Good day, ladies and gentlemen. And welcome to Arbor Realty Trust Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time [Operator Instructions]. As a reminder, today’s conference call is being recorded. I would now like to turn the call over to Mr. Paul Elenio, Chief Financial Officer. Sir, you may begin.

Okay, thank you, Chelsea, and good morning, everyone. And welcome to the quarterly earnings call for Arbor Realty Trust. This morning we’ll discuss the results for the quarter and year ended December 31, 2016. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform that you statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor’s expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. I’ll now turn the call over to Arbor’s President and CEO, Ivan Kaufman.

Thank you, Paul. And thanks to everyone for joining us on today's call. We’re very excited today to discuss the success we had in closing out 2016, as well as our plans for 2017. As you can see from this morning's press release, we had a very strong fourth quarter as we continue to benefit greatly from our newly acquired agency platform. This acquisition is transformational to our franchise and greatly enhanced our ability to achieve our goal of becoming the world-class commercial real estate platform. Before I turn it over to Paul to take you through our financial results, I would like to talk about some of our significant fourth quarter and full accomplishments, as well as our outlook for 2017. Our fourth quarter and full year highlights were truly remarkable and exceeded our expectations. Some of the more significant accomplishments included significant growth in our core earnings allowing us to increase our dividend run rate to $0.68 per share, representing a 13% increase since the Agency Business acquisition; achieving a total shareholder return of 13% in 2016 and 28% over the last two years; adding significant diversification, stability and duration to our income strengths from a prepayment protected long data service and portfolio; producing record originations of $4.6 billion, $3.8 billion from our Agency Business, a 22% increase from the 2015 agency volume; growing our service and portfolio to $13.6 billion, a 24% increase from 2015 and 14% increase since the Agency Business was acquired; increasing our transitional balance sheet portfolio of 17% in 2015 to $1.8 billion; generating $15 million of income from equity investments and a structured transactions; continuing to focus on new and improved non-recourse securitization vehicles, closing our six CLO for $325 million with deployments and capability; increasing our market capital over $500 million…

Thank you, Ivan. As our press release this morning indicated, we had a very strong fourth quarter as we continue to benefit greatly from the Agency Business acquisition. As a result, AFFO was $15.1 million or $0.21 per share for the fourth quarter and $49 million or $0.79 per share for the full year of 2016. This translated into an annualized return on average common equity of 9%, and we produced the total shareholder return of approximately 13% for 2016. As Ivan mentioned, the significant results from our agency platform have been very accretive, which has allowed us to increase our dividend to $0.17 a share or 0.68% a share annualized, an increase of approximately 13% since the Agency Business acquisition. And with AFFO of 0.79 a share for 2016, we more than covered the $0.63 of dividends we paid out this year. For the quarter, we generated approximately $27 million of income and approximately $12 million of AFFO from the Agency Business, a portion of this income from business is subject to federal and state taxes inside of taxable REIT subsidiary. For the fourth quarter and full year 2016, we reported a current federal and state tax provision of $2.1 million and $2.4 million respectively related to this income as we had NOLs from prior taxable REIT investments that were applied against the third and fourth quarter taxable income. If we did not have these NOLs, our current federal and state tax provision would have been approximately $6 million for the fourth quarter, resulting in a current federal and state effective tax rate of approximately 22% for the fourth quarter on our Agency Business pretax income. We also had a very strong originations quarter in our agency platform, closing $1.3 billion of loans in Q4 and $3.76 billion for…

[Operator Instructions] And our first question comes from the line of Steve DeLaney with JMP Securities. Your line is now open.

I'd like to talk about market share a little bit. These are rough numbers. But what we're seeing I think the GSEs together did $112 billion in multi-family. So, we’re seeing your volume at about 3.5% market share combined and maybe your Fannie volume higher at about 5%. First part -- the first question is do you see these numbers about the same as we’re calculating them? But more importantly, Ivan, do you guys have any specific goals or targets that, over the next year or two, that you’re hoping to achieve in gaining shares, seems like there is plenty of room for growth. And the final part of the question would be, as you look to grow your platform. Should we assume that that will mostly be organic growth? Or are there any acquisition targets out there that you could consider? Sorry for the long question, but appreciate your comments.

