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What changed in ARBOR REALTY TRUST INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ARBOR REALTY TRUST INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+304 added−303 removedSource: 10-K (2023-12-31) vs 10-K (2022-12-31)

Top changes in ARBOR REALTY TRUST INC's 2023 10-K

304 paragraphs added · 303 removed · 240 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

56 edited+4 added−5 removed83 unchanged
Biggest changeAvg. ​ Remaining Months Type Asset Class Number Unpaid Principal Pay Rate (1) to Maturity Bridge Loans Multifamily ​ 436 ​ $ 12,830,999 8.20 % 20.4 ​ ​ Single-Family Rental ​ 241 ​ ​ 927,373 ​ 9.00 % 18.1 ​ ​ Land ​ 7 ​ ​ 118,595 ​ 0.12 % 0.5 ​ Office ​ 2 ​ 70,410 4.02 % 7.3 ​ Healthcare ​ 2 ​ 65,627 9.60 % 0.0 ​ Hotel ​ 1 ​ 40,850 9.02 % 0.6 ​ Student Housing ​ 1 ​ 25,700 9.02 % 10.5 ​ Retail ​ 2 ​ 16,500 8.13 % 21.8 ​ ​ ​ 692 ​ ​ 14,096,054 ​ 8.17 % 19.8 Mezzanine Loans Multifamily ​ 40 ​ 194,621 8.66 % 68.1 ​ ​ Other ​ 4 ​ ​ 18,878 ​ 2.59 % 10.8 ​ ​ ​ 44 ​ 213,499 8.13 % 63.1 Preferred Equity Multifamily ​ 4 ​ 91,300 9.25 % 41.3 ​ Other ​ 4 ​ 19,425 — % 29.0 ​ ​ ​ 8 ​ ​ 110,725 ​ 7.63 % 39.2 Other Single‑Family Rental ​ 3 ​ 35,845 8.76 % 32.8 Total ​ ​ 747 ​ $ 14,456,123 ​ 8.17 % 20.6 (1) “Weighted Average Pay Rate” is a weighted average, based on each loan’s unpaid principal balance (“UPB”), of our interest rate required to be paid monthly as stated in the individual loan agreements.
Biggest changeRemaining Months to Maturity (2) Bridge Loans Multifamily 316 $ 10,789,936 8.36 % 12.1 Single‑Family Rental 354 1,316,803 9.87 % 12.7 Land 7 118,595 0.13 % 0.3 Office 1 35,410 8.98 % 7.6 Retail 1 12,500 8.98 % 11.1 679 12,273,244 8.45 % 12.0 Mezzanine Loans Multifamily 46 232,104 8.77 % 60.3 Other 3 16,353 3.35 % 4.5 49 248,457 8.41 % 56.6 Preferred Equity Multifamily 14 75,941 4.46 % 66.6 Other 3 9,800 — 10.7 17 85,741 3.95 % 60.3 Other Single‑Family Rental 2 7,564 9.84 % 13.9 Total 747 $ 12,615,006 8.42 % 13.2 ________________________________________ (1) “Weighted Average Pay Rate” is a weighted average, based on each loan’s unpaid principal balance (“UPB”), of our interest rate required to be paid monthly as stated in the individual loan agreements.
In general, our underwriting guidelines require evaluation of the following: ● The borrower and each person directing a borrowing entity’s activities (a “key principal”), including a review of their experience, credit, operating, bankruptcy and foreclosure history; ● Historic and current property revenues and expenses; ● Potential for near-term revenue growth and opportunity for expense reduction and increased operating efficiencies; ● Property location, its attributes and competitive position within its market; ● Proposed ownership structure, financial strength and real estate experience of the borrower and property management; ● Third-party appraisal, environmental review, flood certification, zoning and engineering studies; ● Market assessment, including property inspection, review of tenant lease files, surveys of comparable properties and an analysis of area economic and demographic trends; ● Review of an acceptable mortgagee’s title policy and an “as built” survey; ● Construction quality of the property to determine future maintenance and capital expenditure requirements; ● The requirements for any reserves, including those for immediate repairs or rehabilitation, replacement reserves, tenant improvement and leasing commission costs, real estate taxes and property casualty and liability insurance; and ● For any application for one of our Agency products, we will underwrite the loan to the relevant agency or Company guidelines.
In general, our underwriting guidelines require evaluation of the following: • The borrower and each person directing a borrowing entity’s activities (a “key principal”), including a review of their experience, credit, operating, bankruptcy and foreclosure history; • Historic and current property revenues and expenses; • Potential for near-term revenue growth and opportunity for expense reduction and increased operating efficiencies; • Property location, its attributes and competitive position within its market; • Proposed ownership structure, financial strength and real estate experience of the borrower and property management; • Third party appraisal, environmental review, flood certification, zoning and engineering studies; 6 Table of Contents • Market assessment, including property inspection, review of tenant lease files, surveys of comparable properties and an analysis of area economic and demographic trends; • Review of an acceptable mortgagee’s title policy and an “as built” survey; • Construction quality of the property to determine future maintenance and capital expenditure requirements; • The requirements for any reserves, including those for immediate repairs or rehabilitation, replacement reserves, tenant improvement and leasing commission costs, real estate taxes and property casualty and liability insurance; and • For any application for one of our agency products, we will underwrite the loan to the relevant agency or Company guidelines.
Certain loans and investments that require an additional rate of interest “accrual rate” to be paid at maturity are not included in the weighted average pay rate as shown in the table. Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.42%.
Certain loans and investments that require an additional rate of interest “accrual rate” to be paid at maturity are not included in the weighted average pay rate as shown in the table. Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.98%.
We have a dedicated recruitment team which leverages internal and external resources to enable successful employee recruitment. We emphasize employee development and training and have established Arbor University, an on-line portal with a variety of training and development courses for our employees. Our compensation and benefit programs aim to attract, retain, and motivate employees to achieve superior results.
We have a dedicated recruitment team which leverages internal and external resources to enable successful employee recruitment. We emphasize employee development and training and have established Arbor University, an online portal with a variety of training and development courses for our employees. Our compensation and benefit programs aim to attract, retain, and motivate employees to achieve superior results.
The foregoing description of the bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the bylaws, a copy of which is attached hereto as Exhibit 3.9. 11 Table of Contents Our internet address is www.arbor.com.
The foregoing description of the bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the bylaws, a copy of which is attached hereto as Exhibit 3.9. Our internet address is www.arbor.com.
These securities are generally carried at cost and are often purchased at a discount to their face value, which is accreted into interest income, if deemed collectable, over the expected remaining life of the related security as a yield adjustment. 4 Table of Contents Structured Business Portfolio Overview Loan and investment portfolio product type and asset class information at December 31, 2022 is as follows ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Wtd.
These securities are generally carried at cost and are often purchased at a discount to their face value, which is accreted into interest income, if deemed collectable, over the expected remaining life of the related security as a yield adjustment. 4 Table of Contents Structured Business Portfolio Overview Loan and investment portfolio product type and asset class information at December 31, 2023 is as follows ($ in thousands): Type Asset Class Number Unpaid Principal Wtd.
We also meet a significant portion of our restricted liquidity requirements and purchase and loss obligations with Fannie Mae and Freddie Mac through letters of credit issued by a financial institution. 8 Table of Contents Credit Risk Management Policy.
We also meet a significant portion of our restricted liquidity requirements and purchase and loss obligations with Fannie Mae and Freddie Mac through letters of credit issued by a financial institution. Credit Risk Management Policy.
Human Capital At December 31, 2022, we employed 630 individuals, none of which are represented by a union or subject to a collective bargaining agreement, and we have never experienced a work stoppage. The attraction, development and retention of our employees is a critical success factor for our business.
Human Capital At December 31, 2023, we employed 647 individuals, none of which are represented by a union or subject to a collective bargaining agreement, and we have never experienced a work stoppage. The attraction, development and retention of our employees is a critical success factor for our business.
Servicing revenue is generated from the fees we receive for servicing the loans and on escrow deposits held on behalf of borrowers, net of amortization on the MSR assets. Our income from MSRs as a percentage of loan commitment volume (“MSR rate”) was 135 basis points for 2022.
Servicing revenue is generated from the fees we receive for servicing the loans and on escrow deposits held on behalf of borrowers, net of amortization on the MSR assets. Our income from MSRs as a percentage of loan commitment volume (“MSR rate”) was 134 basis points for 2023.
We have solid relationships with a large nationwide borrower base and maintain a strong reputation in the commercial real estate finance industry. Through the expertise of our originators, we offer a wide range of customized financing solutions and benefit from our existing customer base by using existing business to create potential refinancing opportunities. Long-Established Relationships with GSEs.
Use Our Relationships with Existing Borrowers. We have solid relationships with a large nationwide borrower base and maintain a strong reputation in the commercial real estate finance industry. Through the expertise of our originators, we offer a wide range of customized financing solutions and benefit from our existing customer base by using existing business to create potential refinancing opportunities.
Junior participation financings have the same obligations, collateral and borrower as the senior debt. The junior participation interest is subordinated to the senior debt by virtue of a contractual agreement between the senior debt lender and the junior participating interest lender.
Junior participation financings have the same obligations, collateral and borrower as the senior debt. The junior participation interest 3 Table of Contents is subordinated to the senior debt by virtue of a contractual agreement between the senior debt lender and the junior participating interest lender.
We have implemented several policies, through board action and through the terms of our charter and our agreements with ACM, to help address these conflicts of interest, including the following: ● Our charter requires that a majority of our Board of Directors be independent directors and that only independent directors make any determination on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers; and ● Decisions concerning our participation in any transaction with ACM, or its affiliates, including our ability to purchase securities and mortgages or other assets from ACM, or our ability to sell securities and assets to ACM, must be reviewed and approved or ratified by a majority of our independent directors. 9 Table of Contents Our Board of Directors has approved the operating policies and the strategies set forth above.
We have implemented several policies, through board action and through the terms of our charter and our agreements with ACM, to help address these conflicts of interest, including the following: • Our charter requires that a majority of our Board of Directors be independent directors and that only independent directors make any determination on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers; and • Decisions concerning our participation in any transaction with ACM, or its affiliates, including our ability to purchase securities and mortgages or other assets from ACM, or our ability to sell securities and assets to ACM, must be reviewed and approved or ratified by a majority of our independent directors.
Subject to applicable law, our Board of Directors has the authority, without further stockholder approval, to issue additional authorized common stock and preferred stock or otherwise raise capital, including through the issuance of senior securities and convertible debt instruments, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property.
Subject to applicable law, our Board of Directors have the authority, without further stockholder approval, to issue additional previously authorized common stock and preferred stock or otherwise raise capital, including through the issuance of debt instruments, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property.
We have, and may in the future, invest in bond securities, such as those issued by Freddie Mac SBL securitizations from loans originated under the Freddie Mac SBL program and SFR bonds.
We have, and may in the future, invest in bond securities, such as those issued by Freddie Mac SBL securitizations from loans originated under the Freddie Mac SBL program and APL certificates.
These transactions may include interest rate and credit default swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments.
These transactions may include over-the-counter treasury futures, interest rate and credit default swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments.
Our Board of Directors has the power to modify or waive these policies and strategies without the consent of our stockholders to the extent that the Board of Directors determines that such modification or waiver is in the best interest of our stockholders.
Our Board of Directors has approved the operating policies and the strategies set forth above. Our Board of Directors has the power to modify or waive these policies and strategies without the consent of our stockholders to the extent that the Board of Directors determines that such modification or waiver is in the best interest of our stockholders.
We pool and securitize the Private Label loans and sell certificates in the securitizations to third-party investors, while retaining the servicing rights and the highest risk bottom tranche certificate of the securitization (“APL certificates”).
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 (“APL certificates”).
We also originate and service permanent financing loans 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 conduit/commercial mortgage-backed securities (“CMBS”) programs.
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 conduit/commercial mortgage-backed securities (“CMBS”) programs.
We, our executive officers, and Arbor Commercial Mortgage, LLC (“ACM”) face conflicts of interests because of our relationships with each other and the way in which our business is structured. ACM has approximately 7% of the voting interest in our stock at December 31, 2022.
We, our executive officers, and Arbor Commercial Mortgage, LLC (“ACM”), our former manager, face conflicts of interests because of our relationships with each other and the way in which our business is structured. ACM has 8 Table of Contents approximately 6% of the voting interest in our stock at December 31, 2023.
Our Agency Business benefits from our long-established relationships with Fannie Mae, Freddie Mac and HUD enabling us to offer a broad range of loan products and services which maximizes our ability to meet borrowers’ needs. Leverage the Experience of Executive Officers and Our Employees. Our executive officers and employees have extensive experience originating and managing structured commercial real estate investments.
Long-Established Relationships with GSEs. Our Agency Business benefits from our long-established relationships with Fannie Mae, Freddie Mac and HUD enabling us to offer a broad range of loan products and services which maximizes our ability to meet borrowers’ needs. Leverage the Experience of Executive Officers and Our Employees.
Loans originated under GSE and HUD programs, as well as our SFR fixed rate product, are generally sold within 60 days from the loan origination date, while our Private Label loans are pooled and generally expected to be sold and securitized within 180 days of loan origination.
Loans originated under GSE and HUD programs, as well as our SFR fixed rate product, are generally sold within 60 days from the 5 Table of Contents loan origination date. Our Private Label loans are either sold instantaneously or pooled and securitized, or sold, generally within 180 days of loan origination.
Our loan activity in 2022 was comprised of originations totaling $4.77 billion, sales totaling $5.44 billion and commitment volume totaling $5.15 billion. Our gains and fees as a percentage of our loan sales volume (“sales margin”) was 134 basis points for 2022.
Our loan activity in 2023 was comprised of originations totaling $5.11 billion, sales totaling $4.89 billion and commitment volume totaling $5.21 billion. Our gains and fees as a percentage of our loan sales volume (“sales margin”) was 148 basis points for 2023.
We underwrite, originate, sell and service multifamily mortgage loans across the U.S. through the GSE and HUD programs and also originate and sell loans through the conduit markets. Our focus is primarily on small balance loans. Private Label. We underwrite, originate and service permanent financing loans underwritten using similar guidelines of our existing agency loans sold to the GSEs.
We underwrite, originate, sell and service multifamily mortgage loans across the U.S. through the GSE and HUD programs and also originate and sell loans through the conduit markets. Our focus is primarily on small balance loans. Private Label.
Following the funding of an approved loan, all pertinent loan data is entered into our data processing system, which provides monthly billing statements, tracks payment performance and processes contractual interest rate adjustments on variable rate loans.
Following the funding of an approved loan, all pertinent loan data is entered into our data processing system, which provides monthly billing statements, tracks payment performance and processes contractual interest rate adjustments on variable rate loans. The servicing group works closely with our asset management group to ensure the appropriate level of customer service and monitoring of loans.
The overall yield on our loan and investment portfolio in 2022 was 6.26% on average assets of $14.38 billion, which was computed by dividing the interest income earned during 2022 by the average assets during 2022.
The overall yield on our loan and investment portfolio in 2023 was 9.18% on average assets of $13.53 billion, which was computed by dividing the interest income earned during 2023 by the average assets during 2023.
Our cost of funds in 2022 was 4.07% on average borrowings of $13.24 billion, which was computed by dividing the interest expense incurred during 2022 by the average borrowings during 2022. At December 31, 2022, our loan and investment portfolio were comprised of 97% floating rate loans and 3% fixed rate loans.
Our cost of funds in 2023 was 7.15% on average borrowings of $12.31 billion, which was computed by dividing the interest expense incurred during 2023 by the average borrowings during 2023. At December 31, 2023, our loan and investment portfolio was comprised of 94% floating rate loans and 6% fixed rate loans.
The servicing group works closely with our asset management group to ensure the appropriate level of customer service and monitoring of loans. 7 Table of Contents For most loans serviced under the Fannie Mae DUS program, we are required to advance, in the event of a borrower failing to pay, the principal and interest payments and tax and insurance escrow amounts associated with a loan for four months.
