Arbor Realty Trust, Inc. (ABR) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2017 Arbor Realty Trust Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. Like to introduce your host for today's conference, Mr. Paul Elenio, CFO. Sir?

Okay, thank you, Vince, 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 ended September 30, 2017. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to 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. As you can see from this morning's press release, we had another very successful quarter with tremendous operating results, which has allowed us to, once again, increase our dividend ahead of schedule to $0.19 a share or another 6% this quarter. This is our fourth dividend increase in a little over a year, reflecting a 27% increase over that time period and puts our dividend at an annual run rate of $0.76 a share. I'm also extremely pleased with the progress we continue to make in growing our platform, increasing our brand and expanding our market presence and believe, we are well positioned for even greater success in the future. We're very optimistic on our outlook and extremely confident that we will continue to produce strong operating results for the balance of this year and into 2018, which will translate into increased core earnings and dividends in the near future. Our Agency Business continues to flourish and our results for the first 9 months of this year are reflective of the tremendous success we've had in growing this platform. We originated another $1 billion in loans in the third quarter and have originated $3.3 billion in agency loans for the first 9 months of this year, which represents a 34% increase of around 9-month production volume for 2016. Additionally, we continue to leverage our significant originations platform and strong footprint in the GSE multifamily lending arena to increase our reach and broaden our products, allowing us to grow into a larger portion of the overall lending market and greatly enhance the value of our franchise. As a result, our pipeline is at an all-time high, and we're extremely positive about our outlook for remainder of the year and very confident we will regrow our agency originations above our record numbers of $3.8 billion from 2016 by as much as 20% to 25%. These are truly remarkable results that continue to be extremely accretive to our core earnings, which has allowed us to grow our dividend substantially over very short period of time. The business has also continued significantly in diversifying increase sustainability and duration of our income streams with our GSE income now representing approximately 70% of the 2017 income sources to date. Over 50% of which is comprised of re-occurring predictable long-dated and mostly prepayment-protected servicing income from our $15.6 billion servicing portfolio with a 48 basis points days a stream and 8-year average life. The GSE platform also produces significant interest-earning deposits in the form of escrow balances. Currently, we have around $500 million in escrow balances on a slightly less than 1-month LIBOR. These balances provide a natural hedge against rising interest rates as they will generate significant additional earnings power as rates increase -- as their rate increases. So overall, we're extremely pleased with the results of our agency platform, and we're very excited about the growth in the business going forward. We're also very confident that this business will continue to produce significant reoccurring and predictable earnings and longer-duration assets, which will not only allow us to continue to substantially grow our earnings and dividends in the future, but will also continue to increase a more predictable, stable earnings base to support our dividend while minimizing the potential impact on our business of capital markets and interest rate volatility. We are also extremely -- we also had an extremely productive quarter in our transitional balance sheet lending business with the continued focus on growing our balance sheet while remaining extremely disciplined in our lending approach and our continue to improve on nonrecourse financing vehicles. We originated $473 million of loans in the third quarter and experienced $270 million of runoff, resulting in a net portfolio growth of $203 million or 11% for the third quarter and 17% for the first 9 months of the year. This is significant growth considering we grew the portfolio of 17% for all of 2016. Previously, we guided to similar growth -- similar portfolio growth in 2017 as compared to 2016. And we are now very pleased to report that our pipeline of new investment opportunities has grown significantly. And we are confident that our fourth quarter production will be strong as well, resulting in significant growth in our portfolio in 2017 as compared to 2016. We also continue to produce strong returns on our investments with our third quarter and 9 months originations, generating total returns of approximately 13.5%, including leverage. We also continue