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Good morning, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2024 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.

Okay. Thank you, Madison. 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, 2024. 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 and 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 beliefs, assumptions, and expectations of our future performance taking into account the information that's 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. This means the caution 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 our operations and CEO, Ivan Kaufman.

Thank you, Paul. Thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had a solid fourth quarter posted in 2024. It has been another very strong year despite an extremely challenging environment. We've executed our business plan very effectively and in line with our expectations. Despite a tremendously volatile and elevated interest rate environment for almost three years now, we've managed to continue to outperform all our peers in every major financial category, including our dividend, shareholder return, and book value preservation. We're well-positioned for this dislocation, and we're going into the cycle. We have a large cushion between our earnings and dividends. We're well-capitalized and invested in the right asset class, with the appropriate liability structures. This allowed us to outperform our peers and continue to pay our dividend while mostly all of our peers had to cut their dividend substantially, some multiple times during the cycle, also experiencing significant book value erosion. One of the guidance points we have consistently discussed on our calls is how we felt that this dislocation will persist and result in a much slower recovery, with rates remaining higher for longer. This is something we were well-prepared for. However, rates have not just remained elevated; they've actually increased significantly with the ten-year rising from 3.6% in September to as high as 4.80% in January, and now it's hovering around 4.50%. With the current outlook suggesting we'll remain at these levels for the near term, this is a material change in the market resulting in significant headwinds that will affect everybody in the space. These elevated rates are creating a very challenging environment as it relates to agency origination volumes. While we've experienced success over the last few years in getting borrowers to transition into fixed-rate bonds and recap their deals, we expect this environment will create a deceleration in this area as well. We have also seen a 100 basis point decrease in SOFR over the last few months, which is reducing the earnings on our escrows and cash balances. Additionally, we expect there will be a temporary drag on earnings from the REO assets we are repositioning over the next 12 to 24 months, which we will discuss in later detail. However, this will partially be offset by efficiencies we expect to carry from reducing bond costs in the securitization market and with our commercial banks, as well as growth in our servicing portfolio. As a result of these changing macroeconomic events, we have revised our earnings outlook for the foreseeable future until we see improvements in the rate environment. Based on these factors, we are now estimating our earnings for 2025 will be in the range of $0.30 to $0.35 a quarter. We'll likely reset our dividends starting in the first quarter of this year in accordance with this new guidance. This outlook is reflective of the newly elevated rate environment. However, if there is a material change in short-term or long-term rates in the future, we will revise our outlook accordingly. It's important to note that we were the only firm in our peer group to grow our dividend over the last five years by 43%, while every other company in our space has cut their dividends multiple times, by 40% on average, with only one company keeping their dividend flat over the last five years. And we assume that we reset our dividend to the midpoint of our earnings guidance. Our dividend will be approximately 8%, which again is compared to our peers, who are down at an average of 40%. Additionally, over the last five years, we have also grown our book value by 26%, while recording significant reserves, which is an incredible accomplishment, especially considering that our peers have actually experienced a 25% erosion in net asset values. We've done a very effective job despite elevated rates, importantly to our old portfolio, by getting borrowers to recap their deals and purchase interest rate caps. In 2024, we were able to successfully modify $4.1 billion of loans with borrowers committing to inject $130 million of additional capital into their deals. We also modified another $600 million of loans in 2023, bringing our total loan modification over the last two years to $4.7 billion or roughly 60% of the remaining legacy loan mark. This is tremendous progress, especially in light of the elevated rate environment. That has resulted in the last portion of our loan book being successfully repositioned in only assets with enhanced collateral buys. We've also done an exceptional job of bringing in new sponsors to take over assets, even essentially what we foreclosures are. In fact, in the last two years, we have brought in new sponsors to recap deals with substantial direct money on approximately $900 million of loans. This is a very important strategy that again successfully repositions assets with appropriate capital, putting our loans in a much more secure position with experienced sponsors and creating more predictable future income streams. And again, our reflective of us recording the appropriate level of reserves on these expressed assets. And despite elevated rates, we've still generated strong runoff over the last two years, with $3.4 billion of runoff in 2023 and $2.7 billion in 2024. An amazing accomplishment. We've also continued to make strong progress despite the unprecedented move up in rates on the approximate $1 billion of loans that were past due at September 30. In the fourth quarter, we successfully modified $140 million of defaults, generated $151 million of payoffs, and took back approximately $120 million of REO assets, all of which we were able to bring in new sponsors to operate under somewhat debt. This has formed progress in one quarter and has reduced the $944 million of billing plus we had at September 30 down to $534 million at December 31, or a 44% decrease. We did experience additional delinquency during the quarter of approximately $186 million, bringing that total delinquencies December 31 to approximately $819 million, which is down 13% for the quarter and down 22% from last year, which is in line with our previous guidance even in the face of rising interest rates. And our plans for resolving that remaining delay from Jesus. PayFac is already out, including bringing this bus