For most loans serviced under the Fannie Mae DUS program, we are required to advance, in the event of a borrower failing to pay, the principal and interest payments and tax and insurance escrow amounts associated with a loan for four months.
The loss of one or more of these approvals would have a material adverse impact on our operations and could result in further disqualification with other counterparties. 10 Table of Contents Competition We face significant competition across our business, including, but not limited to, other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, some of which may have greater name recognition, financial resources and lower costs of capital available to them.
Competition We face significant competition across our business, including, but not limited to, other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, some of which may have greater name recognition, financial resources and lower costs of capital available to them.
The prior bylaws mandated that all meetings of stockholders be held at a physical location. There were also a number of other changes made that were deemed necessary to conform to the Securities and Exchange Commission’s (“SEC”) universal proxy rules.
There were also a number of other changes made that were deemed necessary to conform to the Securities and Exchange Commission’s (“SEC”) universal proxy rules.
We actively manage the credit quality of our portfolio by using the expertise of our asset management group, which has a proven track record of structuring and repositioning investments to improve credit quality and yield. Use Our Relationships with Existing Borrowers.
Manage Credit Quality. A critical component of our strategy is our ability to manage the real estate risks associated with our investment portfolio. We actively manage the credit quality of our portfolio by using the expertise of our asset management group, which has a proven track record of structuring and repositioning investments to improve credit quality and yield.
Key factors considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property financial and operating performance.
The underwriters analyze each loan application in accordance with the guidelines below to determine the loan’s conformity with the guidelines. Key factors considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property financial and operating performance.
Requirements of the GSEs and HUD To maintain our status as an approved lender for Fannie Mae and Freddie Mac and as a HUD-approved mortgagee and issuer of Ginnie Mae securities, we are required to meet and maintain various eligibility criteria established by these entities, such as minimum net worth, operational liquidity and collateral requirements and compliance with reporting requirements.
We endeavor to ensure these properties are complying in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. 9 Table of Contents Requirements of the GSEs and HUD To maintain our status as an approved lender for Fannie Mae and Freddie Mac and as a HUD-approved mortgagee and issuer of Ginnie Mae securities, we are required to meet and maintain various eligibility criteria established by these entities, such as minimum net worth, operational liquidity and collateral requirements and compliance with reporting requirements.
We target borrowers whose options may be limited by conventional bank financing, have demonstrated a history of enhancing the value of the properties they operate and who may benefit from the customized financing solutions we offer. Execute Transactions Rapidly. We act quickly and decisively on proposals, provide commitments and close transactions within a few weeks and sometimes days, if required.
We target borrowers whose options may be limited by conventional bank financing, have demonstrated a history of enhancing the value of the properties they operate and who may benefit from the customized financing solutions we offer. 2 Table of Contents Execute Transactions Rapidly.
These borrowers are usually looking to purchase properties to hold for the long-term with permanent financing or acquire investments to develop with bridge, build-to-rent or line of credit financing options. 3 Table of Contents Mezzanine Financing.
We offer various financing products to borrowers who are looking to acquire conventional, workforce and affordable single-family rental housing. These borrowers are usually looking to purchase properties to hold for the long-term with permanent financing or acquire investments to develop with bridge, build-to-rent or line of credit financing options. Mezzanine Financing.
(2) No other individual state represented 4% or more of the total. Operations The following describes our lending and investment process for both our Structured and Agency Businesses. Origination.
(2) Represents four bridge loans sold by our Structured Business that we are servicing. See Note 3 for details. (3) No other individual state represented 4% or more of the total. Operations The following describes our lending and investment process for both our Structured and Agency Businesses. Origination.
We have a network of sales and support offices in California, Florida, Georgia, Indiana, Maryland, Massachusetts, New Jersey, New York, Ohio, Oklahoma, Pennsylvania and Texas that staff approximately 26 loan originators who solicit property owners, developers, and mortgage loan brokers.
We have a network of sales and support offices in California, Florida, Indiana, Maryland, Massachusetts, Michigan, New Jersey, New York and Pennsylvania that staff 26 loan originators who solicit property owners, developers, and mortgage loan brokers. In some instances, the originators accept loan applications which meet our underwriting criteria from a select group of mortgage loan brokers.
We retain the servicing rights and asset management responsibilities on substantially all Agency Business loans. Other Investment Opportunities Real Property. We have, and may in the future, obtain real estate by foreclosure, through partial or full settlement of mortgage debt related to our loans.
We have, and may in the future, obtain real estate by foreclosure, through partial or full settlement of mortgage debt related to our loans.
Our bridge loans are predominantly secured by first mortgage liens on the properties. Additional yield enhancements may include origination fees, deferred interest, yield look-backs, and participating interests, which are equity interests in the borrower that share in a percentage of the underlying cash flows of the property.
Additional yield enhancements may include origination fees, deferred interest, yield look-backs, and participating interests, which are equity interests in the borrower that share in a percentage of the underlying cash flows of the property. Borrowers typically use the proceeds of a conventional mortgage, such as our GSE/agency loans, to repay a bridge loan. SFR Portfolio Financing.
Our underwriters perform due diligence on all proposed transactions prior to approval and commitment using several tools to manage and mitigate potential loan losses and risk sharing exposure. The underwriters analyze each loan application in accordance with the guidelines below to determine the loan’s conformity with the guidelines.
Upon completion by the borrower, the application is forwarded to our underwriters for due diligence. Underwriting and Risk Management. Our underwriters perform due diligence on all proposed transactions prior to approval and commitment using several tools to manage and mitigate potential loan losses and risk sharing exposure.
Agency Business servicing portfolio product and geographic concentration information at December 31, 2022 is as follows ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product Concentrations Geographic Concentrations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Wtd.
Agency Business servicing portfolio product and geographic concentration information at December 31, 2023 is as follows ($ in thousands): Product Concentrations Geographic Concentrations Product Loan Count UPB (1) Percent of Total Wtd. Avg. Servicing Fee Rate (basis points) Wtd. Avg.
The borrower has usually identified an undervalued asset that has been under managed and/or is in a recovering market. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows for time to improve the property value without encumbering it with restrictive, long-term debt that may not reflect optimal leverage for a non-stabilized property.
From the borrower’s perspective, shorter term bridge financing is advantageous because it allows for time to improve the property value without encumbering it with restrictive, long-term debt that may not reflect optimal leverage for a non-stabilized property. Our bridge loans are predominantly secured by first mortgage liens on the properties.
Loan originators in every sales office can offer borrowers the full array of finance products for both the Structured and Agency businesses. After identifying a suitable product, we work with the borrower to prepare a loan application. Upon completion by the borrower, the application is forwarded to our underwriters for due diligence. 6 Table of Contents Underwriting and Risk Management.
Once potential borrowers have been identified, we determine which of our financing products best meet the borrower’s needs. Loan originators in every sales office can offer borrowers the full array of finance products for both the Structured and Agency businesses. After identifying a suitable product, we work with the borrower to prepare a loan application.
Our senior management team has, on average, over 30 years of experience in the financial services industry. Our Primary Targeted Investments We pursue short-term and long-term lending and investment opportunities and primarily target transactions where we believe we have competitive advantages, particularly our lower cost structure and in-house underwriting capabilities.
Our Primary Targeted Investments We pursue short-term and long-term lending and investment opportunities and primarily target transactions where we believe we have competitive advantages, particularly our lower cost structure and in-house underwriting capabilities. Our primary focus has been, and continues to be, first mortgage lending in the highly attractive and stable multifamily real estate sector.
Our primary focus has been, and continues to be, first mortgage lending in the highly attractive and stable multifamily real estate sector. Through our Structured Business, we offer the following investment types: Bridge Financing. We offer bridge financing products to borrowers who are typically seeking short-term capital to use in an acquisition of property.
Through our Structured Business, we offer the following investment types: Bridge Financing. We offer bridge financing products to borrowers who are typically seeking short-term capital to use in an acquisition of property. The borrower has usually identified an undervalued asset that has been under managed and/or is in a recovering market.
We also own unconsolidated investments in equity affiliates totaling $79.1 million, which consists primarily of a joint venture formed to invest in a residential mortgage banking business and an investment in a multifamily-focused commercial real estate investment fund. 5 Table of Contents Agency Business Lending and Servicing Overview One of the Agency Business’s primary sources of revenue are the gains and fees recognized from the origination and sale of mortgage loans.
We also own unconsolidated investments in equity affiliates totaling $79.3 million and described in more detail in Note 8. Agency Business Lending and Servicing Overview One of the Agency Business’s primary sources of revenue are the gains and fees recognized from the origination and sale of mortgage loans.
Corporate Governance and Internet Address Effective February 15, 2023, our Board of Directors approved and adopted the amended and restated bylaws. The bylaws include revisions to Article II, Section 1 to clarify that all meetings of stockholders may be held partially or solely by means of remote communication.
The bylaws include revisions to Article II, Section 1 to clarify that all meetings of stockholders may be held partially or solely by means of remote communication. The prior bylaws mandated that all meetings of stockholders be held at a physical location.
We pool and securitize the Private Label loans and sell certain certificates in the securitizations to third-party investors, while retaining the APL certificates. SFR Fixed Rate. We underwrite, originate and service long-term permanent fixed rate loans on SFR properties. The loans are subsequently sold to third-party investors while retaining mortgage servicing.
We underwrite, originate and service 5 to 10 year fixed rate permanent financing loans underwritten using similar guidelines of our existing agency loans sold to the GSEs. We either sell the Private Label loans instantaneously or pool and securitize them and sell certain certificates in the securitizations to third party investors, while retaining the APL certificates. SFR Fixed Rate.
We believe that our rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available and that our ability to structure flexible terms and close loans quickly gives us a competitive advantage. Manage Credit Quality. A critical component of our strategy is our ability to manage the real estate risks associated with our investment portfolio.
We act quickly and decisively on proposals, provide commitments and close transactions within a few weeks and sometimes days, if required. We believe that our rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available and that our ability to structure flexible terms and close loans quickly gives us a competitive advantage.
In our Agency Business, our primary focus is growing the fees generated from our origination platform and the stable earnings associated with our servicing portfolio.
In our Agency Business, our primary focus is growing the fees generated from our origination platform and the stable earnings associated with our servicing portfolio. Our primary objectives are to generate cash available for distribution and facilitate capital appreciation, which we believe can be achieved through the following investment strategies.
Avg. ​ Life of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent ​ Servicing Fee ​ Servicing ​ ​ ​ UPB ​ ​ Loan ​ ​ ​ ​ of ​ Rate ​ Portfolio ​ ​ ​ Percentage Product Count UPB (1) Total (basis points) (years) State of Total Fannie Mae 2,460 ​ $ 19,038,124 68 % 50.2 8.0 Texas 11 % Freddie Mac 1,214 ​ 5,153,207 18 % 25.0 9.0 New York 11 % Private Label 130 ​ 2,074,859 8 % 18.5 7.6 California 8 % FHA ​ 96 ​ ​ 1,155,893 ​ 4 % 14.9 ​ 19.5 ​ North Carolina ​ 8 % Bridge ​ 4 ​ ​ 301,182 ​ 1 % 12.5 ​ 1.7 ​ Georgia ​ 6 % SFR - Fixed Rate ​ 53 ​ ​ 274,764 ​ 1 % 19.8 ​ 6.0 ​ Florida ​ 5 % Total 3,957 ​ $ 27,998,029 100 % 41.1 8.6 New Jersey 5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Illinois 4 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other (2) 42 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total 100 % (1) Excludes loans in which we are not collecting a servicing fee.
Life of Portfolio (years) State UPB Percentage of Total Fannie Mae 2,559 $ 21,264,578 69 % 47.4 7.4 Texas 11 % Freddie Mac 1,148 5,181,933 17 % 24.0 8.5 New York 11 % Private Label 160 2,510,449 8 % 19.5 6.7 California 8 % FHA 105 1,359,624 4 % 14.4 19.2 North Carolina 8 % Bridge (2) 4 379,425 1 % 10.9 3.2 Georgia 6 % SFR - Fixed Rate 59 287,446 1 % 20.1 5.1 Florida 6 % Total 4,035 $ 30,983,455 100 % 39.1 8.0 New Jersey 5 % Illinois 4 % Other (3) 41 % Total 100 % ________________________________________ (1) Excludes loans in which we are not collecting a servicing fee.
Timely and accurate identification of an investment’s operational and financial issues and each borrower’s objectives is essential to implementing an executable loan workout and restructuring process, if required.
This group communicates the status of each transaction against its established asset management plan to senior management, in order to enhance and preserve capital, as well as to avoid litigation and potential exposure. 7 Table of Contents Timely and accurate identification of an investment’s operational and financial issues and each borrower’s objectives is essential to implementing an executable loan workout and restructuring process, if required.
To assess and improve employee retention and engagement, we conduct periodic employee surveys and take actions designed to address areas of employee concerns. We believe the combination of competitive compensation, career growth and development opportunities, including promoting employees from within, have helped manage our employee tenure and voluntary turnover.
We believe the combination of competitive compensation, career growth and development opportunities, including promoting employees from within, have helped manage our employee tenure and voluntary turnover. 10 Table of Contents Corporate Governance and Internet Address Effective February 15, 2023, our Board of Directors approved and adopted the amended and restated bylaws.
In addition, the agencies have the authority under their guidelines to terminate a lender’s authority to sell loans to it and service their loans.
In addition, the agencies have the authority under their guidelines to terminate a lender’s authority to sell loans to it and service their loans. The loss of one or more of these approvals would have a material adverse impact on our operations and could result in further disqualification with other counterparties.
Loan and investment portfolio asset class and geographic concentration information at December 31, 2022 is as follows ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Geographic ​ ​ ​ Asset Class UPB Percentage Concentrations UPB Percentage ​ Multifamily ​ $ 13,116,920 91 % Texas ​ $ 3,246,422 22 % Single-Family Rental ​ ​ 963,218 ​ 7 % Florida ​ ​ 2,072,269 ​ 14 % Land ​ 136,028 1 % Georgia ​ 1,298,274 9 % Office ​ 80,035 1 % North Carolina ​ 924,813 6 % Healthcare ​ 65,627 % New York ​ 682,590 5 % Hotel ​ ​ 40,850 ​ % Other (1) ​ ​ 6,231,755 ​ 44 % Other ​ ​ 53,445 ​ % Total ​ $ 14,456,123 ​ 100 % Total ​ $ 14,456,123 100 % ​ ​ ​ ​ ​ ​ ​ (1) No other individual state represented 4% or more of the total.
Loan and investment portfolio asset class and geographic concentration information at December 31, 2023 is as follows ($ in thousands): Asset Class UPB Percentage Geographic Concentrations UPB Percentage Multifamily $ 11,097,981 88 % Texas $ 3,038,417 24 % Single-Family Rental 1,324,367 10 % Florida 2,128,952 17 % Land 136,028 1 % Georgia 1,174,465 9 % Office 35,410 North Carolina 685,945 5 % Other 21,220 New York 531,006 4 % Total $ 12,615,006 100 % Other (1) 5,056,221 41 % Total $ 12,615,006 100 % ________________________________________ (1) No other individual state represented 4% or more of the total.
Our primary objectives are to generate cash available for distribution and facilitate capital appreciation, which we believe can be achieved through the following investment strategies. 2 Table of Contents Investment Strategy The financing of multifamily, senior housing, healthcare, SFR and other diverse commercial real estate offers opportunities that demand customized financing solutions.
Investment Strategy The financing of multifamily, SFR and other diverse commercial real estate offers opportunities that demand customized financing solutions.
This group also focuses on increasing the productivity of onsite property managers and leasing brokers. This group communicates the status of each transaction against its established asset management plan to senior management, in order to enhance and preserve capital, as well as to avoid litigation and potential exposure.