to focus mainly on senior multifamily loans with 88% of our $2.1 billion loan portfolio comprised of senior debt with 70% -- 76% of that debt being multifamily assets, which clearly has proven to be the most resilient asset class and product type in all economic cycles. Additionally, approximately 84% of our portfolio is comprised of floating rate loans, which was also increase our earnings as the interest rate rise. Another one of our keys to have success has been our ability to continue enhance our nonrecourse financing vehicles, which is a critical component of our business strategy. We are -- we're very pleased to have closed our 8th CLO securitization vehicle in August, which contained significantly reduced pricing and also included an increase in the capacity to finance other asset classes as well. This CLO was 68 basis points tighter than our last CLO that we closed in April and was 117 basis points tighter than our 6th CLO, which we closed last year. These are tremendous results and continue to reflect our status as a market leader in the securitization arena, cultivating a loyal and grown base of investors that highly value our strong transaction performance and our diverse platform. And we now have 4 nonrecourse CLO securitization vehicles, up with approximately $1.1 billion of nonrecourse debt with replenishment periods going out as far as 3 years, allowing us to appropriately match-fund our assets with nonrecourse liabilities and generate strong leverage currents on our capital. I would now like to spend some time talking about the strength and depths of our servicing and asset management team as well as the quality and financial way with all of our borrowers. We are all aware of the many naturally disasters that have occurred across the country in the last several months. These storms including Hurricane Harvey, Irma, Maria and Nate as well as the California Wildfires have caused significant damage to families, businesses and real estate properties. As a National Commercial Mortgage lender, we have borrowers and properties in all the -- all over the country and in many of the areas affected by these disasters. I'm very pleased to report that our employees and borrowers are safe, and that our preliminary analysis indicates no material uninsured damage related to our borrowers properties. We have roughly 500 properties in these areas with the total loan balances of approximately $3 billion, $2.5 billion of which is within our agency portfolio and $500 million related to our transitional balance sheet lending portfolio. Our asset management team, we're tracking the paths of each storm and immediately quantified and identified all assets in the potential impact areas. Within 48 hours of these events, we were contacting each borrower to get an initial assessment of the damage. And as soon as the storms were over, and we were allowed to be on-site, we had people performing inspections and assessing and confirming damage estimates on all the properties we felt we should expect. While we continue to monitor each property and are still assessing damage and insurance coverages, we are very pleased with the initial results, and again, any properties that suffered significant damage have either flood or named storm coverage. And for the few that did not have insurance coverage, our borrowers have assured us, they are repairing the damage and keeping their loans current and out of their own funds, which again, demonstrates the strength and quality of our borrowing relationships. We have always believed in investing heavily in servicing and asset management experience, and this strategy has and will continue to play a major role in our success in assessing risk and mitigating losses. Overall, we are very -- we're extremely pleased with our third quarter and 9-months results and the tremendous success we have in greatly enhancing the value of our franchise. We're also very excited about our ability to continue grow our brand, expand our market presence, and we're extremely positive about our outlook going forward. And we remain very confident in our ability to grow our earnings and dividends in the near future while creating more diversity, stability and predictability to our earnings stream that are more long-dated and less-sensitive to rate and market volatility. We also believe that given our current stock price, we are substantial value play for potential investors. We are complete financial services operating franchise, which we believe sets us apart from many lenders and peers in our industry. As a result, we believe, we should not only be trading at a premium to our peers but with a significant amount of our income source is coming from our GSE business, this is more stable and predictable. We believe our GSE platform should be valued based on the similar P/E ratios as our public GSE platforms, which would result in a significant increase and how we are currently being valued. I will now turn the call over to Paul to take you through our financial operating results.