of approximately 40% to 50% of this with the other 40% to 50% have been paying off of the modified in the future. This should put our REO assets on our balance sheet in a range of $400 million to $500 million with another roughly $150 million to $200 million that we won't have to worry about any sponsorship to operate. And this $400 million to $500 million of REO assets on the heavy lifting portion of our loan book we estimate will take approximately 12 to 24 months to reposition. Performance of these assets has been greatly affected by poor management and from being undercapitalized. Today, these properties have an average odds of 35% and an estimated NOI of around $7 million, which is very low and will temporarily affect our earnings. We believe there's great economic opportunity for us to step in and reposition these assets and significantly grow the asset is around 90% and NOI to approximately $30 million over the next 12 to 24 months, which will increase our future earnings significantly. We are working exceptionally hard to resolve and not delinquencies. As I mentioned, has been significantly affected by the current rate environment. Rates come down sooner than we expect it will have a positive impact on our ability to work non-interest earning assets, income-producing investments earlier, which will be accretive to future earnings. This is a challenging and commanded work and despite the increasing headwind, I am very pleased with the progress we have made to date. In our balance sheet lending platform, have had an active fourth quarter originating $370 million of new bridge loans and $36 million of preferred equity investments behind our agency originations. As we said in our last call, we have started to ramp up our bridge funding program to take advantage of the opportunities we're seeing in today's market to originate high-quality short-term bridge loans and generate long-term loan returns on that capital in the short term. While maintaining to build up a significant pipeline of future agency deals. Critical part of our strategy. Depending on the rate environment, we believe we bridge $1.5 billion to $2 billion on bridge loans products in 2025 and enhance our eleven returns to increase efficiency preceding the securitization model with our commercial banks. Another major component of our unique business model is our capital-light agency platform that provides this advantage. Allow us to continue to delever our balance sheet. To generate significant long-dated income streams, which is a key part of our business strategy. We've been a significant player in the agency business for twenty years, and now we've been a top ten any made for eighteen years in a row. Coming in at number six in 2023, and on an eighth of 2024. We had a very strong fourth quarter originating $1.35 billion of new agents lost if you remember, was what's the top end of the range that we guided on last quarter's call. We explained that our origination targets were $1.2 billion to $1.5 billion in Q3 of Q4 depending on the rate environment. Despite a significant uptick in rates in the fourth quarter, we're well above what we had anticipated it still matters to these very small volumes. We close out 2024 with $4.3 billion of GSP agent fee volume, despite the volatile rate environment across the year. If rates where they are today, we expect we are experiencing a very challenging visitation climate. They continue to remain elevated despite Fine. Likely gone forward result of the ten to twenty percent decline in our agency production. 2025 to a range of $3.5 billion to $4 billion, which will again be very dependent. We also did a good job converting our balance sheet loans into agency product in 2024 despite elevated rates. The fourth quarter, we generated $900 million of payoffs, and $530 million or 59% of these loans being refinanced into fixed-rate agency deals for the full year 2024. We recast at 65% or $1.6 billion of $2.5 billion. Of all the family balance sheet rental and agency production. This is on top of the $3 billion of multifamily runoff generated in 2023 with a 56% recapture rate agency loss. As I stated earlier, with rates at these levels, service become more challenging for borrowers to obtain an agency takeout on our balance sheet loans. We continue to do an excellent job in growing our single-family rental business. It is strong quarter with $1.7 billion new loans in 2020. Best you yet. And was well above our 2020 production of $1.2 billion. We have now eclipsed $5 billion of production in this platform to date, and we're very excited about the opportunities we're seeing to continue to grow this platform. Make it a bigger contributor to our overall business. This is a great business that offers us returns on our capital, through construction, bridge, and permanent lending opportunity, generates twelve eleven returns in the short providing significant long-term benefits by further diversifying our income streams. We've also continued to make same progress on our newly added lending business. We believe this product is very appropriate for our platform as well as free terms on our capital production, purchase, and permanent agents lending opportunities. And generates mid to high paying returns on our capital. We close our first deal in the third quarter thirty seven million. Our second deal in the fourth quarter, fifty four million. We've a long timeline of roughly two hundred million on their applications. And two hundred million in allies and eight hundred million of additional fields with the cardless trainings. And based on our deal flow, we are confident in our ability to create two hundred and fifty to five hundred million of this business in 2025. In summary, we had a strong 2024 once again, significantly outperforming our peers. We've executed our business plan very effectively and aligned with our objectives. Clearly, the landscape has shifted significantly in the last ninety days. We expect there to be a substantial headwind in the future. We believe we do believe we'll have some positive offsets from reduced bond across our bank lines. Including greater efficiencies in securitization market as well as continue to fund up our bridge as a foreign collection lending business. Generates foreign leverage, not capital. Additionally, it's short term and long term rates decline further. With a case of the hedge we're currently experiencing and increased our future earnings. In the meantime, we'll remain heavily focused on working through and managing along with one continue to grow areas of our business to increase to many diverse countries that we've developed. We have a very seasoned experience management team that is operating actively for multiple cycles. In your work history. Positive balance is monthly. Location? And I'm confident we will continue our long-standing track records of being a top performer in this space. I will now turn the call over to Paul to take you through the financial results.