So, we continue to grow our originations platform organically. We grew it by increasing the number of products, investing in technology, investing in our current sales people, as well as having training programs, bringing people around, and that’s a significant focus. We’ve a long history as operators are acquiring other businesses when the climate is right. And as the appropriate kind of enterprise that can have the right integration, we have the expertise and the capital to do. And I believe that those opportunities will present themselves, especially with some dislocation in the future, and I am hopeful that will occur. With respect to the Agency Business, we continue to grow our Agency Business. As you know, Steve, we are the leader in the small balance base. We like the small down of base. It's more difficult space operator in. We’ve perfected our expertise. We continue to be the leader, the number one lender for Freddie Mac, and an innovator in that program, and bringing technology to there. So, my belief is we can continue grow in that space and increase our market share. The good news as well is a lot of our business with the agencies has excluded businesses and were not affected by the caps. While other enterprises maybe restricted in terms of amount of business they can do, will allow businesses or uncap business, and it's unlimited how much can grow. So, we’re pretty confident and happy with the level of growth we’ve had year-to-year. I think it's over 20% from last year and consistent with prior years, and if we can then maintain that growth level, we would be quite pleased.

Ivan, with small balance, you seem to be focused with Freddie there, and I think you were involved in helping them set that program up. But does Fannie not have the same emphasis internally on small balance firms. So in that way the production with Freddie is more in that product?

I think that the emphasis comes and goes with the two different agencies. Freddie is clearly right now very committed with the variety of different products. So, I think their product offerings is little broader. They tend to be a little bit more competitive right now. So, that’s where our emphasis is at the moment. We’re still very active with Fannie Mae. And I think based on their appetite and their views, sometimes they’re a little more active, sometimes they’re little less active.

And my follow up question, I would like to talk a little bit about credit quality and the structured portfolio. Firstly I would look for creditors, what’s going out with the provision, and it looks like 2016 was a very, kind of a nine year you actually had a modest recovery rather than a net charge. And I guess the prior year was about $4.5 million of charges. So, maybe just some big picture thoughts on how you see the credit quality generally in the portfolio? And then I would like to ask you some specific questions about the eight loans that you have reserves on? Thanks.

We’ve a lot of numbers to Paul. But any charges that we have are still some residuals from some of legacy portfolios. Our comp portfolio is performing on the agency side, and on the balance sheet side, extremely well. So, we’re pleased with the levels of performance. And in fact on the agency side, our underwritten levels for how we originate the loans and the performance of how they’re performing today, they’re performing well in the excess of the way we’ve unwritten them. So, we’re quite pleased with the credit quality. And especially in light of the fact that we believe that we’re flat -- kind of a flat rent environment over the last 18 months, so we’ve had to adjust our underwriting parameters to reflect what our philosophy was on more or less regarding the multi-family assets. Paul, do you have any comment on that?

Steve, to Ivan’s point, I think as you said generally the portfolio is performing very well. We've had a lot of improvements in some of the legacy assets. But the only provisions we take at this point are in a handful of legacy assets. We did not had anything as you said in 2016 I don’t know what ‘17 will bring but for the most part the portfolio is performing very well, on the loans that we book reserves on, we feel comfortable those reserves are appropriate. I can't tell you that we’ll have recoveries or additional provisions on those loans. But we feel very comfortable. In the past, we’ve been able to book recoveries. We’re hopeful that trend will continue. But right now, we think we’re adequately reserved on those loans that we have reserves on.

So Paul on the $187 million gross, what percent, whether it's by loan number -- I guess by dollar amount. What percent of those are actually on non-accrual, so you have no current income recognitions on the loans?

I think there is $27 million of non-performing loans that are fully reserved, and those are non-performing. And then the balance of those loans from the 180 for the 27 would still be performing. But we've put away some credit reserve for impairment on those loans.

And overall, Steve, you'll see the numbers. But our reserves represent about -- little bit less than 5% of the UPB of our portfolio right now.

Thank you. And our next question comes from the line of Jade Rahmani with KBW. Your line is now open.