This group also focuses on increasing the productivity of onsite property managers and leasing brokers.
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Borrowers typically use the proceeds of a conventional mortgage, such as our GSE/agency loans, to repay a bridge loan. SFR Portfolio Financing. We offer various financing products to borrowers who are looking to acquire conventional, workforce and affordable single-family rental housing.
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Our executive officers and employees have extensive experience originating and managing structured commercial real estate investments. Our senior management team has, on average, over 30 years of experience in the financial services industry.
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We underwrite, originate and service long-term permanent fixed rate loans on SFR properties. The loans are subsequently sold to third party investors while retaining mortgage servicing. We retain the servicing rights and asset management responsibilities on substantially all Agency Business loans. Other Investment Opportunities Real Property.
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Avg. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Wtd.
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(2) Including extension options, the weighted average remaining months to maturity was 29.4.
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In some instances, the originators accept loan applications which meet our underwriting criteria from a select group of mortgage loan brokers. Once potential borrowers have been identified, we determine which of our financing products best meet the borrower’s needs.
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To assess and improve employee retention and engagement, we conduct periodic employee surveys and take actions designed to address areas of employee concerns.
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We endeavor to ensure these properties are complying in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe may not be able to hire and retain qualified loan originators or grow and maintain our relationships with key customers, and if we are unable to do so, our ability to implement our business and growth strategies could be limited.
Biggest changeMore generally, any of the above changes or any other consequential changes to SOFR, or any other “benchmark,” as a result of international, national or other proposals for reform or other initiatives or investigations, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of and return on any securities based on or linked to a “benchmark.” We may not be able to hire and retain qualified loan originators or grow and maintain our relationships with key customers, and if we are unable to do so, our ability to implement our business and growth strategies could be limited.
Moreover, we may not be able to meet our debt service obligations and, in such event, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We may guarantee some of the leverage and contingent obligations of our subsidiaries.
Moreover, we may not be able to meet our debt service obligations and, in such event, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We guarantee some of the leverage and contingent obligations of our subsidiaries.
We may guarantee the performance of the obligations of our subsidiaries, including credit and repurchase facilities, derivative agreements and unsecured indebtedness. Non-performance on such obligations may cause losses to us in excess of the capital invested in our subsidiary and there is no assurance that we will have sufficient capital to cover any such losses.
We guarantee the performance of the obligations of our subsidiaries, including credit and repurchase facilities, derivative agreements and unsecured indebtedness. Non-performance on such obligations may cause losses to us in excess of the capital invested in our subsidiary and there is no assurance that we will have sufficient capital to cover any such losses.
We cannot assure that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses. We may enter into derivative contracts that could expose us to contingent liabilities in the future.
We cannot assure that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses. We enter into derivative contracts that could expose us to contingent liabilities in the future.
Our estimates and judgments are based on several factors, including projected cash flows from the collateral securing our loans, loan structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at loan maturity, potential for refinancing by other lenders and expected market discount rates for varying property types.
Our estimates and judgments are based on several factors, including projected cash flows from the collateral securing our loans, debt structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at loan maturity, potential for refinancing by other lenders and expected market discount rates for varying property types.
Item 1A. Risk Factors Our business is subject to various risks, including the risks listed below. If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected, and the value of our common stock could decline. The risk factors listed below should not be considered an all-inclusive list.
Item 1A. Risk Factors Our business is subject to various risks, including the risks listed below. If any of these risks occur, our business, financial condition and results of operations could be materially adversely affected, and the value of our common stock could decline. The risk factors listed below should not be considered an all-inclusive list.
The SEC has provided guidance on the availability of this exemption and generally requires an exempt company to maintain at least 55% of its assets directly in “qualifying real estate interests.” To be considered a qualifying real estate interest test, an investment must meet various criteria.
The SEC has provided guidance on the availability of this exemption and generally requires an exempt company to maintain at least 55% of its assets directly in “qualifying real estate interests.” To be considered a qualifying real estate interest, an investment must meet various criteria.
Multifamily and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including fires and other casualties, natural disasters, acts of war and/or terrorism, adverse economic conditions, local real estate conditions (such as an oversupply of similar properties), changes or continued weakness in specific industry segments, construction quality, construction cost, age and design, demographic factors, retroactive changes to building or similar codes, increases in operating expenses (such as energy costs) and other factors that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investment.
Multifamily and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including fires and other casualties, natural disasters, acts of war and/or terrorism, adverse economic conditions, local real estate conditions (such as an oversupply of similar properties), changes or continued weakness in specific industry segments, construction quality, construction cost, age and design, demographic factors, retroactive changes to building or similar codes, increases in operating expenses (such as insurance, energy costs and real estate tax increases) and other factors that may cause unanticipated and uninsured performance declines and/or losses to us or the owners and operators of the real estate securing our investment.
In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could penetrate our security systems and access sensitive information about our business and employees.
In the course of our business, we gather, transmit and retain confidential information through our information systems. Although we endeavor to protect confidential information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could penetrate our security systems and access sensitive information about our business, borrowers and employees.
More particularly, the consequences of the COVID-19 pandemic that have had, and may continue to have in the future, adverse impacts on our business are as follows: ● During the onset of the pandemic, we experienced, and may experience in the future: o declines in the value of our assets, including our loan and securities portfolios, which could result in margin calls and other mandatory prepayments under the credit facilities we use to finance those assets; o an increase in payment delinquencies from our borrowers resulting in additional credit losses; and o an increase in the cost to obtain financing and other adverse effects of obtaining financing under terms and conditions that are less favorable to us, and if conditions worsen, could prevent us from obtaining financing at all; ● In the event of any forced sales of the securities and other assets that secure our repurchase and other financing arrangements, such sales may be on terms less favorable to us than might otherwise be available under normal conditions, which could result in losses; ● Disruptions in the credit markets have had, and may continue to have, a negative impact our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations; and ● To the extent conditions worsen, there may be a materially negative effect on our results of operations, and, in turn, on cash available for distribution to our stockholders, on the value of our assets and on the market price of our common stock.
More particularly, the consequences of the COVID-19 pandemic that have had, and may continue to have in the future, adverse impacts on our business are as follows: • During the course of the pandemic, we experienced, and may experience in the future: ◦ declines in the value of our assets, including our loan and securities portfolios, which could result in margin calls and other mandatory prepayments under the credit facilities we use to finance those assets; ◦ an increase in payment delinquencies from our borrowers resulting in additional credit losses; and ◦ an increase in the cost to obtain financing and other adverse effects of obtaining financing under terms and conditions that are less favorable to us, and if conditions worsen, could prevent us from obtaining financing at all; • In the event of any forced sales of the securities and other assets that secure our repurchase and other financing arrangements, such sales may be on terms less favorable to us than might otherwise be available under normal conditions, which could result in losses; • Disruptions in the credit markets have had, and may continue to have, a negative impact on our ability to execute on securitizations, which may have an adverse effect on our liquidity and results of operations; and • To the extent conditions worsen, there may be a materially negative effect on our results of operations, and, in turn, on cash available for distribution to our stockholders, on the value of our assets and on the market price of our common stock.
After four continuous months of making advances on behalf of the borrower, we can submit a reimbursement claim to Fannie Mae, which Fannie Mae may approve at its discretion. We are reimbursed by Fannie Mae for these advances in the event the loan is brought current.
After four continuous months of making advances on behalf of the borrower, we can submit a reimbursement claim to Fannie Mae, which Fannie Mae may approve in its discretion. We are reimbursed by Fannie Mae for these advances in the event the loan is brought current.
In return for such delegated authority and the commitment to purchase loans by Fannie Mae, we are required to share risk of loss on loans sold through Fannie Mae and we must provide collateral to Fannie Mae to secure any losses.
In return for such delegated authority and the commitment to purchase loans by Fannie Mae, we are required to share risk of loss on loans sold through Fannie Mae and we must provide collateral to Fannie Mae to secure any potential losses.
Shareholder advisory services and other organizations have developed and publish, and others may in the future develop and publish, rating systems and other scoring and reporting mechanisms to evaluate and compare our ESG performance with that of others in our industry.
Shareholder advisory services and other organizations have developed and published, and others may in the future develop and publish, rating systems and other scoring and reporting mechanisms to evaluate and compare our ESG performance with that of others in our industry.
Any significant repurchase or indemnification obligations imposed on us could have a material adverse effect on the Agency Business. 20 Table of Contents For most loans we service under the Fannie Mae and HUD programs, we are required to advance payments due to investors if the borrower is delinquent in making such payments, which requirement could adversely impact our liquidity and harm our results of operations.
Any significant repurchase or indemnification obligations imposed on us could have a material adverse effect on the Agency Business. 18 Table of Contents For most loans we service under the Fannie Mae and HUD programs, we are required to advance payments due to investors if the borrower is delinquent in making such payments, which requirement could adversely impact our liquidity and harm our results of operations.
Changes in the business charters, structure, or existence of one or both of the GSEs could eliminate or substantially reduce the number of loans we may originate with the GSEs, which in turn would lead to a reduction in our fee and interest income and our servicing revenue. 26 Table of Contents Conservatorships of the GSEs The Federal Housing Finance Agency (“FHFA,”) the GSEs’ regulator, placed each GSE into conservatorship in 2008.
Changes in the business charters, structure, or existence of one or both of the GSEs could eliminate or substantially reduce the number of loans we may originate with the GSEs, which in turn would lead to a reduction in our fee and interest income and our servicing revenue. 23 Table of Contents Conservatorships of the GSEs The Federal Housing Finance Agency (“FHFA,”) the GSEs’ regulator, placed each GSE into conservatorship in 2008.
The amount due would be equal to the unrealized loss of the open swap positions with the applicable counterparty and could also include other fees and charges.
The amount due would be equal to the unrealized loss of the open positions with the applicable counterparty and could also include other fees and charges.
Cybersecurity incidents and cyber-attacks, which include malicious software, ransomware or terrorists attacks, unauthorized attempts to gain access to sensitive, confidential or otherwise protected information related to us and our customers, have been occurring globally at a more frequent and severe level and are expected to continue to increase in frequency and severity in the future.
Cybersecurity incidents and cyberattacks, which include malicious software, ransomware or terrorists attacks, unauthorized attempts to gain access to sensitive, confidential or otherwise protected information related to us and our customers, have been occurring globally at a more frequent and severe level and are expected to continue to increase in frequency and severity in the future.
The trading price of our common stock may be highly volatile and could be subject to a number of factors beyond our control, including (1) the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies, (2) our financial performance, (3) coordinated buying and selling activity by market participants, including market manipulation, (4) publication of information in the media, including online blog and social media about our Company by third parties, and (5) general stock and bond market conditions.
The trading price of our common stock may be highly volatile and could be subject to a number of factors beyond our control, including (1) the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies, (2) our financial performance, (3) coordinated buying and selling activity by market participants, including market manipulation and short-seller reports, (4) publication of information in the media, including online blog and social media about our Company by third parties, and (5) general stock and bond market conditions.
This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. There can be no assurance that our due diligence process will uncover all relevant facts or that any investment will be successful.
This process is particularly important and sometimes, more subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. There can be no assurance that our due diligence process will uncover all relevant facts or that any investment will be successful.
We are subject to certain general risks, all of which could have an adverse effect on our business, financial condition and results of operations, such as: (1) volatility in our stock price; (2) losses of key personnel with long standing business relationships; (3) adverse resolutions of lawsuits; (4) future terrorist attacks; and (5) changes to laws and regulations , including environmental, social and governance matters.
We are subject to certain general risks, all of which could have an adverse effect on our business, financial condition and results of operations, such as: (1) volatility in our stock price; (2) losses of key personnel with long standing business relationships; (3) adverse resolutions of lawsuits; (4) future terrorist attacks; (5) military conflict; and (6) changes to laws and regulations, including environmental, social and governance matters.
We currently have a credit facility with a $50 million sublimit for principal and interest advances we make as the primary servicer to Fannie Mae in connection with potential delinquent loans under the Fannie Mae forbearance program, however, such financing may not be available to us in the future, or, may be costly and could prevent the Agency Business from pursuing its business and growth strategies.
We currently have a credit facility with a $37.5 million sublimit for principal and interest advances we make as the primary servicer to Fannie Mae in connection with potential delinquent loans under the Fannie Mae forbearance program, however, such financing may not be available to us in the future, or, may be costly and could prevent the Agency Business from pursuing its business and growth strategies.
Our staggered board and other provisions of our charter and bylaws may prevent a change in our control. Our Board of Directors is divided into three classes of directors. The current terms of the Class II, Class III and Class I directors will expire in 2023, 2024 and 2025, respectively.
Our staggered board and other provisions of our charter and bylaws may prevent a change in our control. Our Board of Directors is divided into three classes of directors. The current terms of the Class III, Class I and Class II directors will expire in 2024, 2025 and 2026, respectively.
In addition, hedges which are not highly correlated (and appropriately designated and documented as cash flow hedges) with a variable rate financing will impact our reported income as marked-to-market gains and losses will be recorded on our statement of income. Hedging instruments may not be guaranteed by an exchange or its clearing house and involve risks and costs.
In addition, hedges which are not highly correlated (and appropriately designated and documented as cash flow hedges) with a variable rate financing will impact our reported income as marked-to-market gains and losses will be recorded on our statement of income. 21 Table of Contents Hedging instruments may not be guaranteed by an exchange or its clearing house and involve risks and costs.
Failure to comply with any of these covenants could result in defaults and there can be no assurance that our lenders would waive any default or amend the defaulted covenant, which could have a material adverse effect on us. 21 Table of Contents We may not be able to obtain the level of leverage necessary to optimize our return on investment.
Failure to comply with any of these covenants could result in defaults and there can be no assurance that our lenders would waive any default or amend the defaulted covenant, which could have a material adverse effect on us. We may not be able to obtain the level of leverage necessary to optimize our return on investment.
In addition, certain U.S. stockholders who are individuals, trusts or estates, and whose income exceeds certain thresholds, are required to pay a 3.8% medicare tax on our dividends and gain from the sale of our stock. The Inflation Reduction Act of 2022 (“IRA”) enacted in August 2022 introduced various new provisions to the Internal Revenue Code.
In addition, certain U.S. stockholders who are individuals, trusts or estates, and whose income exceeds certain thresholds, are required to pay a 3.8% medicare tax on our dividends and gain from the sale of our stock. 27 Table of Contents The Inflation Reduction Act of 2022 (“IRA”) enacted in August 2022 introduced various new provisions to the Internal Revenue Code.
While such provisions may be applicable to our TRSs, we currently do not expect the IRA to have a material impact on our consolidated financial statements. 31 Table of Contents Furthermore, certain provisions of the recently enacted legislations, including the IRA, may still require guidance through the issuance of treasury regulations in order to assess their full scope and impact to us.
While such provisions may be applicable to our TRSs, we currently do not expect the IRA to have a material impact on our consolidated financial statements. Furthermore, certain provisions of the recently enacted legislations, including the IRA, may still require guidance through the issuance of treasury regulations in order to assess their full scope and impact to us.
We cannot predict the effect that any such future events would have on our business or the credit quality of our loans and investments. 32 Table of Contents The Terrorism Risk Insurance Act (“TRIA”), requires insurers to make terrorism insurance available under their property and casualty insurance policies in order to receive federal compensation under TRIA for insured losses.
We cannot predict the effect that any such future events would have on our business or the credit quality of our loans and investments. The Terrorism Risk Insurance Act (“TRIA”), requires insurers to make terrorism insurance available under their property and casualty insurance policies in order to receive federal compensation under TRIA for insured losses.
Although the Agency Business is not expected to adversely affect our ability, or that of ARSR, to continue to qualify as a REIT in the future, no assurances can be given in that regard. 29 Table of Contents The “taxable mortgage pool” rules may increase the taxes that we may incur and reduce the amount of our distributions to our stockholders.