K. Thank you, Ivan. We had a strong fourth quarter and full year 2024 producing distributable earnings of $81.6 million or $0.40 per share for the fourth quarter and $1.74 for the year which translates into ROEs of approximately 14% to 1.4. As Ivan mentioned, due to drastic change in the macroeconomic climate, adjusting our forecasted distributable earnings of 2025, the $0.30 to $0.35 per quarter. Filiates have played a big factor in the product earning network. Future changes in the interest rate environment will most certainly dictate whether we can grow our earnings to the new plan. We've also been affected by elevated legal and consulting fees as a direct result of the short sell reports which is something we expect will continue for the foreseeable future. We estimate these fees will be approximately $0.03 to $0.05 a share going forward, which is reflective in our new guidance. totaling $470 million. In the fourth quarter, we modified another fifteen loans total and approximately $206 million of these funds we require borrowers to invest additional capital to capital their deals, thus providing some form of temporary rate relief for paying the full feature. The pay rates will modify an average to approximately 5% to 9%. With 2.3% of the residual interest due being deferred from maturity. $140 million of these loans were delinquent last quarter, and now recurring in accordance with their modified terms. In the fourth quarter, we accrued $18.7 million of interest related to all modifications data cool features, $7.6 million is related to modifications that were completed in years prior to 2024. And $1 million is on MES and PE loans originated in 2024 behind agency loans that have a paid approval feature as part of their normal structure. This leaves $10 million worth of accrued interest in the fourth quarter related to modifications of grid loans in 2024. $1.5 million of which is related to our fourth quarter modifications. The table summarizing all of our 2023 and 2024 material modifications and the related accrued interest on these loans is detailed at our 10-K which we expect to file later this afternoon. Our total delinquencies are down 13% to $819 million, December 31. Compared to $945 million at September 30. These delinquencies are made up of two buckets. Loans that are greater than sixty days past due and loans that are less than sixty days past due, we're not reporting interest income on unless we believe the cash we received. The sixty plus delinquent loans or NPLs were approximately $652 million this quarter, down to $625 million last quarter due to approximately $128 million of loans progressing from less than sixty days delinquent to greater than sixty days past due, and $153 million of additional defaulted loans during the quarter which was largely offset by $134 million of payoffs and modifications and $120 million of loans taken back as REO. The second bucket consisting of loans that are less than sixty days past due, came down to $167 billion this quarter, from $319 million last quarter. To $157 million in modifications that run off $128 million of loans progressing greater than sixty days past due, which was partially offset by approximately $133 million of new delinquencies during the quarter. And while we're making good progress in resolving these delinquencies, at the same time, we do anticipate that we'll we will continue to experience new delinquencies. She's especially in this current rate environment. In accordance with our plan of resolving certain delinquent loans, we have foreclosed on some real estate, and we expect to take back more over the next few quarters as Ivan guided to earlier. The process of taking control working to improve these assets and create more of the current income stream takes time, which is even more challenging in this climate. Initially, we've been very successful over the last few quarters in collecting back interest owed we would modify certain loans. A good portion of our remaining delinquencies are more of a heavy lift through foreclosure and repositioning over time, which will likely result in less back interest being collected going forward on workouts. These are some of the reasons we're guiding to reduce earnings in the near term. In the fourth quarter, we took back $120 million of REO assets. We've been highly successful at bringing in new sponsors on certain assets. Capable of real estate and the Summar Bank. This strategy is a very effective tool turning dead capital into nonperforming loan. Into an interest earning asset, which will increase our future earnings. The fourth quarter will be accomplished just on two REO assets, totaling about $70 million which were accounted for in sales and new loans. The other $51 million of REO is related to one asset that we took back in the fourth quarter that we subsequently decided to flip to a new sponsor and provide a new loan. We closed on this deal yesterday, and the purchase price was at our net carry value of $45 million which is net of $5.7 million specific reserves that we took on this asset in 2023 and 2024. As a result we will have a one-time realized loss in the first quarter of approximately $6 million which we've already reserved for and is reflected in our book value. We will now have a performing loan will add twelve hundred income. We believe we've done a very effective job properly reserving for our assets. Over the last two years. We did not incur any material losses in 2024. We are expecting to have some realized losses in 2025 through similar executions on REO assets and by repositioning certain loans with new sponsors, which we expect will be in line with our prior reserves on these assets. The timing and magnitude of these losses is hard to predict at this point, but once we know a transaction is likely to occur, we'll continue to signal that result ahead of time if possible. And, again, please keep in mind that these potential losses reflect reserves we've already taken which demonstrates how prudent we've been in recording the right level of reserves on our loan book. As a result of this environment, we continue to build our CECL reserves recording additional $13 million in specific reserves in our balance sheet loan book in the fourth quarter. And again, we feel we've done a good job of putting the right level of reserves in our assets. Which is evident by transactions we have been able to effectuate to date at or around our carrying values net of reserves. It's also important to emphasize that despite booking approximately $170 million in seasonal reserves across our platform in the last two years, $135 million of which was in our balance sheet business, we saw a very nominal decrease in book value of around 2% on peers experienced an average book value decline of approximately 20% over that same time period. Additionally, we are one of the only companies in our space that has seen significant book value appreciation of less five years. With 26% growth during that time period, versus our peers whose book value has actually declined an average of approximately 25%. In our agency business, we had exceptional fourth quarter despite headwinds from higher rates. We produced $1.4 million in originations $1.3 billion in loan sales with very strong margins of 1.75% for the fourth quarter compared to 1.67% last quarter. We were also incredibly pleased with the margin to be generated in 2024 of 1.63% which exceeds 2023's pace of 1.48% by 10%. And we reported $13.3 million of mortgage servicing rights income related to $1.35 billion of committed loans in the fourth quarter. Representing an average MSR rate of around 1% which is down from 1.25% last quarter due to a higher mix of Freddie Mac loans in the fourth quarter, which contained lower servicing fees. Our fee-based servicing portfolio also grew 8% year over year to approximately $33.5 billion December 31, with a weighted average servicing fee of 38 basis points an estimated remaining life of seven years. This portfolio will continue to generate a predictable annuity income going forward around $127 million gross annually. As Ivan mentioned earlier, a 100 basis point decline in short-term rates has reduced the earnings on our cash and escrow balances. We are now at a run rate of between $80 million and $85 million and one one twenty-five compared to approximately $120 million that we earned in 2024 for a $35 million to $40 million reduction, which holds back our 2025 earnings. And our balance sheet lending operation our $11.3 billion investment portfolio, has the rolling yield of 7.8%, December 31. Compared to 8.16% at September 30 mainly due to a decrease in SOFR during the quarter. The average balance in our core investments was $11.5 million this quarter, compared to $11.8 billion last quarter we were wrong off exceeding originations in the third and fourth quarters. The average yield of these assets decreased to 8.52% from 9.04% last quarter mainly due to reduction in SOFR. Which is partially offset by more back interest collected in the fourth quarter on loan modifications and paydowns. Total debt on our core assets decreased to approximately $9.5 billion at December 31 from $10 billion in September 30. Mostly due to paying down CLO debt with cash in those vehicles in the fourth quarter. The only positive debt was down to approximately 6.88% at December 31. Versus 7.18% at September 30, mostly due to a reduction in SOFR which was partially offset by lower rate debt charges being paid down from CLO runoff and the new $100 million unsecured debt instrument being posted in fourth quarter. The average balance on our debt facilities was down to approximately $9.7 billion for the fourth quarter compared to $10.1 billion last quarter mainly due to paydowns in our CLO vehicles from runoff in the fourth quarter. And the average supposed to fund in our debt facilities was 7.10% in the fourth quarter, to 7.58% for the third quarter, again, from a decline in SOFR. Our overall net interest spread in our core assets was relatively flat at 1.42% this quarter versus 1.46% last quarter. And our overall spot managed for spreads were 0.92% December 31 and 0.98% September 30. And lastly and very significantly, we've managed to delever our business 30% for our disposition, to a leverage ratio of 2.8 to 1 from a peak of around 4.0 to 1 two years ago. That completes our prepared remarks this morning. I'll now turn it back to the operator to take any questions you may have at this time.