Great, thank you, Ivan. As our press release this morning indicated, we had a very strong third quarter and first 9 months of the year, including tremendous operating results. As a result, AFFO was $21 million or $0.25 per share for the third quarter and $63.2 million or $0.80 per share for the 9 months ended September 30. This translates into an annualized return on average common equity of approximately 11% for the third quarter and 12% for the first 9 months. As Ivan mentioned, we continued to put up record results, and we're very pleased to have increased our dividend again this quarter. This is the 4th time we have increased our dividend in a little over a year, and we have grown our dividend 27% during that period of time. We also believe that our results for the balance of this year will be strong and are confident that we'll be able to continue growing our core earnings and dividends in the future. Additionally, a significant portion of our earnings are being generated from our Agency Business that are long-dated, more predictable and recurring and less sensitive to rate and market volatility, continuing to add more stability and certainty to our dividend. We did have some positive income earnings during the quarter that I wanted to briefly touch on. We received a $1.5 million payment for the settlement of the residual equity interest we had on one of our paid off loans. And we also reversed a $3.2 million specific reserve related to one of our Fannie Mae loans, which tax affected resulted in an income pick of approximately $2.5 million during the quarter, as this loan was resolved at a value that resulted in no actual loss incurred. Looking at our results from our Agency Business. We generated approximately $17.1 million of income and $14.7 million of AFFO for the third quarter. We produced strong originations in our origination platform, closing another $1 billion of loans in Q3, which is a 17% increase over our third quarter volume from last year and $3.3 billion already for the first 9 months ended September 30. Additionally, as Ivan mentioned, we are very optimistic, we will close out 2017 with another record year, estimating around a 20% to 25% increase from our record 2016 originations. Our third quarter sales, sales volumes were $1.1 billion and the margin of these sales was 1.63%, including miscellaneous fees, compared to 1.56% of all-in margin on our second quarter sales. And we recorded commission expense of approximately 40% on our gain on sales for both the second and third quarters. We also recorded $18.9 million of mortgage servicing rights income related to $928 million of committed loans during the third quarter, representing an average mortgage servicing rights of around 2% compared to 1.57% on our second quarter committed loans, mainly due to some larger loans in the second quarter that generally have lower servicing fees and less loss share risk. Sales margins and MSR rates fluctuate primarily by GSE loan type and size, therefore, changes in the mix of loan origination volumes may increase or decrease these percentages in the future. Our servicing portfolio also grew another 4% during the quarter and 15% year-to-date to $15.6 billion at September 30 with a weighted average servicing fee of approximately 48 basis points and an estimated remaining life of approximately 8 years. This portfolio will continue to generate a significant predictable annuity of income going forward in excess of $75 million gross, annually. This annuity also significantly diversifies our revenue streams and provides us with long-dated, stable, predictable earnings that are mostly prepayment-protected and less sensitive to rate and market cycles. So clearly, we had tremendous first 9 months of the year in our Agency Business. And as Ivan mentioned, we are also very positive on our outlook for the remainder of 2017. Now I'd like to talk about the third quarter results from our transitional balance sheet lending operation. We had a tremendous third quarter, generating income of $6 million and AFFO of approximately $7.2 million. We had a very strong quarter, growing our investment portfolio to approximately $2.1 billion or another 11% in the third quarter, and we've experienced 17% growth for the first 9 months. This was due to very strong originations of $473 million in the third quarter. And as Ivan mentioned earlier, our pipeline remains extremely strong, and we now expect to grow our portfolio significantly above our 2016 numbers. Our investment portfolio had an all-in yield of approximately 6.84% at September 30, which is up from the yield of around 6.71% at June 30, mainly due to an increase in net originations and higher yields in our overall portfolio. The average balance in our core investments increased to $2 billion for the third quarter from $1.8 billion for the second quarter due to a significant growth we experienced in the third quarter, and the average yield in these investments was up to 7.34% for the third quarter compared to 6.60% for the second quarter, largely due to approximately $2.4 million more than accelerated fees from early runoff in the third quarter as compared to the second quarter as well as from our significant second and third quarter growth at rate higher than our overall portfolio yield and from an increase in the average LIBOR rate during the quarter. Total debt on our core assets was approximately $1.6 billion at September 30. We have all-in debt cost of approximately 4.48% compared to a debt cost of around of 4.69% at June 30, mainly due to significant reduction in interest cost associated with our 8th CLO vehicle that we closed this August. The average balance on our debt facilities increased to approximately $1.62 billion for the third quarter from approximately $1.46 billion for the second quarter, again, primarily due to financing the growth in our portfolio for the third quarter. And the average cost of funds on our debt facilities increased to approximately 4.89% for the third quarter compared to 4.60% for the second quarter, mainly due to $1.1 million of noncash fees we expensed related to the unwind of CLO 4, which was partially offset by the lower borrowing of cost associated with reduced pricing on our new CLO vehicle that we closed in August. Overall, net interest spreads in our core assets on a GAAP basis increased to 2.45% this quarter from 2% last quarter. And our overall spot net interest spread also increased to 2.36% at September 30 from 2.02% at June 30, mainly due to yields in our third quarter net growth exceeding the yield on our overall portfolio as well as from the significant reduced debt cost from our new CLO vehicle that we closed during the quarter. The average leverage ratios in our core lending assets, including the trust preferred and perpetual preferred stock as equity was flat at approximately 67% for both the second and third quarter. And overall spot debt-to-equity ratio on a spot-basis, including the trust and preferred stock as equity, was up to 1.5:1 at September 30, compared to 1.4:1 at June 30. And lastly, income from equity investments increased approximately $1 million compared to last quarter, which was due to, as I mentioned earlier, receiving a cash payment of $1.5 million on one of our residual equity interest, partially offset by recording approximately $550, 000 more in losses from our residential mortgage banking joint venture during the quarter. And given the current environment, we're now estimating we'll record a loss of approximately $500,000 to $750,000 for the fourth quarter from our resi investment, which will be largely offset by income we expect to generate from our other equity investments in the fourth quarter. That completes our prepared remarks for this morning. And I'll now turn it back to the operator to take any questions you may have at this time. Vince?