Although the Agency Business is not expected to adversely affect our ability, or that of ARSR, to continue to qualify as a REIT in the future, no assurances can be given in that regard. The “taxable mortgage pool” rules may increase the taxes that we may incur and reduce the amount of our distributions to our stockholders.
Our ability to obtain financing through CLOs is subject to conditions in the debt capital markets which are impacted by factors beyond our control that may reduce the level of investor demand for such securities. The debt facilities that we use to finance our investments may require us to provide additional collateral.
Our ability to obtain financing 19 Table of Contents through CLOs is subject to conditions in the debt capital markets which are impacted by factors beyond our control that may reduce the level of investor demand for such securities. The debt facilities that we use to finance our investments may require us to provide additional collateral.
To the extent any of these service providers are liable for damages to third parties that have invested in these securitization transactions, we may incur costs and expenses as a result of these indemnities. 23 Table of Contents The securitization market is subject to an evolving regulatory environment that may affect certain aspects of these activities.
To the extent any of these service providers are liable for damages to third parties that have invested in these securitization transactions, we may incur costs and expenses as a result of these indemnities. The securitization market is subject to an evolving regulatory environment that may affect certain aspects of these activities.
Certain of our securitization and other financing transactions could result in us, or a portion of our assets, to be treated as a taxable mortgage pools for federal income tax purposes.
Certain of our securitization and other financing transactions could result in us, or a portion of our assets, to be treated as a taxable mortgage pool for federal income tax purposes.
A failure to comply with the obligations imposed by the Advisers Act, including record-keeping, advertising, operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in fines, censure, suspensions of personnel or investing activities or other sanctions, including revocation of our registration as an investment adviser.
A failure to comply with the obligations imposed by the Advisers Act, including recordkeeping, advertising, operating requirements, disclosure obligations and prohibitions on fraudulent activities, could result in fines, censure, suspensions of personnel or investing activities or other sanctions, including revocation of our registration as an investment adviser.
If the properties that we invest in are unable to obtain affordable insurance coverage, the value of those investments could decline and in the event of an uninsured loss, we could lose all or a portion of our investment. The impact of any future laws, and amendments to current laws, may impact our business.
If the properties that we invest in are unable to obtain affordable insurance coverage, the value of those investments could decline and in the event of an uninsured loss, we could lose all or a portion of our investment. 28 Table of Contents The impact of any future laws, and amendments to current laws, may impact our business.
If we are unable to issue a CLO to finance these investments, we may be required to utilize other forms of potentially less attractive financing. 22 Table of Contents The use of CLO financings with over-collateralization and interest coverage requirements may have a negative impact on our cash flows.
If we are unable to issue a CLO to finance these investments, we may be required to utilize other forms of potentially less attractive financing. The use of CLO financings with over-collateralization and interest coverage requirements may have a negative impact on our cash flows.
These economic losses will be reflected in our financial results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition. 24 Table of Contents Our investments financed in foreign locations may involve significant risks.
These economic losses will be reflected in our financial results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition. Our investments financed in foreign locations may involve significant risks.
We may employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including interest rate swaps, caps, floors and other derivative products, however, no strategy can completely insulate us from the risks associated with interest rate changes.
We may employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including treasury futures, interest rate and credit default swaps, caps, floors and other derivative products, however, no strategy can completely insulate us from the risks associated with interest rate changes.
If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid. As a result, we may not recover some or all of our investment.
If a 15 Table of Contents borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid. As a result, we may not recover some or all of our investment.
Our charter generally does not permit ownership in excess of 5% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors which could discourage a change of control of us.
Our charter generally does not permit anyone to own in excess of 5% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors which could discourage a change of control of us.
In addition, we may, in certain circumstances, be liable for the actions of our third-party partners. 17 Table of Contents Properties may fail to perform as expected. We may obtain properties through foreclosure proceedings or through other investment.
In addition, we may, in certain circumstances, be liable for the actions of our third party partners. Properties may fail to perform as expected. We may obtain properties through foreclosure proceedings or through other investment.
These vehicles may contain restrictive covenants and may require us to provide additional collateral or repurchase assets if the value of pledged assets, some of which we guarantee, decline in value.
These vehicles may contain restrictive covenants and may require us to provide additional collateral or repurchase 11 Table of Contents assets if the value of pledged assets, some of which we guarantee, decline in value.
A decline in economic conditions could negatively impact the credit quality of our loan and investment portfolio and could cause us to experience increases in loan loss reserves, defaulted loans and other asset impairment charges. Loan loss reserves are particularly difficult to estimate in a turbulent economic environment.
A decline in economic conditions could negatively impact the credit quality of our loan and investment portfolio and could cause us to experience increases in loan loss reserves, delinquent and defaulted loans and other asset impairment charges. Allowance for credit losses are particularly difficult to estimate in a turbulent economic environment.
At December 31, 2022, this requirement totaled $64.4 million and was satisfied with a $64.0 million letter of credit and cash issued to Fannie Mae. Our current letter of credit facility expires in September 2025. The facility is collateralized by the cash flow generated from the Agency Business’s Fannie Mae servicing portfolio and contains certain financial and other covenants.
At December 31, 2023, this requirement totaled $76.2 million and was satisfied with a $64.0 million letter of credit and cash issued to Fannie Mae. Our current letter of credit facility expires in September 2025. The facility is collateralized by the cash flow generated from the Agency Business’s Fannie Mae servicing portfolio and contains certain financial and other covenants.
As a result, we may be required to liquidate otherwise attractive investments, or, if we fail to liquidate the applicable investments, we may lose our status as a REIT. We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.
As a result, we may be required to liquidate otherwise attractive investments, or, if we fail to liquidate the applicable investments, we may lose our status as a REIT. 26 Table of Contents We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.
At December 31, 2022, the Agency Business’s allowance for loss-sharing balance was $57.2 million, which may not be sufficient to cover future loss sharing obligations. While our Agency Business originates loans that meet the underwriting guidelines defined by Fannie Mae, in addition to our own internal underwriting guidelines, underwriting criteria may not always protect against loan defaults.
At December 31, 2023, the Agency Business’s allowance for loss-sharing balance was $71.6 million, which may not be sufficient to cover future loss sharing obligations. While our Agency Business originates loans that meet the underwriting guidelines defined by Fannie Mae, in addition to our own internal underwriting guidelines, underwriting criteria may not always protect against loan defaults.
Although vaccine availability and usage have continued to increase, which has led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor 13 Table of Contents shortages, property values and global supply chains continue to negatively impact many industries, including the U.S. commercial real estate market.
Although vaccine availability and its usage have led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor shortages, property values and global supply chains continue to 12 Table of Contents negatively impact many industries, including the U.S. commercial real estate market.
If we fail to qualify as a REIT in any tax year, then: ● We would be taxed as a domestic corporation, which, among other things, means we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our taxable income at corporate rates; ● Any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and ● Unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT.
If we fail to qualify as a REIT in any tax year, then: • We would be taxed as a domestic corporation, which, among other things, means we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our taxable income at corporate rates; • Any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and • Unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT. 25 Table of Contents Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
As a result of our chief executive officer’s beneficial ownership of stock held by ACM, as well as his beneficial ownership of additional shares of our common stock, our chief executive officer has approximately 7% of the voting power of our outstanding stock at December 31, 2022.
As a result of our chief executive officer’s beneficial ownership of stock held by ACM, as well as his beneficial ownership of additional shares of our common stock, our chief executive officer has approximately 7% of the voting power of our 24 Table of Contents outstanding stock at December 31, 2023.
We conduct our operations to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent mistake could jeopardize our REIT status.
However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent mistake could jeopardize our REIT status.
Changes in interest rates and the continued transition from LIBOR could have an adverse effect on our net investment income. A significant portion of our loans and borrowings in our business are variable-rate instruments.
Changes in interest rates could have an adverse effect on our net investment income. A significant portion of our loans and borrowings in our business are variable-rate instruments.
Failure to comply with ESG-related laws, exchange policies or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability to fund future growth, or result in increased investigations and litigation or threats thereof. ​ Item 1B. Unresolved Staff Comments None. ​ Item 2.
Failure to comply with ESG-related laws, exchange policies or stakeholder expectations could materially and adversely impact the value of our stock and related cost of capital, and limit our ability to fund future growth, or result in increased investigations and litigation or threats thereof.
Risks Related to Our Business The ongoing COVID-19 pandemic has caused severe disruptions to the United States and global economy and to our business and may continue to have an adverse impact on our business, results of operations and financial condition. The ongoing effects of the COVID-19 pandemic have caused significant disruptions to the U.S. and global economies.
Risks Related to Our Business The COVID-19 pandemic caused severe disruptions to the U.S. and global economies and to our business and may continue to have an adverse impact on our business, results of operations and financial condition. The COVID-19 pandemic caused significant disruptions to the U.S. and global economies.
Any failure to comply with these requirements could lead to, among other things, the loss of a license as an approved GSE or HUD lender, the inability to gain additional approvals or licenses, the termination of contractual rights without compensation, demands for indemnification or loan repurchases, class action lawsuits and administrative enforcement actions.
Any failure to comply with these requirements could lead to, among other things, the loss of a license as an approved GSE or HUD lender, the inability to gain additional approvals or licenses, the termination of contractual rights without compensation, demands for indemnification or loan repurchases, class action lawsuits and administrative enforcement actions. 22 Table of Contents Failure to maintain certain qualifications and licenses could adversely affect our results of operations.
If borrowers are unable to refinance loans at maturity, the loans could go into default and the liquidity that we expect to receive from such repayments may not be available.
Loan repayments are a significant source of liquidity for us. If borrowers are unable to refinance loans at maturity, the loans could go into default and the liquidity that we expect to receive from such repayments may not be available.
An economic slowdown, a lengthy or severe recession, declining real estate values, or changes in interest rates, including the continued transition from LIBOR, could harm our operations, affect our ability to obtain financing on reasonable terms and have other adverse effects on us.
An economic slowdown, a lengthy or severe recession, declining real estate values, major bank failures or changes in interest rates could harm our operations, affect our ability to obtain financing on reasonable terms and have other adverse effects on us.
With respect to future CLOs we may issue, we cannot assure that the terms of the delinquency tests, over-collateralization requirements and interest coverage terms, cash flow release mechanisms or other significant terms will be favorable to us. Failure to obtain favorable terms with regard to these matters may adversely affect our cash flow and profitability.
With respect to future CLOs we may issue, we cannot assure that the terms of the delinquency tests, over-collateralization requirements and interest coverage terms, cash flow release mechanisms or other significant terms will be favorable to us.
This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders, funds available for operations as well as for future business opportunities. Credit facilities may contain restrictive covenants relating to our operations.
This could subject us to an increase in our recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders, funds available for operations as well as for future business opportunities.
If we fail to remain qualified as a REIT, we will be subject to corporate tax and could face a substantial tax liability, including taxable mortgage pools resulting from certain of our securitizations.
We conduct our operations to qualify as a REIT under the Internal Revenue Code. If we fail to remain qualified as a REIT, we will be subject to corporate tax and could face a substantial tax liability, including taxable mortgage pools resulting from certain of our securitizations.
At December 31, 2022, the Agency Business had pledged $64.4 million in restricted liquidity as collateral against future losses under $19.04 billion of loans outstanding that are subject to risk-sharing obligations. Fannie Mae collateral requirements may change in the future.
At December 31, 2023, the Agency Business had pledged $76.2 million in restricted liquidity as collateral against future losses under $21.26 billion of loans outstanding that are subject to risk-sharing obligations. Fannie Mae collateral requirements may change in the future.
If we are unable to safeguard against cybersecurity breaches and cyber-attacks with respect to our information systems, our business may be adversely affected. Risks Related to Our Corporate and Ownership Structure.
Cybersecurity Risks If we are unable to safeguard against cybersecurity breaches and cyberattacks with respect to our information systems, our business may be adversely affected.
Since the current expected credit loss (“CECL”) methodology for the recognition of credit losses estimates losses for the life of our investment, our financial results may be negatively affected when weak or deteriorating economic conditions are forecasted, which generally results in increases in estimated credit losses under CECL.
Since the CECL methodology for the recognition of credit losses estimates losses for the life of our investment, our financial results may be negatively affected when weak or deteriorating economic conditions are forecasted, which generally results in increases in estimated credit losses under CECL. Loan repayments are less likely in a volatile market environment.
In addition, mezzanine loans may have higher loan to value ratios than mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.
In addition, mezzanine loans may have higher loan to value ratios than mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Volatility in values of multifamily and commercial properties may adversely affect our loans and investments.
The ongoing COVID-19 pandemic has caused severe disruptions to the United States and global economy and may have an adverse impact on our business, results of operations and financial condition.
The COVID-19 pandemic caused severe disruptions to the U.S. and global economies and may continue to have an adverse impact on our business, results of operations and financial condition.
An economic slowdown, a lengthy or severe recession, or declining real estate values could harm our operations. The risks associated with our business are more severe during periods of economic downturn, particularly if accompanied by declining real estate values.
The risks associated with our business are more severe during periods of economic downturn, particularly if accompanied by declining real estate values.
Should the issuer default on our investment, we can only proceed against the entity in which we have an interest, and not the underlying property.
Should the issuer default on our investment, we can only proceed against the entity in which we have an interest, and not the underlying property. As a result, we may not recover some or all of our investment.
We conduct our business in a manner that allows us to avoid being regulated as an investment company under the Investment Company Act of 1940 (the “Act”).
Failure to maintain an exemption from regulation as an investment company under the Investment Company Act would adversely affect our results of operations. We conduct our business in a manner that allows us to avoid being regulated as an investment company under the Investment Company Act of 1940 (the “Act”).
We have not experienced any material misappropriation, loss or unauthorized disclosure of confidential or personally identifiable information as a result of a cybersecurity breach or other act, however, a cybersecurity breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations. 27 Table of Contents Risks Related to Our Corporate and Ownership Structure ACM and our chief executive officer have significant influence over our policies and strategies.
We have not experienced any material misappropriation, loss or unauthorized disclosure of confidential or personally identifiable information as a result of a cybersecurity breach or other act, however, a cybersecurity breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.
A decline in the number or value of loans that the Agency Business originates for these investors or terminations of its servicing engagements will decrease these fees. HUD has the right to terminate our current servicing engagements for cause.
These fees are primarily derived from loans that have been originated by us and sold through GSE and HUD programs. A decline in the number or value of loans that the Agency Business originates for these investors or terminations of its servicing engagements will decrease these fees. HUD has the right to terminate our current servicing engagements for cause.
The timing and amount of dividends are in the sole discretion of our Board of Directors, which considers, among other factors, our earnings, financial condition, debt service obligations and applicable debt covenants, REIT qualification requirements and other tax considerations and capital expenditure requirements as our board may deem relevant. 30 Table of Contents Among the factors that could adversely affect our results of operations and impair our ability to make distributions to our stockholders are: ● Use of funds and our ability to make profitable structured finance investments; ● Defaults in our asset portfolio or decreases in the value of our portfolio; ● Anticipated operating expense levels may not prove accurate, as actual results may vary from estimates; and ● Increased debt service requirements, including those resulting from higher interest rates on variable rate indebtedness.
Among the factors that could adversely affect our results of operations and impair our ability to make distributions to our stockholders are: • Use of funds and our ability to make profitable structured finance investments; • Defaults in our asset portfolio or decreases in the value of our portfolio; • Anticipated operating expense levels may not prove accurate, as actual results may vary from estimates; and • Increased debt service requirements, including those resulting from higher interest rates on variable rate indebtedness.
Any failure to comply with these requirements could result in a variety of consequences, including, but not limited to the loss of the licensure required to originate, sell, or service loans, the inability to procure additional approvals or licenses, the inability to enforce our contracts, and administrative enforcement actions. 25 Table of Contents Failure to maintain an exemption from regulation as an investment company under the Investment Company Act would adversely affect our results of operations.