Thank you. And as a reminder, to ask a question, please. And we'll take our first question from Steve Delaney with Citizens JMP. Please go ahead.

Good morning, Ivan and Paul. Thanks for taking the question. And look, for starters, just really appreciate you guys being upfront with us today. About your expectations for the dividend in 2025. It's just a I think it's a lot easier for the market to hear that today than, you know, in March. When you have to declare first quarter. So thank you for for that clarity. Ivan. You talked about some resolutions involving outside money. I'm curious you did this opportunity that starts with distressed bridge loans and eventually just it rolls into REO. So I think we're talking about the same investment opportunity. Are you seeing institutional money you know, cut big money fresh money looking at this Hey. You know, as a as a unique maybe once in a decade opportunity is that money coming in And if it's not coming in, you know, do we do we need that to get this problem cleaned up in the next one to two years? Thank you. So I'm gonna bifurcate my response because you have and and add a little color to number one, in the third quarter or fourth quarter when the tenure of the five year thought considerably, you were seeing a a a beetle level of activity in May and April. And then right prior to the election, ten year jump from three sixty to four eighty. I think everything went on pause. There's a bit of a pause period. But there there are two types of collab that we're looking at. Mentioned in my comments. The ones that we effectively transitioned to these sponsors, there's a lot of them named Okay. And there is plenty of capital and plenty of that in the real capital. Would that a lot of it is people have access to institutional money or network. Federal network. And there's plenty of activity in every time we look at it as in multiple there's not a lot of assets. So I'm probably good. The more difficult part is the ones where the heavy lift goes, which is kinda where it takes time to get your hands on those assets. Sponsors are kind of rascals. You can still look cash flow and don't manage those assets. And they get brought down to a level where we need to bring in, our own capability, get those up to speed. Once they're up to speed, I'll be allowing them But I think there's a little bit of a pause in the market, and that's really reflective of our comments. I'm sure why everybody's phone excited, and I went to NMHC. You know, about a month and a month and a half ago, and I was shocked at how people were thinking they're gonna have a great year. To find out the increase Okay. Rate environment. So I think a lot will have to do with where rates settle in. You know, it's been a while. Right? Around four fifty. If you see rates go down to where they were, you'll see tons of money flood back into space and have the exuberance of our experience on our last quarter's call where No. The the refinance volumes, the activity was stopped and picked up. So it's already much greater. So so I'm hearing you say the the outside money right now as you sit today you rework a bridge loan and there's there's new sponsors, there's some people willing to step in there, The heavier lift if you if you've got an REO thirty percent leased needs further renovation, whatever. That's something you feel like your team at Arbor is better equipped to take that property over. Manage the property, and then look to sell that property in twelve to twenty four months. Am I hearing you We're on that. That's correct. Every time we get on hand, they they do the ones where it's more difficult. Hands on was just like I said, these sponsorships were a bit of bad players in the market using the legal system. Lay the process, deal with cash flow and how manage the assets. So every single asset that we take back as we're taking them back, we have a twenty four month plan. We we were able to really show how we can get it from where it is today monthly, monthly, monthly, increase the NOI putting the right CapEx to get the stuff to speed. And our guess is we're gonna know, be able to sell those assets, some of it, three, four, and twenty four months. Of valuation once we schedule that. K. Thanks. Paul, a quick one for you to close out. In December, Fitch upgraded Arbor's primary servicing rating to CP f Two plus It looks like a large focus of that would on your agency servicing. But to any extent did that servicing upgrade reflect the work you were doing on the bridge loans in your CLOs? Yeah. I I I I don't have the definitive answer but I do believe you are correct. Steve, that the the majority of that rating is not old. It has to do with how we're servicing the agency book. It may have some impact with the balance sheet book, but we would just upgrade it because the quality of servicing shop we have. Made a lot of investment in that division, both from a technology perspective and staffing perspective, and our rating just keeps getting better and better, which I think you know, should not be overlooked as you just mentioned. I'm glad you pointed that out. In getting back to your comment, I was just reflecting on in terms the assets. We we tried very well Yeah. Since that we've talked to sponsors, and the level of improvement is is remarkable. You're taking assets that will probably have an mid seventies. And well on their way to ninety. And that the cost matters so remarkable. So when we're able to transition to do do all we should, we end up with an asset that becomes extremely more valuable in a very, very short period of time we're able to bring our expertise to the table with that expertise and capital we're lacking. The stuff that we retain, our goal is to get these assets in that position in twelve you know, eighteen months or twenty four, whatever it is. Then bring in those sponsors so we can get the right valuations. More flexible. We when we think the buying star would have a great track record on it. In fact, we have a long weekend back two years ago. Which was seventy percent occupied We're just selling it right now for you know, probably closer mortgage debt. You have to be up to ninety three percent. And almost where it needs to be. So that's kinda standard for how we run our business. Thank you both for the call this morning. Thank you, Tim.

