peers in each and every year. And this performance, combined with the quality and diversity of our income streams, along with the consistency of our earnings and low dividend payout ratio, clearly differentiates us, which is why we believe we should consistently create a lower dividend yield and a substantial premium to our peer group. Focusing now on our 2019 accomplishments, some of the more significant highlights include generating substantial growth in our core earnings, allowing us to increase our dividend three times to an annual rate of $1.20 a share up from $1.08 per share, delivering a total return of 54% in 2019, and 175% cumulative relief for the last five years with an annualized return of approximately 30%. Achieving returns on equity of 14.5%, a 35% increase in the last two years. Reducing record originations to $7.6 billion, a 12% increase from our record 2018 numbers. Increasing our balance sheet portfolio 30% in 2019 to $4.3 billion. Lowering our servicing portfolio to $20 billion, an 8% increase from 2018, and a 48% increase over the last three years. Continuing to be a market leader in the non-recourse securitization arena, closing two new CLOs totaling $1.3 billion with improved terms and flexibility, achieving significant economies of scale with substantially reduced debt costs in all of our borrowing facilities, allowing us to maintain our margins in a very competitive market. raising $450 million of accretive growth capital to fund our growing pipeline and increase core earnings, and increasing our market cap to approximately $2 billion, allowing us to access growth capital more efficiently and effectively. To highlight this incredible success further, I would like to talk about the growth we experienced in our business platforms. In our agency business, we grew our service portfolio 8% in 2019 and 20% over the last two years. This servicing portfolio is now over $20 billion with a servicing fee of 44 basis points and has an average remaining life of nine years, which reflects a 10% increase in duration over the last two years. As a result, we have created a very significant, predictable annuity of income of $88 million gross annually and growing, the majority of which is prepayment protected. And this growth in our servicing portfolio also continues to increase the annuity of income from our escrow balances, which is currently earning $16 million annually for a combined annual run rate of servicing income and escrow earnings of $104 million, which represents approximately 40% of our total annual revenues. We also produce significant origination volumes, causing $1.3 billion in agency loans in the fourth quarter and $4.8 billion for the year, with a strong margin and a very competitive market. And with our diverse origination platform and strong footprint in the multifamily affordable housing market, we are confident we'll be able to increase our origination volumes in 2020. In addition, as we talked about in our last call, we were active with our new Auburn private label product, which we launched as a result of the disruption in the agencies during the third quarter of last year. We closed $400 million of this product in 2019 and expect to close an additional $200 to $300 million in the next few months and issue our first securitization of around $600 to $700 million in the second quarter of this year. We are pleased with our progress to date and believe this product further diversifies our lending platform and will also act as a mitigant against further potential changes and disruptions with the agencies. 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 30% in 2019, on $2.8 billion in originations. Our balance sheet portfolio is now at $4.3 billion, and the significant growth we experience will continue to increase our run rate of net interest and go forward. It is also significant that multifamily assets, which is the