[Operator Instructions]. Our first question is from Steve Delaney of JMP Securities.

I'd like to start -- Evan, Paul, I'd like to start on the structured business. Noticing -- I mean, obviously the volume is pretty remarkable -- $400 million for the second straight quarter. But at looking inside of that, the total 23 loans, the bulk of it, 21, is obviously, sort of the traditional bridge loan product. But you did make 3 loans totaling $95 million that appeared to be other types of financing or investments. And I would just be interested in hearing if you can offer any color on what those investments were? Or how they were structured? Or what they look like?

Sure. Steve, its Ivan. Getting back to our objective in the beginning of the year, we were looking to diversify our asset classes just slightly, especially with the increased capability in our CLOs to be able to leverage some of the other asset classes. And we've occasionally, from time to time, have been opportunistic, whether it would be some office, some hospitality, some healthcare, some student housing and some self-storage. We have relationship with a couple of sponsors on the self-storage side, and we've been tracking some really great good opportunities, so we've been able to really go into some great opportunities with somebody's relationships that we fostered over the last year or 2. And we were fortunate enough to be able really add nicely to our portfolio with some self-storage this last quarter. We like elements of self-storage, and a lot of nice cash flow. It's in a lot of the markets we're familiar with, and a lot of similar sponsors we do business with. So that wasn't an asset class how we're able to add a little bit too.

And Steve, just to add a little color on the percentages. We -- of the $473 million we originated in the quarter, 70% of that was multifamily. And we've talked about that we'd probably stay in the 70% to 75% range for the 9 months or at 78%. But we're probably in that 70% to 75% going forward. So it's still predominantly multifamily. And the rest, as Ivan mentioned, was made up of some self-storage, office-type properties.

Now, Ivan, you described the property type being different, but it appears they're not -- those loans were not bridge loans. So were they structured more as mezz loans or preferred equity or something of that nature?

No, they were bridge loans. They are loans that are being bridged. There are some inefficiencies in the self-storage business, and it's a value-add opportunity. So we'll bridge them to an eventual CMBS exit.

And we did have, during the quarter, Steve, as you were looking, we did have some PE and mezz, but they weren't on those asset, they were more on the multi-asset classes.

Got it, okay. Thanks for clarifying that. And obviously, you were able to call a CLO. Obviously, a lot higher cost than CLO 8. I'm just curious, with 5, 6 and 7, can you talk a little bit about your view on those? I guess starting with CLO 5, the oldest, and are you going to have an opportunity in the next 6 to 12 months, maybe to inline that and take advantage of this financing, which is like a 100 basis points lower now?

Well, hopefully, that mark will hang in there and continue to improve. Really, we are the leader in this space and have the best execution and a very diverse investor base. And to the extent that the market remains healthy, we'll definitely look to improve our financing facility positions.

Did the structures, Ivan, allow you to call them after a certain period of time that it's sort of -- if the new issuance is available, do you have the flexibility to call 5?

Yes, we have been -- I don't know the exact date of it. I believe it's somewhere in the first or second quarter of '18. So our securitization vehicles have that feature in them. And depending on the market and depending on the collateral, that's something that we do evaluate over time.

Okay. And my last question is sort of big picture, looking out to next year. The NBA put out its 2018 forecast. And I know those are made to be barely as worth the paper they are written on, but this is a good year for CRE and EMF, up about 5% to $515 billion, 53% of that was multifamily. But I was struck by their comment. They think the market will be essentially flat overall, for CRE and EMF . But NBA did say that they thought maybe multifamily would be down slightly next year. So assuming their analysis is correct, you seem to feel that Arbor Commercial Mortgage is in a position to grow your Agency Business, significantly. And I'd love to hear your thoughts about specifically -- what is the one biggest thing that you and the team have to do to be able to put up growth in Agency Business in 2018?