Thank you. We will take our next question from Stephen Laws with Raymond James. Please go ahead.

Hi. Good morning. I wanted to touch on modifications from last year. I think it was around $4 billion a lot of which was done in early part of the year, maybe when when borrowers and everybody had a different interest rate outlook. Can you talk about how you expect those modified loans to perform over 2025? You know, were those modifications how many were somewhat reliant on some relief from rates over the course of 2025 and how do you expect you know, or or those modifications typically twelve or six month duration extensions? Or or how do we think about those modified loans maturing over the course of this year? I think it's important to have a little bit of an overall view. Keep in mind, that we have run off in our portfolio over the last two years of almost $6.1 billion. And then so we'd either do a refinance or sale or all the people taking them out. So the the amount has been dramatic. Respect to the modified loans, keep in mind, bridge loans are are term loans in nature. And they have a lot of tests. So it's very very normal to modify a wall this kind of rate environment. And give people a little bit more runway to take a little more capital There's a period of time when Salford was set at five thirty when it dropped. It was a lot of relief for borrowers who got my caps and then, you know, their their lifetime to give them more opportunity So when we look at a modification of a loan, we take a look at whether the sponsor could bring more capital The sponsor doing a good job and whether he has a capability to improve the performance of those assets. And then majority of those times, the super majority of times, we track that performance and doing extremely well. There are periods of time when know, they don't quite do what this month. They could result in additional complexities and feedbacks. But on the whole, you know, the strategy has been extremely effective for me. On this first cloud. Keep in mind, that almost all our loans have recourse for patients with multiple sponsors. So it's not like people could just hand back the keys as an alternative they have already put the position, but they have to bring capital to the. And there are many circumstances take over long. Still have access to those personal financials and judgments at all. So our goal is always to improve the collateral get into a better decision. Specifically markets that were experiencing a little bit of softness or delays in courts and things of that nature. So for the most part, you know, we we have seen tremendous improvement in the analyze of properties that we modify. Appreciate the comments there. And and Paul, could you touch on the the servicing escrow balances again? I think you said $80 million to $85 million, but I wanna make sure I understand the the new level we should think about and and kinda what's driving the the change in that, what the components are driving that. That reduction?

Sure. So it it when when I speak of earnings on our escrows and cash, it it's two components. We lump it into one. We can break it out. So we're sitting with, you know, a billion five of escrow balances right now. And we have know, year end, we had about $500 million of cash between cash on hand and cash in the CLOs. So that's called in $2 billion. To and right now, so for that, you know, on the four thirty, we're we're earning slightly below that Probably about four fifteen is what we're earning currently. So if you take that $2 billion, multiply it by four fifteen, you're probably at $85 million both in earnings on the cash that we have on our balance sheet and in the vehicles and on our escrows. Last year, we earned $120 million between earnings on escrows and earnings on cash for two reasons. One, SOFR was higher throughout the year remember sulfur has been dropping, so the full effect of the drop sulfur is not in the 2024 numbers. It'll be in the 2025 numbers. And our cash has come down, obviously, as we've used some of our cash to run our business. So that's the two components that are driving the $120 million versus the $85 million. The one thing I will say is that's that's a number that's math. One thing I'll say that will partially offset that is we are expecting, even though we're guiding to lower an agency volume today, if rates stay where they are, still believe our agency volume will eclipse our runoff in the agency business. So we will have some growth in servicing portfolio that will partially offset that. But those that's the math. Great. I think I wanna after that. I wanna get to that. Finally and then I'm gonna reply to that comment. Right? Yes. We experienced $3.4 billion around Boston in 2024. That was a disturbing interest rate environment that existed. In today's interest rate environment, we're forecasting a remain to this four fifty level to four seventy five or four eighty level. Numbers will be more like one and a half. However, if we go back to the interest rate requirement that we had, I will revise up our numbers of runoff of three million. That's a material difference. And that material difference will result in a real rise in our agency. It's just well, So our outlook is really we're expecting. It's an elevated interest rate. Environment and how it impacts our business. And we would see a similar run rate as we did last year. To go back to where they were. And the real inflation point is really gonna be the five and the ten year. If we see the ten year and the five year get back around that four percent level, you'll see same trend number we're seeing on a per quarter quarter. And and Steve, one of the things I wanna add is you know, we were obviously very aware of sofa was dropping and we knew it would have an impact on our escrows and our cash. But I think that the real fundamental change over the last ninety days that was a little bit surprising to us, and we talked about this on prior calls. We knew and you could look at our filings, it shows what the shock would be if rates go down or up on our cash and escrows. Our portfolio we thought they would be know, a pretty big offset in the fact that that the ten year would be low and we have significantly more origination volume on the agency side. That is not happening right now. It may change as I've said with the rates, but that's the big change it's not a surprise to us that escrows and cash earnings go down with silver dropping. But we also thought we'd have a lower ten year, which was where we were last quarter, and we'd have a much more robust origination platform.