Any failure to comply with these requirements could result in a variety of consequences, including, but not limited to the loss of the licensure required to originate, sell, or service loans, the inability to procure additional approvals or licenses, the inability to enforce our contracts, and administrative enforcement actions.
These factors may also make it more difficult for our borrowers to repay our loans as they may experience difficulties in selling assets, obtaining other financing or realize increased costs of financing.
These factors may also make it more difficult for our borrowers to repay our loans as they may experience difficulties in selling assets, obtaining other financing or realize increased costs of financing. Disruptions in the financial markets also may have a material adverse effect on the market value of our common stock.
In addition, any failure to pay our share of losses under the Fannie Mae DUS program could result in the revocation of our Fannie Mae license and in the exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program, including the transfer of our servicing portfolio to another Fannie Mae approved servicer. 18 Table of Contents We satisfy most of our restricted liquidity requirements with Fannie Mae with a letter of credit issued by one of our lenders.
In addition, any failure to pay our share of losses under the Fannie Mae DUS program could result in the revocation of our Fannie Mae license and in the exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program, including the transfer of our servicing portfolio to another Fannie Mae approved servicer.
If we fail to maintain certain qualifications and licenses or comply with GSE and HUD regulations and program requirements, we may lose our approved lender status and fail to gain additional approvals or licenses for our business.
Hedging instruments involve risks and costs, and could expose us to contingent liabilities in the future. Risks Relating to Regulatory Matters. If we fail to maintain certain qualifications and licenses or comply with GSE and HUD regulations and program requirements, we may lose our approved lender status and fail to gain additional approvals or licenses for our business.
We may not be able to find suitable replacement investments for CLO reinvestment periods. CLOs have defined periods during which principal payments on assets held in the CLO can be reinvested, commonly referred to as a reinvestment period.
Failure to obtain favorable terms with regard to these matters may adversely affect our cash flow and profitability. 20 Table of Contents We may not be able to find suitable replacement investments for CLO reinvestment periods. CLOs have defined periods during which principal payments on assets held in the CLO can be reinvested, commonly referred to as a reinvestment period.
Our charter generally does not permit ownership in excess of 5% of our capital stock and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors. This, along with our staggered board and other provisions of our charter and bylaws, could discourage a change of control of us.
Our charter generally does not permit anyone to own in excess of 5% of our capital stock and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our Board of Directors.
If we are unable to acquire eligible investments, find suitable replacement investments and access financing sources on favorable terms, or at all, we may not be able to obtain the level of leverage necessary to optimize our return on investment and cash available for distribution to our stockholders may decline. 12 Table of Contents In certain circumstances, we employ hedging strategies to limit the effects of changes in interest rates (and in some cases credit spreads), including interest rate swaps, caps, floors and other derivative products.
If we are unable to acquire eligible investments, find suitable replacement investments and access financing sources on favorable terms, or at all, we may not be able to obtain the level of leverage necessary to optimize our return on investment and cash available for distribution to our stockholders may decline.
There can be no assurance that such fees will continue to remain at such levels or that such levels will be sufficient if delinquencies occur. 19 Table of Contents A significant portion of our Agency Business’s revenue is derived from loan servicing fees and declines in, or terminations of, servicing engagements, or breaches of servicing agreements, could have a material adverse effect on us.
A significant portion of our Agency Business’s revenue is derived from loan servicing fees and declines in, or terminations of, servicing engagements, or breaches of servicing agreements, could have a material adverse effect on us. We expect that loan servicing fees will continue to represent a significant portion of our Agency Business’ revenues.
In addition, our charter and bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. 28 Table of Contents Risks Related to Our Status as a REIT If we fail to remain qualified as a REIT, we will be subject to corporate tax and could face a substantial tax liability.
In addition, our charter and bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
Our Agency Business is subject to risk of loss in connection with defaults on loans sold under the Fannie Mae DUS program that could materially and adversely affect our results of operations and liquidity.
If these investment banks discontinue their relationship with us and replacement investors cannot be found on a timely basis, we could be adversely affected. 16 Table of Contents Our Agency Business is subject to risk of loss in connection with defaults on loans sold under the Fannie Mae DUS program that could materially and adversely affect our results of operations and liquidity.
The FHFA has stated that they will continue to monitor the market and reserves the right to increase the 2023 Caps if warranted, however, they will not reduce the 2023 Caps if the market is smaller than initially projected.
FHFA stated they will continue to monitor the market and reserves the right to increase the 2024 Caps if warranted, however, they will not reduce the 2024 Caps if the market is smaller than initially projected. To promote affordable housing preservation, loans classified as supporting workforce housing properties will be exempt from the 2024 Caps.
In our Structured Business, we may invest in mezzanine loans that are generally secured by a pledge of the ownership interests of the entity that directly or indirectly owns the property. Mezzanine loans have a higher degree of risk than senior mortgage loans because the investment may become unsecured as a result of foreclosure by the mortgage holder.
We invest in mezzanine loans which are subject to a greater risk of loss than loans secured by a first priority mortgage lien. In our Structured Business, we invest in mezzanine loans that are generally secured by a pledge of the ownership interests of the entity that directly or indirectly owns the property.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe information included in the graph and table below was obtained from 2023 Russell Investment Group. ​ Total Return Performance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Arbor Realty Trust, Inc 100.00 129.86 201.63 221.89 309.36 245.34 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 FTSE Nareit Mortgage REITs 100.00 97.48 118.27 96.07 111.09 81.53 FTSE Nareit All REITs 100.00 95.90 122.82 115.62 161.73 121.13 ​ In accordance with SEC rules, this “Stockholder Return” section shall not be incorporated by reference into any of our future filings under the Securities Act or the Exchange Act and shall not be deemed to be soliciting material or to be filed under the Securities Act or the Exchange Act. ​
Biggest changeThe information included in the graph and table below was obtained from 2024 Russell Investment Group. 31 Table of Contents Total Return Performance Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Arbor Realty Trust, Inc 100.00 155.27 170.87 238.23 188.93 245.93 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85 FTSE Nareit Mortgage REITs 100.00 121.33 98.56 113.97 83.64 96.48 FTSE Nareit All REITs 100.00 128.07 120.56 168.64 126.30 140.81 In accordance with SEC rules, this “Stockholder Return” section shall not be incorporated by reference into any of our future filings under the Securities Act or the Exchange Act and shall not be deemed to be soliciting material or to be filed under the Securities Act or the Exchange Act. 32 Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “ABR.” On February 8, 2023, there were 126,854 record holders of our common stock, including persons holding shares in broker accounts under street names.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “ABR.” On February 2, 2024, there were approximately 136,882 record holders of our common stock, including persons holding shares in broker accounts under street names.
Securities Authorized for Issuance under Equity Compensation Plans This information will be contained in our definitive proxy statement for the 2023 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year and is incorporated herein by reference. 34 Table of Contents Stockholder Return The graph below compares the cumulative total stockholder return for our common stock with the Russell 2000 Index, the NAREIT All REITs Index and the NAREIT Mortgage REITs Index for the five-year period from December 31, 2017 to December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans This information will be contained in our definitive proxy statement for the 2024 Annual Meeting of Stockholders, to be filed within 120 days following the end of our fiscal year and is incorporated herein by reference.
The graph assumes a $100 investment on January 1, 2018, and the reinvestment of any dividends. This graph is not necessarily indicative of future stock price performance.
This graph is not necessarily indicative of future stock price performance.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth all purchases made by or on behalf of us or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of our common stock during each of the indicated periods.
Added
Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs October 1, 2023 to October 31, 2023 — $ — — — November 1, 2023 to November 30, 2023 104,919 12.18 — — December 1, 2023 to December 31, 2023 — — — — 104,919 $ 12.18 — (1) These shares were purchased by certain affiliated purchasers of ours and we have not repurchased any shares under our share repurchase program during the fourth quarter of 2023.
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Stockholder Return The graph below compares the cumulative total stockholder return for our common stock with the Russell 2000 Index, the NAREIT Mortgage REITs Index and the NAREIT All REITs Index for the five-year period from December 31, 2018 to December 31, 2023. The graph assumes a $100 investment on January 1, 2019, and the reinvestment of any dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+25 added−32 removed28 unchanged
Biggest changeIn 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. 41 Table of Contents Comparison of Results of Operations for Years Ended December 31, 2022 and 2021 The following table provides our consolidated operating results ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase / (Decrease) ​ 2022 2021 Amount Percent ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ $ 948,401 ​ $ 466,087 ​ $ 482,314 103 % Interest expense ​ 557,617 ​ 212,005 ​ 345,612 163 % Net interest income ​ 390,784 ​ 254,082 ​ 136,702 54 % Other revenue: ​ ​ ​ ​ ​ Gain on sales, including fee-based services, net ​ 55,816 ​ 123,037 ​ (67,221) (55) % Mortgage servicing rights ​ 69,346 ​ 130,230 ​ (60,884) (47) % Servicing revenue, net ​ 92,192 ​ 74,814 ​ 17,378 23 % Property operating income ​ 1,877 ​ 185 ​ 1,692 nm % Gain (loss) on derivative instruments, net ​ ​ 26,609 ​ ​ (2,684) ​ ​ 29,293 ​ nm % Other income, net ​ (17,563) ​ 7,566 ​ (25,129) nm % Total other revenue ​ 228,277 ​ 333,148 ​ (104,871) (31) % Other expenses: ​ ​ ​ ​ Employee compensation and benefits ​ 161,825 ​ 171,796 ​ (9,971) (6) % Selling and administrative ​ 53,990 ​ 45,575 ​ 8,415 18 % Property operating expenses ​ 2,136 ​ 718 ​ 1,418 197 % Depreciation and amortization ​ 8,732 ​ 7,215 ​ 1,517 21 % Provision for loss sharing (net of recoveries) ​ 1,862 ​ (6,167) ​ 8,029 nm % Provision for credit losses (net of recoveries) ​ 21,169 ​ (21,113) ​ 42,282 nm % Litigation settlement ​ ​ 7,350 ​ ​ — ​ ​ 7,350 ​ nm % Total other expenses ​ 257,064 ​ 198,024 ​ 59,040 30 % Income before extinguishment of debt, sale of real estate, income from equity affiliates and income taxes ​ 361,997 ​ 389,206 ​ (27,209) (7) % Loss on extinguishment of debt ​ ​ (4,933) ​ ​ (3,374) ​ ​ (1,559) ​ 46 % Gain on sale of real estate ​ — ​ 3,693 ​ (3,693) nm % Income from equity affiliates ​ 14,247 ​ 34,567 ​ (20,320) (59) % Provision for income taxes ​ (17,484) ​ (46,285) ​ 28,801 (62) % Net income ​ 353,827 ​ 377,807 ​ ​ (23,980) (6) % Preferred stock dividends ​ 40,954 ​ 21,888 ​ 19,066 87 % Net income attributable to noncontrolling interest ​ 28,044 ​ 38,507 ​ (10,463) (27) % Net income attributable to common stockholders ​ $ 284,829 ​ $ 317,412 ​ $ (32,583) (10) % nm – not meaningful 42 Table of Contents 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 ​ 2021 ​ ​ ​ Average ​ Interest ​ W/A Yield / ​ Average ​ Interest ​ W/A Yield / ​ ​ Carrying ​ Income / ​ Financing ​ Carrying ​ Income / ​ Financing ​ Value (1) Expense Cost (2) Value (1) Expense Cost (2) Structured Business interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bridge loans ​ $ 13,997,117 ​ $ 859,339 6.14 % $ 7,340,522 ​ $ 384,406 5.24 % Mezzanine / junior participation loans ​ 202,484 ​ 19,473 9.62 % 215,837 ​ 18,954 8.78 % Preferred equity investments ​ 142,738 ​ 15,219 10.66 % 213,616 ​ 21,570 10.10 % Other ​ ​ 36,262 ​ ​ 6,141 ​ 16.94 % ​ 29,772 ​ ​ 1,493 ​ 5.01 % Core interest-earning assets ​ 14,378,601 ​ 900,172 6.26 % 7,799,747 ​ 426,423 5.47 % Cash equivalents ​ 585,281 ​ 3,450 0.59 % 443,779 ​ 616 0.14 % Total interest-earning assets ​ $ 14,963,882 ​ $ 903,622 6.04 % $ 8,243,526 ​ $ 427,039 5.18 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Structured Business interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CLO ​ $ 7,496,568 ​ $ 265,560 3.54 % $ 3,503,175 ​ $ 64,318 1.84 % Credit and repurchase facilities ​ 3,967,648 ​ 173,365 4.37 % 2,149,729 ​ 57,993 2.70 % Unsecured debt ​ 1,610,809 ​ 91,604 5.69 % 1,157,275 ​ 67,353 5.82 % Trust preferred ​ 154,336 ​ 7,427 4.81 % 154,336 ​ 4,771 3.09 % Q Series securitization ​ 11,033 ​ 703 6.37 % — ​ — — % Total interest-bearing liabilities ​ $ 13,240,394 ​ 538,659 4.07 % $ 6,964,515 ​ 194,435 2.79 % Net interest income ​ ​ ​ ​ $ 364,963 ​ ​ $ 232,604 ​ (1) Based on UPB for loans, amortized cost for securities and principal amount for debt.
Biggest changeIn 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. 37 Table of Contents Comparison of Results of Operations for Years Ended December 31, 2023 and 2022 The following table provides our consolidated operating results ($ in thousands): Year Ended December 31, Increase / (Decrease) 2023 2022 Amount Percent Interest income $ 1,331,219 $ 948,401 $ 382,818 40 % Interest expense 903,228 557,617 345,611 62 % Net interest income 427,991 390,784 37,207 10 % Other revenue: Gain on sales, including fee-based services, net 72,522 55,816 16,706 30 % Mortgage servicing rights 69,912 69,346 566 1 % Servicing revenue, net 130,449 92,192 38,257 41 % Property operating income 5,708 1,877 3,831 nm % Gain (loss) on derivative instruments, net 6,763 26,609 (19,846) (75) % Other income (loss), net 7,667 (17,563) 25,230 nm % Total other revenue 293,021 228,277 64,744 28 % Other expenses: Employee compensation and benefits 159,788 161,825 (2,037) (1) % Selling and administrative 51,260 53,990 (2,730) (5) % Property operating expenses 5,897 2,136 3,761 176 % Depreciation and amortization 9,743 8,732 1,011 12 % Provision for loss sharing (net of recoveries) 15,695 1,862 13,833 nm % Provision for credit losses (net of recoveries) 73,446 21,169 52,277 nm % Litigation settlement — 7,350 (7,350) nm % Total other expenses 315,829 257,064 58,765 23 % Income before extinguishment of debt, income from equity affiliates and income taxes 405,183 361,997 43,186 12 % Loss on extinguishment of debt (1,561) (4,933) 3,372 (68) % Income from equity affiliates 24,281 14,247 10,034 70 % Provision for income taxes (27,347) (17,484) (9,863) 56 % Net income 400,556 353,827 46,729 13 % Preferred stock dividends 41,369 40,954 415 1 % Net income attributable to noncontrolling interest 29,122 28,044 1,078 4 % Net income attributable to common stockholders $ 330,065 $ 284,829 $ 45,236 16 % ________________________________________ nm – not meaningful 38 Table of Contents 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): Year ended December 31, 2023 2022 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 $ 13,190,889 $ 1,208,180 9.16 % $ 13,997,117 $ 859,339 6.14 % Mezzanine / junior participation loans 224,784 23,939 10.65 % 202,484 19,473 9.62 % Preferred equity investments 90,960 5,892 6.48 % 142,738 15,219 10.66 % Other 20,635 3,370 16.33 % 36,262 6,141 16.94 % Core interest-earning assets 13,527,268 1,241,381 9.18 % 14,378,601 900,172 6.26 % Cash equivalents 913,382 38,052 4.17 % 585,281 3,450 0.59 % Total interest-earning assets $ 14,440,650 $ 1,279,433 8.86 % $ 14,963,882 $ 903,622 6.04 % Structured Business interest-bearing liabilities: CLO $ 7,081,594 $ 496,049 7.00 % $ 7,496,568 $ 265,560 3.54 % Credit and repurchase facilities 3,185,888 251,519 7.89 % 3,967,648 173,365 4.37 % Unsecured debt 1,658,986 103,147 6.22 % 1,610,809 91,604 5.69 % Q Series securitization 229,734 17,158 7.47 % 11,033 703 6.37 % Trust preferred 154,336 12,729 8.25 % 154,336 7,427 4.81 % Total interest-bearing liabilities $ 12,310,538 880,602 7.15 % $ 13,240,394 538,659 4.07 % Net interest income $ 398,831 $ 364,963 ________________________________________ (1) Based on UPB for loans, amortized cost for securities and principal amount for debt.
Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $69.0 million. 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.
Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $69.0 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.
Additionally, we earn interest on our escrow balances, so an increasing interest rate environment will increase our earnings on such balances. See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.
Additionally, we earn interest on our escrow and cash balances, so an increasing interest rate environment will increase our earnings on such balances. See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.
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 December 31, 2022.
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 December 31, 2023.
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, as well as other general business needs.
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 40 Table of Contents investments, fund operating costs and distributions to our stockholders, as well as other general business needs.
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 (net of any tax impact), deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), amortization of the convertible senior notes conversion option (in comparative periods prior to 2022) and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).
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 (net of any tax impact), deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), amortization of the convertible senior notes conversion option (for 2021 only) and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements. Actual results could differ from these estimates. A summary of our critical accounting policies is presented in Note 2.
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in Note 2.
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.
These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note 12. 41 Table of Contents 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 OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis. 48 Table of Contents (2) Beginning in the first quarter of 2022, the diluted weighted average shares outstanding were adjusted to exclude the potential shares issuable upon conversion and settlement of our convertible senior notes principal balance.
The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis. (2) Beginning in the first quarter of 2022, the diluted weighted average shares outstanding were adjusted to exclude the potential shares issuable upon conversion and settlement of our convertible senior notes principal balance.
Currently, rising interest rates will positively impact our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR or LIBOR.
Currently, rising interest rates will positively impact our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR.
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. 36 Table of Contents COVID-19 Impact.
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. COVID-19 Impact.
Comparison of Results of Operations for Years Ended December 31, 2021 and 2020 For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 18, 2022, and is available on the SEC’s website at www.sec.gov and the “Investor Relations” section of our website at www.arbor.com.
Comparison of Results of Operations for Years Ended December 31, 2022 and 2021 For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 17, 2023, and is available on the SEC’s website at www.sec.gov and the “Investor Relations” section of our website at www.arbor.com.
Loss on Extinguishment of Debt The loss on extinguishment of debt in 2022 and 2021 represents deferred financing fees recognized in connection with the unwind of CLOs, along with the 2022 repurchase of our 4.75% convertible notes.
Loss on Extinguishment of Debt The loss on extinguishment of debt in both 2023 and 2022 represents deferred financing fees recognized in connection with the unwind of CLOs, along with the 2022 repurchase of our 4.75% convertible notes.
We are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future. 38 Table of Contents Changes in Financial Condition Assets – Comparison of balances at December 31, 2022 to December 31, 2021: Our Structured loan and investment portfolio balance was $14.46 billion and $12.16 billion at December 31, 2022 and 2021, respectively.
We are unsure whether FHFA will impose stricter limitations on GSE multifamily production volume in the future. 35 Table of Contents Changes in Financial Condition Assets – Comparison of balances at December 31, 2023 to December 31, 2022: Our Structured loan and investment portfolio balance was $12.62 billion and $14.46 billion at December 31, 2023 and 2022, respectively.
We also originate and service permanent financing loans 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 also originate and retain the servicing rights on permanent financing loans 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.
Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.42% and 4.62% at December 31, 2022 and 2021, respectively.
Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.98% and 8.42% at December 31, 2023 and 2022, respectively.
Although vaccine availability and usage have continued to increase, which has led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor shortages, property values and global supply chains continue to negatively impact many industries, including the U.S. commercial real estate market.
Although vaccine availability and its usage have led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects of the COVID-19 pandemic on inflation, interest 33 Table of Contents rates, capital markets, labor shortages, property values and global supply chains continue to negatively impact many industries, including the U.S. commercial real estate market.
This increase was primarily due to loan originations exceeding loan payoffs and paydowns by $2.33 billion. See below for details. Our portfolio had a weighted average current interest pay rate of 8.17% and 4.26% at December 31, 2022 and 2021, respectively.
This decrease was primarily due to loan payoffs and paydowns exceeding loan originations by $2.37 billion. See below for details. Our portfolio had a weighted average current interest pay rate of 8.42% and 8.17% at December 31, 2023 and 2022, respectively.
To the extent that our financing sources, borrowers and their tenants continue to be impacted by the pandemic, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.
If our financing sources, borrowers and their tenants continue to be impacted by these adverse economic and market conditions, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.
In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $28.00 billion agency servicing portfolio at December 31, 2022, which is mostly prepayment protected and generates approximately $115.0 million per year in recurring cash flow.
In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $30.98 billion agency servicing portfolio at December 31, 2023, which is mostly prepayment protected and generates approximately $121.1 million per year in recurring cash flow.
Our debt that finances our loans and investment portfolio totaled $13.28 billion and $11.17 billion at December 31, 2022 and 2021, respectively, with a weighted average funding cost of 6.22% and 2.33%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 6.50% and 2.61% at December 31, 2022 and 2021, respectively.
Our debt that finances our loans and investment portfolio totaled $11.57 billion and $13.28 billion at December 31, 2023 and 2022, respectively, with a weighted average funding cost of 7.14% and 6.22%, respectively, which excludes financing costs. Including financing costs, the weighted average funding rate was 7.45% and 6.50% at December 31, 2023 and 2022, respectively.
See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details. 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.
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.
Income from Equity Affiliates Income from equity affiliates in 2022 primarily reflects $11.1 million in distributions received from our Lexford venture, $4.9 million of income from our investment in a residential mortgage banking business, and $2.6 million from an equity participation interest on a property that was sold.
Income from equity affiliates in 2022 primarily reflects $11.1 million in distributions received from our Lexford joint venture, $4.9 million of income from our investment in a residential mortgage banking business and a $2.6 million equity participation interest on a property that was sold, partially offset by a $2.4 million other-than-temporary impairment in our North Vermont Avenue investment.
Currently, rising interest rates will positively impact our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR or LIBOR.
Currently, the high interest rate environment positively impacts our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR.
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. Cash Flows.
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. Cash Flows.
Although we have not been significantly impacted by COVID-19 to-date, the impact of COVID-19 on companies continues to evolve, and the extent and duration of the economic fallout from this pandemic to our business, particularly rising inflation, increasing interest rates and dislocation in capital markets, remains unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.
The extent and duration of the economic fallout from this pandemic to our business, particularly rising inflation, increasing interest rates and dislocation in capital markets, remains unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.
Conversely, such rising interest rates could negatively impact real estate values and limit a borrower’s ability to make debt service payments, which may limit new mortgage loan originations and increase the likelihood of incurring losses from defaulted loans if the reduction in the collateral value is insufficient to repay their loans in full.
Conversely, such rising interest rates have negatively impacted real estate values and have limited certain borrowers abilities to make debt service payments, which may limit new mortgage loan originations and increase the likelihood of additional delinquencies and losses incurred on defaulted loans if the reduction in the collateral value is insufficient to repay their loans in full.
Tightening liquidity conditions in equity and capital markets affect the availability and cost of capital and the increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms.
The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all.
Cash flows provided by financing activities totaled $1.57 billion during 2022 and consisted primarily of net proceeds of $1.96 billion from securitized debt activity, $486.3 million of proceeds from the issuance of common and preferred stock and $124.6 million from senior unsecured notes activity, partially offset by net cash outflows of $617.0 million from debt facility activities (facility paydowns were greater than financed loan originations) and $321.7 million of distributions to our stockholders and OP Unit holders.
Cash flows used in financing activities totaled $1.83 billion during 2023 and consisted primarily of $929.8 million of payoffs and paydowns of securitized debt, net cash outflows of $598.8 million from debt facility activities (facility paydowns were greater than financed loan originations), $380.6 million of distributions to our stockholders and OP Unit holders and $54.6 million from senior unsecured notes activity, partially offset by $193.7 million of proceeds from the issuance of common stock.
Distributable earnings are as follows ($ in thousands, except share and per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income attributable to common stockholders ​ $ 284,829 ​ $ 317,412 ​ $ 163,395 Adjustments: ​ ​ ​ Net income attributable to noncontrolling interest ​ 28,044 ​ 38,507 ​ 25,208 Income from mortgage servicing rights ​ (69,346) ​ (130,230) ​ (165,517) Deferred tax (benefit) provision ​ (1,741) ​ 10,892 ​ 4,726 Amortization and write-offs of MSRs ​ 104,378 ​ 91,356 ​ 65,979 Depreciation and amortization ​ 11,069 ​ 10,900 ​ 11,486 Loss on extinguishment of debt ​ 4,933 ​ 3,374 ​ 3,546 Provision for credit losses, net ​ ​ 25,077 ​ ​ (39,856) ​ ​ 73,402 Loss on derivative instruments, net ​ ​ 3,480 ​ ​ 432 ​ ​ 43,596 Gain on real estate from settlement of loan ​ ​ — ​ ​ (2,466) ​ ​ — Stock-based compensation ​ ​ 14,973 ​ ​ 9,929 ​ ​ 9,046 Loss on redemption of preferred stock ​ ​ — ​ ​ 3,479 ​ ​ — Distributable earnings (1) ​ $ 405,696 ​ $ 313,729 ​ $ 234,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted weighted average shares outstanding - GAAP (1) ​ ​ 199,112,630 ​ ​ 156,089,595 ​ ​ 133,969,296 Less: Convertible notes dilution (2) ​ ​ (16,888,226) ​ ​ — ​ ​ — Diluted weighted average shares outstanding - distributable earnings (1) ​ ​ 182,224,404 ​ ​ 156,089,595 ​ ​ 133,969,296 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted distributable earnings per share (1) ​ $ 2.23 ​ $ 2.01 ​ $ 1.75 (1) Amounts are attributable to common stockholders and OP Unit holders.
Our calculation of distributable earnings may be different from the calculations used by other companies and, therefore, comparability may be limited. 43 Table of Contents Distributable earnings are as follows ($ in thousands, except share and per share data): Year Ended December 31, 2023 2022 2021 Net income attributable to common stockholders $ 330,065 $ 284,829 $ 317,412 Adjustments: Net income attributable to noncontrolling interest 29,122 28,044 38,507 Income from mortgage servicing rights (69,912) (69,346) (130,230) Deferred tax (benefit) provision (7,349) (1,741) 10,892 Amortization and write-offs of MSRs 77,829 104,378 91,356 Depreciation and amortization 16,425 11,069 10,900 Loss on extinguishment of debt 1,561 4,933 3,374 Provision for credit losses, net 68,642 25,077 (39,856) (Gain) loss on derivative instruments, net (8,844) 3,480 432 Stock-based compensation 14,940 14,973 9,929 Loss on redemption of preferred stock — — 3,479 Gain on real estate from settlement of loan — — (2,466) Distributable earnings (1) $ 452,479 $ 405,696 $ 313,729 Diluted weighted average shares outstanding - GAAP (1) 218,843,613 199,112,630 156,089,595 Less: Convertible notes dilution (2) (17,294,392) (16,888,226) — Diluted weighted average shares outstanding - distributable earnings (1) 201,549,221 182,224,404 156,089,595 Diluted distributable earnings per share (1) $ 2.25 $ 2.23 $ 2.01 ________________________________________ (1) Amounts are attributable to common stockholders and OP Unit holders.
The following table provides additional information regarding the balances of our borrowings (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarterly Average ​ End of Period ​ Maximum UPB at Quarter Ended UPB UPB Any Month-End December 31, 2022 ​ $ 4,441,774 ​ $ 3,856,009 ​ $ 4,403,368 September 30, 2022 ​ 4,534,744 ​ 4,642,911 ​ 4,642,911 June 30, 2022 ​ 4,581,226 ​ 4,561,393 ​ 4,926,070 March 31, 2022 ​ 4,224,503 ​ 4,315,388 ​ 4,842,785 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ 3,771,684 ​ 4,493,699 ​ 4,493,699 September 30, 2021 ​ 3,191,129 ​ 3,409,598 ​ 3,409,598 June 30, 2021 ​ 2,327,114 ​ 2,021,412 ​ 2,588,456 March 31, 2021 ​ 2,177,350 ​ 2,220,307 ​ 2,262,160 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ 1,939,759 ​ 2,238,722 ​ 2,238,722 September 30, 2020 ​ 1,406,219 ​ 1,454,419 ​ 1,454,419 June 30, 2020 ​ 1,692,940 ​ 1,240,910 ​ 2,033,312 March 31, 2020 ​ 1,829,495 ​ 1,851,758 ​ 2,003,278 ​ Our debt facilities, including their restrictive covenants, are described in Note 10.
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 December 31, 2023 $ 3,274,139 $ 3,242,938 $ 3,251,330 September 30, 2023 3,432,725 3,398,451 3,463,825 June 30, 2023 3,565,377 3,588,538 3,677,755 March 31, 2023 3,691,191 3,662,756 3,696,760 December 31, 2022 4,441,774 3,856,009 4,403,368 September 30, 2022 4,534,744 4,642,911 4,642,911 June 30, 2022 4,581,226 4,561,393 4,926,070 March 31, 2022 4,224,503 4,315,388 4,842,785 December 31, 2021 3,771,684 4,493,699 4,493,699 September 30, 2021 3,191,129 3,409,598 3,409,598 June 30, 2021 2,327,114 2,021,412 2,588,456 March 31, 2021 2,177,350 2,220,307 2,262,160 Our debt facilities, including their restrictive covenants, are described in Note 10.
We pool and securitize the Private Label loans and sell certificates in the securitizations to third-party investors, while retaining the servicing rights and APL certificates of the securitization. We conduct our operations to qualify as a REIT.
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 (“APL certificates”). We conduct our operations to qualify as a REIT.
The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in benchmark index rates as well as higher escrow balances during 2022. 43 Table of Contents Other Income The gains and losses on derivative instruments in 2022 and 2021, respectively, were related to changes in the fair values of our Swaps and forward sale commitments held by our Agency Business.
The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in benchmark index rates, partially offset by less prepayment penalties received from early runoff. 39 Table of Contents Other Income (Loss) The gain (loss) on derivative instruments in both 2023 and 2022 were related to changes in the fair values of our forward sale commitments and treasury futures held by our Agency Business.
In addition, a greater portion of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise. Therefore, increases in interest income due to rising interest rates is likely to be greater than the corresponding increase in interest expense on our variable rate debt.
In addition, a greater portion 42 Table of Contents of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.
The increase in interest expense was mainly due to a $344.2 million increase from our Structured Business, primarily due to an increase in the average balance of our interest-bearing liabilities, due to the significant growth in our loan portfolio and the issuance of additional unsecured debt, along with an increase in the average cost of our interest-bearing liabilities, mainly from increases in benchmark index rates.
The increase in interest expense was mainly due to a $341.9 million increase from our Structured Business, primarily due to a significant increase in the average cost of our interest-bearing liabilities, mainly from increases in benchmark index rates.
Cash flows provided by operating activities totaled $1.10 billion during 2022 and consisted primarily of net cash inflows of $650.4 million as a result of loan sales exceeding loan originations in our Agency Business and net income of $353.8 million, as well as certain other non-cash net income adjustments. Cash flows used in investing activities totaled $2.32 billion during 2022.