So we continue to increase our market share, increase our borrowed base. One of the benefits we have, clearly our servicing portfolio has grown significantly. Where customers are borrowers than ever before. This is a certain runoff that comes out of our portfolio that we recapture. We continue to build our balance sheet, and a lot of the results of our balance sheet is the runoff that goes into Agency Business. Our origination staff continues to be deeper, stronger and more committed with great relationships. A lot of our senior executives, including me, working more on the sales and relationship side. Our brand is getting stronger and stronger and stronger. Our balance sheet is stronger and stronger. Our access to cap up to our CLO's, our ability to do larger loans. We're just offering more products, improved service and greater relationships. I believe if we stay at the course, we'll continue to increase our market share.

We have our next question from Jade Rahmani of KBW.

This is actually Ryan Tomasello on for Jade. I was just wondering, first if you can comment on overall credit trends sequentially, both in structured and Agency Business. And more specifically, can you provide some color on the preferred equity provision you incurred? And perhaps, an update on the impaired Chicago hotel loan?

Sure. So I'll take the last question, Ryan, and I'll let Ivan comment on the overall credit and the portfolio, which I think, has been very strong and improving. We do have the one asset you mentioned, in Chicago, the hospitality asset. That was the impairment we took this quarter of $2 million. So we've taken a look at that. It's being marketed right now. We think we have some really good preliminary data that shows that this could get sold eventually at a very good price. But we wanted -- we've looked at some of the result, and we wanted to take a conservative approach and take a little bit more of an impairment on that. We had it marked to about $29 million of properties. Again, it's early. We're in the process right now of brokering that. But early indications of interest are strong. And we're hopeful that in the future we could have some recovery coming out of that asset, but we're just not sure yet. And that was the impaired asset that we took this quarter. On the general credit quality of our portfolio, I'll let Ivan answer that, but I think it's been strong.

Sure, and we've been able to grow our transitional balance sheet and that's really result of a number of things. Number one, we've significantly reduced our cost of funds, which has allowed us to reduce our pricing. And we're also doing larger loans. So we're producing similar yields but with higher quality assets that we've done historically with larger loans. So I believe our asset class that we're in the multifamily, we're going better quality assets, lower spreads to our borrowers, but yet, because of our lower cost of funds, we've been able to generate returns consistent to what we've done in the past. Make no mistake about it, the industry is aggressive. Last year, when we did our underwriting, we underwrote few 0 rent growth. Well, we were wrong. There was 3% rent growth across the country. So we were very conservative. Probably, could've done more business if we were more aggressive. And we'll continue to be conservative in our outlook. The good news is, we're dealing mostly with repeat borrowers, with proven track records with multiple assets. When I spoke earlier about our Asset Management Group, one of the things I left out, and I'm glad you brought it up is that, even if we have an asset that's a little bit impaired in our portfolio due to the storm, because we have so many assets with our borrowers, their financial credibility to keep all our assets performing is really significant. So we're not a one-off lender. We have lended our deals with multiple borrowers. And I'd say if we're within the range of our competitors, we're more likely to win that business. But given our lower cost of funds, we've been really able to get the higher quality asset and larger asset. In fact, I think we're going to be about 90% greater in our -- in our total transitional volume. But last year, we did 70 units. This year we're going to do 80, and that's pretty remarkable. So we've done a larger loans, higher quality because of the way we've been able to reposition the company.

That was good color. And just moving on to the strong repayments in the quarter. In your view, were those driven, in some part, due to a strong capital markets -- debt capital markets that could even -- we're seeing. How did the credit -- how does the credit quality of the loans running off compared to the new loans coming onto the portfolio?

Well, it's interesting, there were couple of loans that we could've bid on to retain, and we opted to let them go. There was some levels that we're well in access of, which we feel was something that we'd like to stay in. So I think our market is a little bit aggressive. Some of the assets were sold because the levels were much higher than people anticipated in terms of value. So I think you're seeing 2 things. Values are up higher. People are bidding up aggressively. So you have some people selling assets in terms -- instead of refinancing them. And then there were a couple of -- we just made a decision that, that was too high up on the capital structure for us to continue with.

And can you state what percentage of the payoffs in the quarter were prepayments rather than scheduled maturities. And then certainly, what the capture rate was of the Agency Business?

Yes, I don't have, in front of me, the percentage of early prepayments versus scheduled, but it was high there were early prepayments, I remember, during the quarter. And as far as recapture for the structured portfolio, we had $270 million runoff, we back out the sales and assets that were just outside the capital structure that we wanted to play in. We probably had about a 60% retention rate on those -- on that runoff either through our Agency Business, which mostly what was -- or refinancing the loan from the structured side.