Yep. Yep. Appreciate the comments on that. And and one last question. Regarding new dividend level being determined. You know, I know the $0.30 to $0.35 guide for the quarterly distributable earnings. You know, are you going to base the dividend on that or will you look at kind of distributable earnings less pick income and think about the dividend closer to a cash earnings level, how do we think about or how will you and the board think about determining that new dividend level?

You. Yeah. So I think we will look at it as distributable with PIC. Again, we we we adjust as we go. Right? Just to give an example, we've we've modified $4.7 billion of loans in the last two years as I've said in this commentary. $2.4 billion of those have paying accrual features. But we're only accruing on $1.7 billion of There's another $500 million that we've decided not to accrue on. So we we make decisions as we go along and we adjust as we go along on whether we think we still should be accruing this or not based on value. But the ones we are accruing, we feel really confident we're going to receive. So we have those in distributable learnings. But, again, none of this has been cited yet. With the board. We need to see what we've done today is give you as of today, where we think the short term guidance would be, We need to see where the first quarter comes in. We need to see a couple of more months of this market. And by May, when we're on our first quarter call, we'll have three months in the books and another month of market data we will base our dividend on what we think it looks like going forward, not just for one quarter, So we'll look at it out twelve months, and we'll say, wait, where do we think we get it to? Where are we comfortable? Today was just a guide of a range of what we're seeing right now. I mean, just to give you a concept, we're sitting with a billion dollar on pipeline, average, sensitive. That can't close unless the ten year drops to.

Know, the four four and quarter rate.

So our guidance couldn't change to the upside with the change in interest rates. But be realistic.

Don't wanna we don't wanna mislead anybody. That's right. We wanna take a.

Situation with this new elevated range based day. There's huge volatility with the election as we go. And it seems like we're in a range whether it be according to quarter, three quarter, or four quarter. We're not sure. We'll adjust accordingly. We think we're just responsible by laying down where this current is, which is different than where it's been. How that affects our business.

Makes sense. Appreciate the comments this morning. Thank you.

Thanks, Steve.

Thank you. And we will take our next question from Leon Cooperman with Omega Family Office. Please go ahead.

Yeah. I missed most of this call because I had a conflict with another company. I jumped off their call. But, you know, unless there's something said differently, let me just say that I think that you guys are gonna terrific job in managing through a difficult environment. And I personally am offended by the cost of dealing with these short sellers. Because I think you've been extremely transparent here dealing with the with the investors. No surprises here. I think you've done a very good job of navigating the environment. But let me ask you some questions rather than give you a shout out. What's your confidence in your book value? Number one, and secondly, were you willing to use liquidity to build buyback quickly if it drops below state of book value? And kind of return do you think you should earn on a recurring basis on your book in a normal environment?

So relative to how booked value, I'm glad you asked that.

Question because we've had a tremendous success.

At at TrackWagon.

Terms of taking distress loss break. Sponsors And even having problems or service.

Back a So we're really comfortable with it. When we modify our loans, which are always the loans which, you know, have that I don't think it's highlighted on them.

We're forced by account in fact major modifications, reappraisal, Based on the pre appraisals, we're forced to take whatever reserves are necessary. We've been right on the mark, so I'm extraordinarily comfortable with the reserves that we take. And But, track record speaks for itself. Paul, you wanna request something? I I just think the book value where it is today, Lee, if the market stays where it is today, we may have to take some more level of reserves on certain assets as we move through this higher for longer scenario, and it may ding book value a little bit, but we don't think it'll be material because we think we have provided the right level of reserves to date. So think it could go down a little bit, but I don't think it goes down significantly in our track record spent that it has moved down significantly over the last two years in a a very difficult market. As far as returns on equity, I think yeah. It depends on where we we set our dividend. But if you look at our range, on the low end of the range, we're probably ten percent or eleven percent. On the high end of the range, we're twelve percent. Return on equity. Right? I've been given where it is. So we did a fourteen for two thousand and twenty four. I think we did similar for twenty three. I think ten to twelve percent is realistic, and I think there's upside on top of that. If this market doesn't stay where it is. Longer than we're expecting. Right? And, you know, in terms of buying back stock and things and things, or not, keep in mind, that we have a very, very vibrant business. Specifically on the SFR side. Generating outside returns, we have to fund that business A construction lending business, we have to fund the condition. Expecting to do one and a half to two billion. Of of bridge loans. So so we have a five billion dollar worth of growth business. Which is more than last year. We'll have about a million five up front off. And But, you know, we have to be sensitive to keep our business growing. We've done an outstanding job of that. That's where our focus is gonna be. You know, returns on the new business, in the mid teens, which is very accretive to the business we're going to. So we'll continue to focus on rolling up business. Then, of course, managing some of the legacy issues we have.

What does that mean? If we start got down to ten, eleven bucks, you would not buy it?

We it it would be a strong possibility. I think what you have to do is if you ask me if I would buy it, if listen to what I say and watch what I do. So I've always been very forward and covered with my own actions. Calling the largest shareholder account. And if there's no alternative, it does not crops. You will see a pain. I'm sure plenty of management will be active in the spot. And then the stock.