Cash flows provided by operating activities totaled $235.9 million during 2023 and consisted primarily of net income of $400.6 million, as well as certain other non-cash net income adjustments, partially offset by net cash outflows of $196.4 million as a result of loan originations exceeding loan sales in our Agency Business.
Off-Balance-Sheet Arrangements. At December 31, 2022, we had no off-balance-sheet arrangements. Inflation. The Federal Reserve has raised interest rates throughout 2022 to combat inflation and restore price stability and it is expected that rates will continue to rise throughout the first half of 2023, potentially even longer.
Off-Balance-Sheet Arrangements. At December 31, 2023, we had no off-balance-sheet arrangements. Inflation. The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability. As inflation begins to cool, it is possible that the Federal Reserve will pause on raising interest rates higher and potentially begin to lower rates during 2024.
The FHFA has stated that they will continue to monitor the market and reserves the right to increase the 2023 Caps if warranted, however, they will not reduce the 2023 Caps if the market is smaller than initially projected.
FHFA stated they will continue to monitor the market and reserves the right to increase the 2024 Caps if warranted, however, they will not reduce the 2024 Caps if the market is smaller than initially projected. To promote affordable housing preservation, loans classified as supporting workforce housing properties will be exempt from the 2024 Caps.
The decrease in other income, net during 2022 was primarily due to $15.7 million of unrealized impairment losses recorded on certain loans held-for sale in our Agency Business and $11.2 million of losses recognized in 2022 related to sales of bridge loans in our Structured Business.
Other income (loss), net in 2023 primarily reflects $4.8 million of loan origination fees from our Structured Business and a $2.5 million mark-to-market recovery on Private Label and SFR loans in our Agency Business, while 2022 primarily reflects a $15.7 million unrealized impairment loss recorded on certain loans held-for-sale in our Agency Business and $11.2 million of losses recognized in 2022 related to sales of bridge loans in our Structured Business.
Periods of volatility and dislocation in the capital markets, as observed recently, could limit our ability to grow our Structured Business since this business is more reliant on the capital markets to grow, but can also present us with unique avenues to participate in other lower cost financing options and build on existing, and create new, relationships with lenders.
These current market conditions could continue to limit our ability to grow our Structured Business since this business is more reliant on the capital markets to grow, but can also present us with options to build on existing relationships or create new relationships with lenders.
(2) See Note 14 for a breakdown of debt maturities by year. (3) Maturity dates represent the weighted average remaining maturity based on the underlying collateral at December 31, 2022.
(2) See Note 14 for a breakdown of debt maturities by year. (3) Maturity dates represent the weighted average remaining maturity based on the underlying collateral at December 31, 2023. (4) The $750 million As Soon as Pooled ® Plus (“ASAP”) agreement we have with Fannie Mae has no expiration date.
Avg. ​ as a % ​ as a % Product UPB Count (years) (years) Fixed Adjustable Note Rate of Portfolio (1) of Portfolio (2) Fannie Mae $ 19,038,124 2,460 3.1 8.5 96 % 4 % 4.20 % 12.71 % 0.13 % Freddie Mac ​ 5,153,207 1,214 2.8 10.2 84 % 16 % 4.26 % 19.78 % 0.27 % Private Label ​ ​ 2,074,859 ​ 130 ​ 1.9 ​ 7.8 ​ 100 % — % 3.60 % — % — % FHA ​ 1,155,893 96 2.5 33.5 100 % — % 3.17 % 1.59 % — % Bridge ​ ​ 301,182 ​ 4 ​ 0.9 ​ 1.6 ​ — % 100 % 7.68 % — % — % SFR - Fixed Rate ​ ​ 274,764 ​ 53 ​ 1.4 ​ 6.3 ​ 100 % — % 5.04 % 0.30 % — % Total ​ $ 27,998,029 3,957 2.9 9.7 93 % 7 % 4.17 % 12.35 % 0.14 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Fannie Mae $ 19,127,397 2,710 3.0 8.8 98 % 2 % 3.99 % 12.00 % 0.20 % Freddie Mac ​ 4,943,905 1,317 2.8 10.9 86 % 14 % 3.82 % 17.01 % 0.79 % Private Label ​ ​ 1,711,326 ​ 102 ​ 1.2 ​ 8.6 ​ 100 % — % 3.64 % — % — % FHA ​ ​ 985,063 90 2.0 33.9 100 % — % 3.01 % 23.69 % — % SFR - Fixed Rate ​ 191,698 ​ 45 ​ 0.9 ​ 6.7 ​ 100 % — % 4.54 % — % — % Total ​ $ 26,959,389 4,264 2.8 10.1 96 % 4 % 3.90 % 12.50 % 0.29 % (1) Prepayments reflect loans repaid prior to six months from loan maturity.
Note Rate Annualized Prepayments as a % of Portfolio (1) Delinquencies as a % of Portfolio (2) Fixed Adjustable Fannie Mae $ 21,264,578 2,559 3.4 7.4 96 % 4 % 4.50 % 5.09 % 0.86 % Freddie Mac 5,181,933 1,148 3.2 8.5 83 % 17 % 4.72 % 7.92 % 4.39 % Private Label 2,510,449 160 2.5 6.7 100 % — 4.02 % — — FHA 1,359,624 105 3.0 19.2 100 % — 3.52 % — — Bridge 379,425 4 1.2 3.2 63 % 37 % 7.14 % — — SFR - Fixed Rate 287,446 59 2.3 5.1 100 % — 5.20 % 1.18 % — Total $ 30,983,455 4,035 3.2 8.0 94 % 6 % 4.49 % 4.83 % 1.33 % December 31, 2022 Fannie Mae $ 19,038,124 2,460 3.1 8.0 96 % 4 % 4.20 % 12.71 % 0.13 % Freddie Mac 5,153,207 1,214 2.8 9.0 84 % 16 % 4.26 % 19.78 % 0.27 % Private Label 2,074,859 130 1.9 7.6 100 % — 3.60 % — — FHA 1,155,893 96 2.5 19.5 100 % — 3.17 % 1.59 % — Bridge 301,182 4 0.9 1.7 — 100 % 7.68 % — — SFR - Fixed Rate 274,764 53 1.4 6.0 100 % — 5.04 % 0.30 % — Total $ 27,998,029 3,957 2.9 8.6 93 % 7 % 4.17 % 12.35 % 0.14 % ________________________________________ (1) Prepayments reflect loans repaid prior to six months from loan maturity.
Loan and investment activity (originations and payoffs/paydowns) comprise the majority of our investing activities. Loan originations from our Structured Business totaling $5.96 billion, net of payoffs and paydowns of $3.42 billion and proceeds from the sale of $397.3 million of structured loans, resulted in net cash outflows of $2.13 billion.
Cash flows provided by investing activities totaled $1.88 billion during 2023. Loan and investment activity (originations and payoffs/paydowns) comprise the majority of our investing activities. Loan payoffs and paydowns from our Structured Business totaling $3.36 billion, net of originations of $1.36 billion, resulted in net cash inflows of $2.00 billion.
In November 2022, the FHFA announced that its 2023 Caps for Fannie Mae and Freddie Mac will be $75 billion for each enterprise for a total opportunity of $150 billion, which has decreased from its 2022 loan origination caps of $78 billion for each enterprise.
In November 2023, FHFA set its 2024 Caps for Fannie Mae and Freddie Mac at $70 billion for each enterprise for a total opportunity of $140 billion, which is a decrease from its 2023 Caps of $75 billion for each enterprise.
Net Income Attributable to Noncontrolling Interest The noncontrolling interest relates to the outstanding operating partnership units (“OP Units”) issued as part of the 2016 acquisition of ACM’s agency platform (the “Acquisition”).
Net Income Attributable to Noncontrolling Interest The noncontrolling interest relates to the outstanding operating partnership units (“OP Units”) issued as part of the 2016 acquisition of ACM’s agency platform (the “Acquisition”). There were 16,293,589 OP Units outstanding at both December 31, 2023 and 2022, which represented 8.0% and 8.4% of our outstanding stock at December 31, 2023 and 2022, respectively.
We had $13.28 billion in total structured debt outstanding at December 31, 2022. Of this total, $9.73 billion, or 73%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2024, or later.
Of this total, $8.74 billion, or 76%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2025, or later. The remaining $2.83 billion of debt is in credit and repurchase facilities with several different banks with which we have long-standing relationships.
Activity from our Structured Business portfolio is comprised of the following ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 Loans originated (1) ​ $ 6,151,647 ​ $ 9,720,515 ​ Number of loans ​ 318 ​ 422 ​ Weighted average interest rate ​ 5.72 % 4.33 % ​ ​ ​ ​ ​ ​ ​ ​ (1) We committed to fund SFR loans totaling $1.08 billion and $729.5 million during 2022 and 2021, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan runoff ​ $ 3,818,554 ​ $ 2,516,771 ​ Number of loans ​ 177 ​ 167 ​ Weighted average interest rate ​ 7.20 % 6.27 % ​ ​ ​ ​ ​ ​ ​ ​ Loans extended ​ $ 1,684,274 ​ $ 1,235,888 ​ Number of loans ​ 66 ​ 69 ​ ​ Loans held-for-sale from the Agency Business decreased $739.5 million, primarily from loan sales exceeding originations by $670.4 million as noted in the following table, and the payoff of a $55.0 million Private Label loan.
Activity from our Structured Business portfolio is comprised of the following ($ in thousands): Year Ended December 31, 2023 2022 Loans originated $ 983,343 $ 6,151,647 Number of loans 150 318 Weighted average interest rate 10.03 % 5.72 % Loan runoff $ 3,354,055 $ 3,818,554 Number of loans 187 177 Weighted average interest rate 9.21 % 7.20 % Loans extended $ 1,744,127 $ 1,684,274 Number of loans 64 66 Loans held-for-sale from the Agency Business increased $197.6 million, primarily from loan originations exceeding sales by $217.6 million as noted in the following table.
Although we have not been significantly impacted by COVID-19 to-date, adverse economic conditions have resulted, and may continue to result, in rising interest rates, dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could have a significant impact on our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.
Since our Agency Business requires limited capital to grow, as originations are financed through warehouse facilities for generally up to 60 days before the loans are sold, tightening liquidity conditions in equity and capital markets should not have a substantial impact on our ability to sustain this business. 34 Table of Contents These adverse economic conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could have a significant impact on our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.
Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we believe to be reasonable under the circumstances.
Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements.
These estimates are subject to change in the future if any of the underlying assumptions or factors change. 47 Table of Contents Non-GAAP Financial Measures Distributable Earnings.
Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we believe to be reasonable under the circumstances. These estimates are subject to change in the future if any of the underlying assumptions or factors change. Non-GAAP Financial Measures Distributable Earnings.
Due to borrowers decreased $35.4 million, primarily due to the funding of previously committed loan originations, partially offset by unfunded commitments on new originations in our Structured Business.
Senior unsecured notes decreased $52.0 million, primarily due to the redemption of our 8.00% and 5.625% notes totaling $149.6 million, partially offset by our issuance of $95.0 million of 7.75% notes. Due to borrowers increased $60.5 million, primarily due to unfunded commitments on new originations in our Structured Business, partially offset by the funding of previously committed loan originations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with the sections of this report entitled “Forward-Looking Statements” and”Risk Factors,” along with the historical consolidated financial statements including related notes, included in this report. 35 Table of Contents 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 and direct equity.
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 and direct equity.
The remaining $3.55 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with. 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.
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. We had $11.57 billion in total structured debt outstanding at December 31, 2023.
At December 31, 2022 and 2021, delinquent loans totaled $38.7 million and $77.6 million, respectively, of which zero and $9.8 million, respectively, were in the foreclosure process. No loans were in bankruptcy at December 31, 2022 and 2021.
At December 31, 2023 and 2022, delinquent loans totaled $411.1 million and $38.7 million, respectively. At December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and at both December 31, 2023 and 2022, there were no loans in foreclosure.
The higher income in 2021 from the residential mortgage business was driven by the historically low interest rates and strength in the residential housing market during 2021. Provision for Income Taxes In 2022, we recorded a tax provision of $17.5 million, which consisted of a current tax provision of $19.2 million and a deferred tax benefit of $1.7 million.
Provision for Income Taxes In 2023, we recorded a tax provision of $27.3 million, which consisted of a current tax provision of $34.6 million and a deferred tax benefit of $7.3 million. In 2022, we recorded a tax provision of $17.5 million, which consisted of a current tax provision of $19.2 million and a deferred tax benefit of $1.7 million.
This increase will allow the GSEs to expand their effort on energy and water conservation measures at workforce housing properties. Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues.
Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues. Therefore, a decline in our GSE originations could negatively impact our financial results.
Net Interest Income The increase in interest income was mainly due to a $476.6 million increase from our Structured Business, primarily due to a significant increase in our average core interest-earning assets from loan originations exceeding loan runoff, along with increases in the average yield on core interest-earning assets.
(2) Weighted average yield calculated based on annualized interest income or expense divided by average carrying value. Net Interest Income The increase in interest income was mainly due to a $375.8 million increase from our Structured Business, primarily due to a significant increase in the average yield on core interest-earning assets, as a result of increases in benchmark interest rates.
Loan sales included $489.3 million of Private Label loans which were sold in a Private Label loan securitization in the first quarter of 2022. Our GSE loans are generally sold within 60 days, while our Private Label loans are generally expected to be sold and securitized within 180 days from the loan origination date.
Our GSE loans are generally sold within 60 days, while our Private Label loans are either sold instantaneously or pooled and securitized, or sold, within 180 days from the loan origination date.
The following is a summary of our debt facilities (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity Debt Instruments Commitment UPB (1) ​ Available Dates (2) Structured Business ​ ​ ​ ​ Credit and repurchase facilities ​ $ 6,728,841 ​ $ 3,549,694 ​ $ 3,179,147 2023 - 2025 Securitized debt (3) ​ 7,886,066 ​ 7,886,066 ​ — 2023 - 2027 Senior unsecured notes ​ 1,399,600 ​ 1,399,600 ​ — 2023 - 2028 Convertible senior unsecured notes ​ 287,500 ​ 287,500 ​ — 2025 Junior subordinated notes ​ 154,336 ​ 154,336 ​ — 2034 - 2037 Structured Business total ​ 16,456,343 ​ 13,277,196 ​ 3,179,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agency Business ​ ​ ​ Credit and repurchase facilities (4) ​ 2,150,534 ​ 306,315 ​ 1,844,219 2023 - 2024 Consolidated total ​ $ 18,606,877 ​ $ 13,583,511 ​ $ 5,023,366 (1) Excludes the impact of deferred financing costs.
The following is a summary of our debt facilities (in thousands): Debt Instruments December 31, 2023 Commitment UPB (1) Available Maturity Dates (2) Structured Business Credit and repurchase facilities $ 6,576,161 $ 2,829,341 $ 3,746,820 2024 - 2027 Securitized debt (3) 6,956,284 6,956,284 — 2025 - 2028 Senior unsecured notes 1,345,000 1,345,000 — 2024 - 2028 Convertible senior unsecured notes 287,500 287,500 — 2025 Junior subordinated notes 154,336 154,336 — 2034 - 2037 Structured Business total 15,319,281 11,572,461 3,746,820 Agency Business Credit and repurchase facilities (4) 2,100,531 413,598 1,686,933 2024 - 2025 Consolidated total $ 17,419,812 $ 11,986,059 $ 5,433,753 ________________________________________ (1) Excludes the impact of deferred financing costs.
Agency Business Revenue The decrease in gain on sales, including fee-based services, net was primarily due to a 30% decrease in the sales margin from 1.92% to 1.34%, along with a 15% decrease ($976.5 million) in loan sales volume. The decrease in the sales margin was primarily due to lower margins received on our Private Label and SFR loan sales.
Agency Business Revenue The increase in gain on sales, including fee-based services, net was primarily due to a 10% increase in the sales margin from 1.34% (which includes gains recognized on derivative instruments) to 1.48%, partially offset by a 10% decrease in loan sales volume ($549.4 million).