And just lastly, in terms of the liquidity position, particularly as it relates to the structure business. What is -- what's management's approach to capital issuance, particularly, as it relates to target leverage, and taking into consideration the benefits of greater scale from an increased common equity base?

So I think -- we look at all our efficiencies here, how we leverage our portfolio, the leverage we get out of our CLOs. And clearly, the growth that we're experiencing in our transitional balance sheet is greater than we thought. And on the other hand, it's really responsive to our issuance of our last CLO, the leverage we've gotten in our cost of funds. So I think we'll continue to assess how we address the Capital Markets, and how we create efficiencies in different forms of leverage that we have in the market. On the Capital Market side, you want to give some color, Paul?

Yes, I think that's right. What Ivan is laying out is correct. We always look where we can have efficiencies to continue to grow. Our pipeline is extremely strong. We'll consider all options to us based on where our capital is and where we think the pipeline is going. We have many options, obviously, Ryan, we have obviously, the capital markets. We'll look at all different types of structures that are available. But we also have the CLO market. And with it being very successful to us, we will continue to look at finding ways to approve efficiencies on the debt side to grab more capital as well. So it's an overall approach. Certainly, the balance sheet has gotten bigger. Certainly, the company has become larger, more liquid and more efficient. And it's advantageous for us in the Capital Markets to be able to grow and produce strong returns. We'll obviously, consider all that.

And then just a housekeeping, I mean, can you state what the commission rate was in the Agency Business during the quarter?

I did say it in my prepared remarks. It was approximately.

I didn't understand.

It was approximately 40% for both quarters, Q2 and Q3.

40 basis points.

40 basis points.

[Operator Instructions]. Our next question is from Lee Cooperman from Omega Advisors.

Just three questions. I think the first one is really self-evident. There was nothing unusual about the AFFO $0.25 in the quarter. So we should look at the earnings just reported is been recurring, and the optimistic stance you've taken, which suggests that you expect improved results in the next year over this year. It's a kind of a self-evident question.

Well Lee, the good news is our pipeline is really strong, the highest level it's ever been. So we're pretty confident based on our pipeline that we can continue to produce these strong operating results.

Right. And Lee, this is Paul. I did have in my commentary -- again, we don't look at them as unusual or not normal, but we did have a couple of large items, and that $0.25 this quarter, that I mentioned, was one. We had the reversal of the Fannie Mae reserve, which is not something that commonly occurs, but it was positive for us. And we had some equity tickers this quarter that we didn't have last quarter. So I can't tell you that the numbers will be stronger or less. But as Ivan said, our pipeline is very strong. So we should see improved operations going forward.

Ivan emphasized that you guys are building like a unique kind of business in your industry. What kind of return on your equity do you think is reasonable looking at over the next couple of years? You are doing currently around 11% to 12%. Is that the sustainable number? Or do you think it will be better than that, looking out?

Yes, I think we had a 12% for the 9 months, 11% for the quarter with some items in there that are up and down. I've always said I think 10% to 12% is achievable. Maybe it's higher because the ROE business of the Agency Business is higher. As we get efficiencies from the capital side, we should see improvements as well as on our expense efficiencies. So right now, we're running at 10% to 12%. In 2 to 3 years from now. Ivan, I think we could probably say that it's at least that number, right, given where we think the ROE is on the Agency Business.

Yes, slow and steady.

I didn't see a number in your press release, but what is the book value, presently?

Book value presently is $9.12 a share.

Okay, last question, the most important question. Saying with all the activity you're looking at, do you need additional equity to run the business? Or you have adequate equity in the business now?

I think we're going evaluate all of that. I mean our runoff -- we have to look at our runoff in our originations. We have to look our issuance in the market, our leverage, and we've put it altogether. I mean clearly, we're well ahead of where we thought we would be on a transitional business. And the question is, whether that trend is going to continue to grow, producing a 30.5% return. If it's out there, we'll continue to do that. And if we have to look at capital to continue that growth, something of value is very close.

I see no questions at this time. I'd like to turn it back to management for closing remarks.

Sure. Well, clearly, it's been a phenomenal quarter -- phenomenal 3 quarters. And our pipeline is strong. Very, very, optimistic about our fourth quarter and as we trend into 2018. So thanks for your support and your commitment for the company. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.