Yeah. Well, good luck and congratulations. You did a very good job in the short sales of your shaving sales. So that is saying quality of the earnings and the quality of the management. Oh, you know, Leon, you you said a lot more than I could usually.

Saying that about this for a sellers, but anyone who cares to take in time can look at the history of problems of the short sellers and their founders. And, you know, a look at the reports and see the issues they've had with the regulators and, of course, around the world. And they can take their comments for what they're worth. You've done your research. I've done mine. And we'll take our investments accordingly.

Gotcha. Well, good luck. Thank you very much. Appreciate your performance. Absolutely.

Thank you. And we will take our next question from Rick Shane with JPMorgan. Please go ahead.

Hey, guys. Thanks for taking my questions this morning. I I sort of two lines. First, a little housekeeping.

Paul, you mentioned $500 million of nonaccrual loans. Can we just go through in the $0.30 to $0.35 guidance? What's the drag from non-accruals? What's the contribution from PIC?

And was the three to five cents that you cited for legal and regulatory quarterly. And can you help us sort of understand the context of that expense.

Yeah. No. So the three to five cents is annually. You know, we run we've run probably two cents to two and a half cents already in 2024, and we're expecting that number will just be the same number, but for a longer period of time because it really wasn't ramping up until the second quarter. So I would say that it's three to five cents for the year. On the cost between consulting, legal, administrative related to the short sellers if it continues. That's our view. think, you know, we we have And then, you know, as far as the the the drag on earnings, I eight hundred nineteen million dollars of one of our loans earning zero. We've commented is that we do think in this environment, we'll resolve some and will have some new ones. I think our track record has been and we still think even in this rate environment, we'll be able to make progress in the ten percent range. We did thirteen percent this quarter, which we were impressed with. But it'll also impact us on the REO side because I think the big the big temporary drag Rick, is that as Ivan alluded to, we we already took back a hundred billion of loans in the first quarter. And we have fifty million on our books right now that aren't legacy. We have a hundred and and to look at the numbers, we have a hundred and seventy six million in REO on our balance sheet. Forty five million is a loan we flipped yesterday that I mentioned. So now you're down to a hundred thirty one. Eighty million of that legacy assets we've had on our books before the crisis and we're working through to try to to try to dispose of them. So about fifty to fifty five is due for this crisis. We took back another hundred in January already. So we're up to one fifty. And as Ivan said, probably gonna end up between four and five hundred million. So the drag is that four to five hundred million has an NOI of about seven million. But certainly not nearly what it would have been had it been paying a current interest rate And then that's gonna be temporary until we can reposition those assets And then, hopefully, we'll have a significant upside in the future, but that's probably twenty four months out. So I think the drags from where we are now to where we're guiding to thirty thirty five cents, are these are the components. Reduce the agency origination volumes, which obviously hit earnings. Right? The full effect of SOFR on your escrows and your cash balances offset slightly by servicing. The full effect of the delinquencies for a for a longer period of time than they've been out outstanding and the drag in the REO assets. Will we have some positive offsets? Yes. We'll probably be know, largely more efficient the securitization markets And, obviously, if rates change, we could pick up volumes and have a better performance on our assets. But those are kind of the components.

And and how much of the quarterly thirty to thirty five cents is from PIK?

I don't have those numbers here, but I would say it's probably gonna be similar to what we've had. It's probably ten to fifteen million a core.

Okay. Great. Thank you. And then pivoting, that was the sort of the housekeeping stuff.

In the quarter, you guys did thirty five, almost thirty six million dollars of prep in mez, ninety seven for the year. Are those part of is that loans on outside investments opportunistically or is that related to the structured portfolio where you're providing additional capital to existing borrowers. And I'd love to and I'd love to relate that to some extent to the hundred and thirty million dollars of capital contributed on the mods. During the quarter during the year. Yeah. So I I think they're a little different. We may be combining concepts, but So the the ninety seven million that you referred to, if not all, the the vast majority are not new investment opportunities there. Preff and Mez were putting behind agency model to keeping taken off our balance sheet. What happens? The guy has a balance sheet loan, and and he wants to convert it to a fixed rate loan. And depending where rates are, he'll come to the table. It'll be short capital because of the the restrictions in the agencies on the debt cover and the and the LTV. And he'll bring to the table some money and we'll put some money in the form of meds and PE behind him, which puts us in a better spot Right? Because if we were eighty percent LTV on a bridge loan that's struggling, and now he has a seventy percent LTV loan on on the agencies. He had a kick in five percent, we had a kick in five Ten. Our PE in meds is behind seventy, not behind eighty. Right? So and then they they they usually get about a fourteen percent return and then there's a pick on it because you have to give you have to have the current pay has to be a a debt cover of, like, one ten through your meds and p e. So it's just a calculation. Of like, some of the ones we did this quarter were nine, ten, eleven percent pay. And the rest was picked because we had good coverage throughout the I I wanna just add to that. That's been a normal course of business. Yeah. Correct.

I I really appreciate the clarification on that. It it it is helpful. And it if I can just pivot to my very last question, So during the year, you guys modded $4.1 billion. You took in $130 million of additional capital associated with that.

Which equates to about three percent. Can you put that.

Three percent additional capital in the context of what you see the decline in property values, how does that sort of match up.

In terms of.

You know, how much property is actually down.

I don't understand your question. So you had borrowers put in.

You had borrowers put in three percent in order to modify loans. And I think, anecdotally, property values are down substantially more than that. So I'm kinda curious how you think about how much additional capital a borrower needs to put in in order to maintain an LTV.