Just wanted to ask, you mentioned the pipeline for 1Q is strong. And what are you seeing in terms of borrower demand. Is there any diminution due to concerns about interest rates, or potentially tax reform impacting commercial real-estate?

I think we’re seeing very consistent production. I think you have to look at the overall environment. There is record number of transactions from -- that were written in 2006, ’07 and ’08 that are up for refinancing right now. And those particular loans were written with interest rates that were higher than interest rates are today. I think some of the additional volume we saw on the fourth quarter was reaction to a concern that rates would rise. And in fact they rose well in excess of what people originated -- were anticipating. I think you saw the 10 year ago as high as 260 to 265, it's settling down now into 230 to 240 range, which is still extremely attractive. So, we’re seeing consistent demand from our borrowers, it's not letting up. And I think the outlook is that rates may rise a little bit, but it's still lower than the realm of people being able to refinancing and adjusting debt, and be active in the purchase market right now.

And then in terms of loan mix comment side, are you seeing an uptick in refinancings plus acquisition loans, sounds like it -- from your comment around the ’06 to ’08 vintage?

Yes, I'd have to take a look at the numbers. I think we’re seeing a high level of consistency. But we will see a greater level of growth on the refinance side just due to the amount of loans that are good to be refinanced in that market.

And then just on the overall market, I think Freddie Mac is projecting around 5.5% increase in volume in 2017. Do you agree with that market projection?

Yes, I do. I think it's a bigger market. And I think the agencies will get their share, and a great deal of liquidity is coming from both of the agencies, including FHFA as well. So, I think that as market grow, they’ll be there to provide liquidity in order to fill a market to have right efficiencies.

Thanks. And I am going to pass it on to my colleague Ryan who has additional follow-up questions.

Thanks, Jade. Just -- and thanks for taking my question as well. Just for the balance sheet portfolio, can you say what drove the increase that was pretty material for the quarter in average loan yields? For example, are you seeing increased spreads on incremental originations?

Are you talking about the gross yields?

Yes, the gross yields that you disclosed at quarter end.

Ivan, do you want to take that, or you want me to…

Yes, go ahead Paul. You got the numbers…

Yes, some of its mix, Ryan. So, we look at things on a levered return basis. So, levered return was 14% on originations for the quarter, and that’s pretty much consistent all the year. The yield, the gross yield, on the loans in the fourth quarter was up a little bit from the prior quarter. And some of that has to do with mix. We did do a mezzanine loan during the quarter that carries a high gross yield. But then again, it's not leveraged; so all-in the mix of leveraged return is about 14%. Some of the mix still on the gross spread has to do with the product and also the increase in LIBOR. But it was a little bit of mix. We did do a larger mezzanine loan this quarter that drove up the gross yield.

And then can you provide some color on the current pipeline of loans for the structure business that are in some process of underwriting or closing?

I think we’re seeing that business to run at a similar pace little bit greater than last year. Given where we are and our liquidity, we can be a little bit more aggressive. We also think we can lower our cost of funds right now with where the market is. And we think our execution on the CLO side is more and more efficient. So, I am optimistic that we can grow our originations a little bit ahead of last year. And our activity in the market and the combination of the platforms has given us a little greater access. So, I would like to see that business grow over last year, and we’re seeing more attraction in that line of business.

And Ryan, I think in Ivan's commentary, we talked about. As Ivan said, we do expect. We hope that we can grow the origination side of that business right now. We’re also hopeful to grow the net growth side of that business. And that obviously depending on runoff, but we did see as you know, a fair amount of runoff in 2015. We saw substantially less in '16. We don’t know what '17 will hold for us but we’re hopeful that we can one grow originations on the structured side and maybe see less or the same runoff that we’ve resulted in net growth in our portfolio, maybe a little higher than '16, as well, that’s what we’re hopeful for.

And then just on the Agency Business. What drove the decline in gain on sale origination piece for the quarter? And what are you expecting for the gain on sale in 2017?

So there’s lot that go into the margin. And in my commentary, I tried to give you that guidance that lots of factors factor into the margin. Obviously, loan side and GSE product is a big piece of it. So, depending on the mix, you will have higher or lower margin depending on the loan size or of higher or lower margin. In fourth quarter, we gave you a few larger loan and they generally have a lower margin. So, we did come in slightly lower on the margin, but not significant. And we do think that we can't guide you exactly what ’17 will bring, but we think that ’17 brings a margin similar to maybe what we did in the fourth quarter. But again, it will depend on mix. It will depend on loan size. And as Ivan I'm sure will touch on, it will depending on where interest rates are and where spreads are.