See Note 16 for details of our dividends declared and our deferred compensation transactions during 2022. 40 Table of Contents Agency Servicing Portfolio The following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing revenue ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ Wtd.
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): December 31, 2023 Product Portfolio UPB Loan Count Wtd. Avg. Age of Portfolio (years) Wtd. Avg. Life of Portfolio (years) Interest Rate Type Wtd. Avg.
(4) The $750 million As Soon as Pooled ® Plus (“ASAP”) agreement we have with Fannie Mae has no expiration date. 46 Table of Contents 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.
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.
As of February 8, 2023, we had approximately $685.0 million in cash and $420.0 million of replenishable cash available under our CLO vehicles, as well as other liquidity sources.
At December 31, 2023, we had $1.65 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads. As of February 18, 2024, we had approximately $1.00 billion in cash and approximately $600.0 million of replenishable cash available under our CLO vehicles, as well as other liquidity sources.
The ongoing COVID-19 pandemic has contributed to adverse economic and market conditions, causing significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets, while adding to ongoing longer-term macroeconomic effects on inflation, interest rates and capital markets.
The ongoing adverse economic and market conditions, including inflation, high interest rate environment, bank failures and geopolitical uncertainty, continues to cause significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets. These conditions have created, and may continue to create, a dislocation in capital markets and a continual reduction of available liquidity.
Agency Business Activity. ● Loan originations and sales totaled $4.77 billion and $5.44 billion, respectively; and ● Grew our fee-based servicing portfolio 4%, or $1.04 billion, to $28.00 billion. Dividend.
Agency Business Activity. • Loan originations increased 7% to $5.11 billion, and includes $1.69 billion of new agency loans that were recaptured from our Structured Business runoff; and • Grew our fee-based servicing portfolio 11%, or $2.99 billion, to $30.98 billion. Dividend.
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, partially offset by an increase in headcount as a result of the portfolio growth in both business segments.
Other Expenses The decrease in employee compensation and benefits expense was primarily due to a decrease in incentive compensation. The decrease in selling and administrative expenses was primarily due to lower professional fees as a result of the settlement of the Extended Stay litigation in early 2023.
The provision recovery during 2021 was primarily due to the reversal of CECL reserves in both business segments in connection with improved market conditions and expected future forecasts. We recorded an accrual of $7.4 million in 2022 pertaining to the settlement of the Extended Stay litigation as described in Note 14.
The increases in our CECL provisions were primarily due to the impact of a continued decline in the macroeconomic outlook for commercial real estate, including specifically identified impaired assets. We recorded an accrual of $7.4 million in 2022 pertaining to the settlement of the Extended Stay litigation as described in Note 14.
At December 31, 2022, we had $2.49 billion of debt that was subject to margin calls related to changes in interest spreads. 45 Table of Contents To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income.
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.
We raised our quarterly common dividend three times during 2022 to an annual run rate of $1.60 per share, representing an 8% increase over the prior year. 37 Table of Contents Current Market Conditions, Risks and Recent Trends As discussed throughout this report, the ongoing COVID-19 pandemic continues to impact the global economy in unprecedented ways, causing significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets.
We raised our quarterly common dividend twice during 2023 to an annual run rate of $1.72 per share, representing a 7.5% increase over the prior year. Current Market Conditions, Risks and Recent Trends The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability.
The decrease in the MSR rate was primarily due to lower average servicing fees on Fannie Mae loan commitments, due to a reduction in servicing rates on newer loans and a larger average loan size which carries lower servicing fees.
The positive impact from the net increase in loan commitment volume was largely offset by a decrease in the Fannie Mae and Freddie Mac MSR rates, as a result of lower servicing rates on newer loans.
We also recorded $4.9 million of income from our residential mortgage venture, received a $2.6 million equity participation interest and recorded a $2.4 million other-than-temporary impairment (see Note 8); and ● Agreed to a $7.4 million settlement on the Extended Stay litigation (see Note 14).
We also received cash distributions totaling $15.0 million from our investment in a residential mortgage banking business; and • Settled the Extended Stay litigation (see Note 14).
Liabilities – Comparison of balances at December 31, 2022 to December 31, 2021: Credit and repurchase facilities decreased $639.8 million, primarily due to loan sales exceeding originations in our Agency Business as described above.
Liabilities – Comparison of balances at December 31, 2023 to December 31, 2022: Credit and repurchase facilities decreased $604.0 million, primarily due to runoff in our structured loan portfolio outpacing new originations. 36 Table of Contents Securitized debt decreased $914.3 million, primarily due to the unwind of two CLO vehicles totaling $842.1 million and paydowns on existing securitizations totaling $87.7 million.
Removed
The ongoing effects of COVID-19 created significant disruptions to the U.S. and global economies, which could continue a period of global economic slowdown.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with the sections of this report entitled “Forward-Looking Statements” and”Risk Factors,” along with the historical consolidated financial statements including related notes, included in this report.
Removed
Significant Developments During 2022 Financing and Capital Markets Activity. ● Closed two collateralized securitization vehicles (CLO 18 and 19) totaling $3.10 billion, of which $2.53 billion of investment grade notes were issued to third-party investors and $387.3 million of below investment-grade notes and a $187.1 million equity interest in the portfolio were retained by us; ● Closed a $489.3 million Private Label securitization and retained the most subordinate certificates totaling $43.4 million; ● Closed our first Freddie Mac Q Series securitization totaling $315.8 million and retained certain subordinate and interest-only certificates totaling $79.0 million; ● Raised $485.8 million of capital from the issuances of common stock and an additional issuance of Series F preferred stock; ● Raised $426.9 million from the issuance of our 7.50% convertible notes and 8.50% senior unsecured notes and used a significant portion to repay existing debt; ● Increased our Structured Business warehouse capacity by $1.80 billion; and ● Unwound CLO 10, redeeming $441.0 million of outstanding notes, which were repaid from refinancing the remaining assets within CLO 18 and cash held by CLO 10.
Added
Significant Developments During 2023 Financing and Capital Markets Activity. • Raised $193.7 million of capital from issuances of approximately 13.1 million shares of common stock under our “At-The-Market” equity offering sales agreement; • Unwound CLO 12 and 13, redeeming the remaining outstanding notes, which were repaid primarily from the refinancing of the remaining assets within our other CLO vehicles and credit and repurchase facilities; • Raised $93.4 million from the issuance of our 7.75% senior unsecured notes and used $70.8 million of the net proceeds to redeem our 8.00% senior unsecured notes; and • Redeemed $78.9 million of our 5.625% senior unsecured notes at maturity with cash.
Removed
Structured Business Activity. ● Grew our structured loan and investment portfolio 19% to $14.46 billion on loan originations totaling $6.15 billion, partially offset by loan runoff totaling $3.82 billion; ● Loan runoff included the sale of four bridge loans at par with an aggregate UPB of $296.9 million; ● Sold a $110.5 million loan at a discount for $102.2 million, releasing $66.3 million of capital for investment and recognized a $9.2 million loss.
Added
Share Repurchase Program. We implemented a $50.0 million share repurchase program and repurchased approximately 3.5 million shares of our common stock at a total cost of $37.4 million and an average cost of $10.56 per share. We subsequently increased the remaining availability under the share repurchase program to $150.0 million.
Removed
We have the potential to recover up to $2.8 million depending on the future performance of the loan; ● Within our equity investments, we received cash distributions totaling $37.4 million, including $23.8 million (recognized as a return of capital) from our residential mortgage venture and $11.1 million (recognized as income) from our Lexford venture.
Added
Structured Business Activity. • Reduced our structured loan and investment portfolio by 13% to $12.62 billion on loan runoff of $3.35 billion, which outpaced loan originations totaling $983.3 million; • Received and recorded $26.7 million in income from equity affiliates from equity participation interests on properties that were sold and cash distributions from our Lexford joint venture.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

15 edited+3 added−0 removed8 unchanged
Biggest changeSince it is unlikely that the Index Rates will decrease in the near future as a result of the current economic environment, we have excluded the impact of decreases in the Index Rates. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets (Liabilities) ​ ​ ​ ​ Subject to Interest ​ 50 Basis Point ​ 100 Basis Point ​ ​ Rate Sensitivity (1) ​ Increase ​ Increase ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income from loans and investments ​ $ 14,456,123 ​ $ 69,844 ​ $ 139,688 Interest expense from debt obligations ​ (13,277,196) ​ 57,989 ​ 115,978 Impact to net interest income (2) ​ ​ ​ ​ $ 11,855 ​ $ 23,710 (1) Represents the UPB of our loan portfolio and the principal balance of our debt.
Biggest changeSince it is unlikely that interest rates will significantly increase in the near future as a result of the current high interest rate environment, we have excluded the impact of a 100 basis point increase in corresponding interest rates.
The performance and value of our loan and investment and servicing portfolios depend on the borrowers’ ability to operate the properties that serve as collateral so that they produce adequate cash flow to pay their loans. We attempt to mitigate these risks through our underwriting and asset management processes.
The performance and value of our loan and investment and servicing portfolios depend on the borrowers’ ability to operate the properties that serve as collateral so that they produce adequate cash flow to pay their loans. We attempt to mitigate these risks through our underwriting and asset 44 Table of Contents management processes.
We enter into interest rate swaps to hedge our exposure to changes in interest rates inherent in (1) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization, and (2) our Agency Business SFR – fixed rate loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt.
We entered into treasury futures to hedge our exposure to changes in interest rates inherent in (1) our held-for-sale Agency Business Private Label loans from the time the loans are rate locked until sale and securitization, and (2) our Agency Business SFR – fixed rate loans from the time the loans are originated until the time they can be financed with match term fixed rate securitized debt.
If a loan is extended, our exposure to interest rate risk may be increased. In these instances, we could have a fixed rate loan financed with variable debt with no corresponding hedge, which may result in debt which is unprotected from interest rate risk. Some of our loans and borrowings are subject to interest rate floors.
In these instances, we could have a fixed rate loan financed with variable debt with no corresponding hedge, which may result in debt which is unprotected from interest rate risk. Some of our loans and borrowings are subject to interest rate floors.
As a result, the impact of a change in interest rates may be different on our interest income than on our interest expense. We have utilized interest rate swaps in the past to limit interest rate risk. Derivatives are used for hedging purposes rather than speculation.
As a result, the impact of a change in interest rates may be different on our interest income than on our interest expense. We have utilized treasury futures and interest rate and credit default swaps in the past to limit interest rate risk. Derivatives are used for hedging purposes rather than speculation.
Our interest rate swaps are tied to the five-year and ten-year swap rates and hedge our exposure to Private Label loans, until the time they are securitized, and changes in the fair value of our held-for-sale Agency Business SFR – fixed rate loans.
Our treasury futures are tied to the five-year and ten-year treasury rates and hedge our exposure to Private Label loans, until the time they are securitized, and changes in the fair value of our held-for-sale Agency Business SFR – fixed rate loans.
The sale or placement of each loan to an investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is generally effectuated within 60 days of closing. The coupon rate for the loan is set after we establish the interest rate with the investor.
The sale or placement of each loan to an investor is negotiated prior to closing on the loan with the borrower, and the sale or placement is generally effectuated within 60 days of closing.
A 100 basis point increase in the weighted average discount rate would decrease the fair value of our MSRs by $18.0 million at December 31, 2022, while a 100 basis point decrease would increase the fair value by $19.1 million. ​ 50 Table of Contents
A 100 basis point increase in the weighted average discount rate would decrease the fair value of our MSRs by $16.4 million at December 31, 2023, while a 100 basis point decrease would increase the fair value by $17.3 million. 46 Table of Contents
The objective of this strategy is to minimize the impact of interest rate changes on our net interest income. We also have various fixed rate loans in our portfolio that are financed with variable rate borrowings. Additionally, loans are sometimes extended and, consequently, do not pay off on their original maturity dates.
We also have various fixed rate loans in our portfolio that are financed with variable rate borrowings. Additionally, loans are sometimes extended and, consequently, do not pay off on their original maturity dates. If a loan is extended, our exposure to interest rate risk may be increased.
A 50 basis point and a 100 basis point increase to the five-year and ten-year swap rates on our interest rate swaps held at December 31, 2022 would have resulted in a gain of $5.0 million and $10.0 million, respectively, in 2022, while a 50 basis point and a 100 basis point decrease in the rates would have resulted in a loss of $5.0 million and $10.0 million, respectively.
A 50 basis point and a 100 basis point increase to the five-year and ten-year treasury rates on our treasury futures held at December 31, 2023 would have resulted in a gain of $0.8 million and $1.2 million, respectively, during 2023, while a 50 basis point and a 100 basis point decrease in the rates would have resulted in a gain of less than $0.1 million and a loss of $0.3 million, respectively.
In addition, the fair value of our MSRs is subject to market risk since a significant driver of the fair value of these assets is the discount rates.
The coupon rate for the loan is set after we establish the interest rate with the investor. 45 Table of Contents In addition, the fair value of our MSRs is subject to market risk since a significant driver of the fair value of these assets is the discount rates.
The operating results of our Structured Business depend in large part on differences between the income from our loans and our borrowing costs. Most of our Structured Business loans and borrowings are variable-rate instruments, that are currently based on SOFR as we continue to transition away from LIBOR (collectively referred to as the “Index Rates” below).
The operating results of our Structured Business depend in large part on differences between the income from our loans and our borrowing costs. Most of our Structured Business loans and borrowings are variable-rate instruments based on SOFR. The objective of this strategy is to minimize the impact of interest rate changes on our net interest income.
We do not enter into financial instruments for trading purposes. 49 Table of Contents The following table projects the potential impact on interest (in thousands) for a 12-month period, assuming hypothetical instantaneous increases of 50 basis points and 100 basis points in the Index Rates.
As a result, the impact in the table below is for illustrative purposes only. The following table projects the potential impact on interest (in thousands) for a 12-month period, assuming a hypothetical instantaneous increase or decrease of 50 basis points and a decrease of 100 basis points in corresponding interest rates.
The interest rates on these balances are not indexed to an Index Rate and are negotiated periodically with each corresponding bank, therefore, the interest rates may not change in conjunction with changes in Index Rates.
We do not enter into financial instruments for trading purposes. Additionally, the interest rates on our cash, restricted cash and escrow balances are not indexed to a benchmark index rate and are negotiated periodically with each corresponding bank, therefore, the interest rates may change frequently and may not necessarily change in conjunction with changes in SOFR.
(2) The impact of hypothetical rate changes to net interest income are further benefited by interest income earned on our cash, restricted cash and escrow balances. At December 31, 2022, we had $2.50 billion of cash, restricted cash and escrows, which is earning interest at a weighted average rate of approximately 3.75%, or approximately $94 million annually.
(2) Our cash, restricted cash and escrows are currently earning interest at a weighted average blended rate of approximately 5.0%, or approximately $155.0 million annually.
Added
Assets (Liabilities) Subject to Interest Rate Sensitivity (1) 50 Basis Point Increase 50 Basis Point Decrease 100 Basis Point Decrease Interest income from loans and investments $ 12,615,006 $ 56,099 $ (55,288) $ (109,762) Interest expense from debt obligations (11,572,461) 49,785 (49,785) (99,569) Impact to net interest income from loans and investments $ 6,314 $ (5,503) $ (10,193) Interest income from cash, restricted cash and escrow balances (2) $ 3,076,723 15,384 (15,384) (30,767) Total impact from hypothetical changes in interest rates $ 21,698 $ (20,887) $ (40,960) ________________________________________ (1) Represents the UPB of our loan portfolio, the principal balance of our debt and the account balances of our cash, restricted cash and escrows at December 31, 2023.
Added
Interest income earned on our cash and restricted cash is included as a component of interest income and interest income earned on escrows is included as a component of servicing revenue, net in the consolidated statements of income.
Added
The interest earned on our cash, restricted cash and escrows is based on an average daily balance and may be different from the end of period balance.

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