Okay. Every page is different, Rick? Not all properties declined. Some improve the performance. So I I can't I can't answer your question in the macro We take each situation We evaluate the capital income put in how the assets perform and how can improve. So each each one step are Okay. Got it. Hey, guys. Thanks. I always appreciate you taking my questions. You.

Thanks, Thank you. And we will take our next question from Jade Rahmani with KBW. Please go ahead.

Thank you very much. Can you discuss the lower cash balance in the structure of the business? What drove the quarter on quarter decline? And, also, did you experience any margin calls? Sure. So we we did not experience any margin calls. We have great relationships with our our lenders. In fact, Ivan probably gets color that the market for commercial banks and securitizations is is really, really strong right now, so we're not it's a good time to come on that to comment on that.

I'm sure you're aware.

That the CLO market and the bank lending market. Has improved dramatically and.

Those are some of the benefits that we'll all set.

Some of these other factors. The CLO market, I'm sure you've seen deals are getting done in the one fifty to one seventy five as opposed to deals that two years ago couldn't get done and then spread for a seventy five range that we see. Huge efficiencies on that side. The commercial banks are far from relationships. We've had They've been more and more aggressive, higher advance rates. And lower spreads. And these things will translate to better margins, plus going forward. It's a lagging effect. It's all beginning over the last couple of months, and we should have some good positive impact. On our income streams going forward, which will be an offset to some of these negative issues. And as far as the cash balance dropping, it's it's it's math. Right? We had we had put on, as you saw, $377 million of bridge in our new product that we love. We funded up our SFR business, which continues to grow. So that requires cash. And obviously, the runoff has partially offset that. There's also timing on cash Right? When you are taking back an audio asset, you may have to buy it out of vehicle and then you relever it. So there's always timing. On why those cash numbers move. But we're sitting at about $450 million of cash and liquidity today. And, obviously, we've used some of that cash to grow the platform. And then just the agency business cash balance when you break out the different segments, Is that more akin to corporate cash? How fungible is that cash? Yeah. It's all fungible. You just the agency business obviously generates cash capital light. And then it gets, you know, moved up. To the it's just the way you break out the segments, but when you look at a company like ours and you're managing cash, all of that cash is fungible and all of that is corporate cash.

Lastly, just on the GSE side, have you gotten any put back I know JLO.

Is one.

Walk ins unlocked, talked about what they've received.

Be helpful to hear if you've received any loan put back.

We have not.

We have not I had to put back where I had to buy back home. Thanks a lot. Thanks.

Thank you. And we will take our next question from Crispin Love with Piper Sandler. Please go ahead.

Thanks. Good morning, everyone. First, you've had $307 million plus of bridge origination of the fourth quarter, highest level in a long time, in line with your guys from last quarter. Can you speak to expectations going forward in Bridge as rates have backed up since September? And then do you have an outlook for agency originations for the first quarter? Thanks.

Yeah.

The $370 million of bridge is a good quarter. I mentioned in my comments, we're expecting about $1.5 billion to $2 billion for the year and we expect it to look fairly evenly over the year. I think if short term rates crop, see that number going up considerably That's the level that we think it's right by. And and as far as your your second part of your question, Chris, but yeah. The the reason we've given a $0.30 to $0.35 kind of guidance per quarter is it won't it won't be linear. Right? You know, certainly, the first quarter or two may be on the lower end of that range, then it will grow from there. And a lot has to do with the fact that the agency business given where rates are, is off to a slow start. So we're expecting a a a much lower first quarter in the agencies, and then we expect it to build from there. Two reasons. One, historically, the first quarter is usually a slower quarter because a lot of people close all their loans at the end of the year. And two, the backup of rates put some people on the sidelines. Got a big pipeline. Got a lot of loans ready to go. It's just a matter of convincing borrowers to transact at these levels, and a lot of them are are still patiently waiting to see where where the ten year goes. So we are expecting the numbers to be much lighter in the first quarter and then hopefully grow from there. And what you did see is a strong fourth quarter now with all agency lenders.

And if you look at the comments I had,

We would have even done more of letting agencies were backed up. When page jumped, we have this huge pipeline sitting on the side. So the first quarter is gonna be you know, a little light because so much was done in the fourth quarter. And where the rates are today, it's just a on sitting on-site of allergy on on on the pipeline. And if you see a meaningful move for the ten year down, you'll see that number. Increase substantially. Yeah. And and you you wouldn't be surprising if the agency business for the quarter was no six hundred to eight hundred million. It all depends on what's gonna happen. Great. Thank you. Appreciate all the color there. And then just last one for me. Can you provide any update on the DOJ, SEC investigation from last year? And and you mentioned legal fees related to short seller reports in your prepared remarks. Does that also include legal fees related to these investigations as well? Oh, as you know, we don't comment on regulatory inquiries. With respect to the elevated cost, we, as you know, What is the rewards? Step up. Wanted and processed the expense with respect to what earnings. Compliance and all those kind of factors. So we we we are we are working extremely hard Our orders are doing a double and triple quadruple part. At this step of our compliance, and all our procedures and processes. So that's what we estimate the course is gonna be. For working this far.

Thank you. It appears that we have reached our allotted time for questions. I will now turn the program back to Ivan Kaufman for any additional or closing remarks.

Okay. Well, thank you everybody for your time. 2024. We expect next year to be able to get in this current environment. Appreciate your participation in the call. And so we may to come on our favor. Even with this adjusted market price environment, we're still in fact out the phones that being extremely strong. And thousand kilometers in the space. Thank you. You know, you have a great weekend.