And then just lastly for the remaining hotel and office OREO assets, is there any expectation of monetizing those in the near-term?

I would say we’re working hard on monetizing those legacy and residual assets. We've done a good job in Daytona and we’re left with one asset right now. And we would work hard to try and monetize that over the next 12 months. We’re very active in working the remaining asset that we have in Lake Tahoe, and having that go through the development process. And we’re in discussions and negotiations on aggressively working that as well.

Thank you [Operator Instructions]. Our next question comes from the line of Lee Cooperman with Omega. Your line is now open.

I apologize, if these questions were address, but I got disconnected in the middle of the call. So, I had missed part of the content, but I have three questions. If I said to you over the next two to three years that the economy would grow, say a couple of percent, real terms that the Fed funds rate would go to 2% and in 10 year will go to 4%. But the economy would be growing. Is that an interest rate environment that we can do fine in? And in terms of the balance sheet how we structured. And I'll give you all my questions at one time. The second one is, I did hear that 9% ROE for last year. What's your realistic target, the way you want to run the business? And thirdly, I also heard there’s a $150 million of additional liquidity on the balance sheet. Could one assume that when we put that to work, we can make 4 points spread of that money and so it's a potential additional earnings that we’re not now earning, because the money is not being employed? Those are three questions.

Paul, why don’t you address the ROE and then I'll remember and address some of those other?

So, we did a 9% ROE on common equity this year. I think we did about 9.8 in 2015. So obviously, we think those are strong numbers 8% to 10% would be very strong in our mind. And also, we generated the 13% return to shareholders with dividends in ’16. So we’d like I think Ivan you can weigh in, we'd like that anywhere from 8% to 12%. But certainly, we think those are strong numbers and we think those are obtainable numbers. I think the other two questions Ivan were what the interest rate environment could be and whether we can succeed in that scenario that we led out on the interest environment. And what we think we can do with our $150 million of capital what that could earn us.

The $150 million of capital is more than we need to operate the business. So, I think we have at least $15 million of that, which can be put into loans and investments. Lee, we run on average between 12% and the 14% return on the capital like we invest. So I believe you can do the math, it will be very accretive to invest those dollars, and show good operating results. In terms of the interest rate environment, we’ve a very well balanced business. And I think that interest rate rises present different opportunity for the different lines of business. As we’ve mentioned before, raise in interest rate has a real positive impact on our earnings due to the escrow and reserves that we maintain on our Agency Business. I think we’re well in access of $400 million [ph] and we will earn an increase in earnings commensurate with the rise in interest rates, which will have a direct impact on our earnings. Volatility is really good for our balance sheet to the extent that there is volatility. It will increase our opportunities for us in terms of using t balance sheet that dislocation is positive to find interest and opportunities and greater spreads. With respect to the Agency Business, I think the Agency Business will continue to grow. A rise in interest rates may impacts that a little bit. But there are still a significant number of loans in '17 and '18, which has to be refinanced. Those loans are still well above the levels that you spoke about, and we’ll still refi work. And we’ll have to re-equitized. There are a lot of different product options today. And if there is a rise in interest rates, you may see borrowers take share return duration products whether it’d be a five or seven as opposed to a 10 year loan, where they may take a variable rate product, which we offer as well. I think you will see a little full in growth in the Agency Business, if in fact rates rise rapidly and people will step back on purchases. And it will be very much driven by refis, but aspects of our business will grow. And I’d be pretty happy with a little volatility in the market to shake out what's taking place when people have too much liquidity.

Thank you. And I am showing no further questions, at this time. I would now like to turn the call back to Mr. Ivan Kaufman, Chief Executive Officer, for any closing remarks.

Okay. Well, thank you everybody for participating and your support. It's been an outstanding year in 2016. And we’re really opportunistic and my outlook is very positive for 2017, and look forward to your participation going forward. Have a good everybody.

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