ARBOR REALTY TRUST INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

You should read the following discussion in conjunction with the sections of
this report entitled "Forward-Looking Statements" and"Risk Factors," along with
the historical consolidated financial statements including related notes,
included in this report.

Overview


Through our Structured Business, we invest in a diversified portfolio of
structured finance assets in the multifamily, SFR and commercial real estate
markets, primarily consisting of bridge and mezzanine loans, including junior
participating interests in first mortgages and preferred and direct equity. We
also invest in real estate-related joint ventures and may directly acquire real
property and invest in real estate-related notes and certain mortgage-related
securities.

Through our Agency Business, we originate, sell and service a range of
multifamily finance products through Fannie Mae and Freddie Mac, Ginnie Mae, FHA
and HUD. We retain the servicing rights and asset management responsibilities on
substantially all loans we originate and sell under the GSE and HUD programs. We
are an approved Fannie Mae DUS lender nationally, a Freddie Mac Multifamily
Conventional Loan lender, seller/servicer, in New York, New Jersey and
Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and
SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior
housing/healthcare lender nationally. We also originate and service permanent
financing loans underwritten using the guidelines of our existing agency loans
sold to the GSEs, which we refer to as "Private Label" loans and originate and
sell finance products through CMBS programs. We pool and securitize the Private
Label loans and sell certificates in the securitizations to third-party
investors, while retaining the servicing rights and certificates of the
securitization.

We conduct our operations to qualify as a REIT. A REIT is generally not subject
to federal income tax on its REIT-taxable income that is distributed to its
stockholders, provided that at least 90% of its REIT-taxable income is
distributed and provided that certain other requirements are met.

Our operating performance is primarily driven by the following factors:


Net interest income earned on our investments. Net interest income represents
the amount by which the interest income earned on our assets exceeds the
interest expense incurred on our borrowings. If the yield on our assets
increases or the cost of borrowings decreases, this will have a positive impact
on earnings. However, if the yield earned on our assets decreases or the cost of
borrowings increases, this will have a negative impact on earnings. Net interest
income is also directly impacted by the size and performance of our asset
portfolio. We recognize the bulk of our net interest income from our Structured
Business. Additionally, we recognize net interest income from loans originated
through our Agency Business, which are generally sold within 60 days of
origination.

Fees and other revenues recognized from originating, selling and servicing
mortgage loans through the GSE and HUD programs. Revenue recognized from the
origination and sale of mortgage loans consists of gains on sale of loans (net
of any direct loan origination costs incurred), commitment fees, broker fees,
loan assumption fees and loan origination fees. These gains and fees are
collectively referred to as gain on sales, including fee-based services, net. We
record income from MSRs at the time of commitment to the borrower, which
represents the fair value of the expected net future cash flows associated with
the rights to service mortgage loans that we originate, with the recognition of
a corresponding asset upon sale. We also record servicing revenue which consists
of fees received for servicing mortgage loans, net of amortization on the MSR
assets recorded. Although we have long-established relationships with the GSE
and HUD agencies, our operating performance would be negatively impacted if our
business relationships with these agencies deteriorate. Additionally, we also
recognize revenue from originating, selling and servicing our Private Label
loans.

Income earned from our structured transactions. Our structured transactions are
primarily comprised of investments in equity affiliates, which represent
unconsolidated joint venture investments formed to acquire, develop and/or sell
real estate-related assets. Operating results from these investments can be
difficult to predict and can vary significantly period-to-period. If interest
rates were to rise, it is likely that income from these investments would be
significantly and negatively impacted, particularly from our investment in a
residential mortgage banking business, since rising interest rates generally
decrease the demand for residential real estate loans and the number of loan
originations. In addition, we periodically receive distributions from our equity
investments. It is difficult to forecast the timing of such payments, which can
be substantial in any given quarter. We account for structured transactions
within our Structured Business.

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Credit quality of our loans and investments, including our servicing portfolio.
Effective portfolio management is essential to maximize the performance and
value of our loan and investment and servicing portfolios. Maintaining the
credit quality of the loans in our portfolios is of critical importance. Loans
that do not perform in accordance with their terms may have a negative impact on
earnings and liquidity.

COVID-19 Impact. The global outbreak of COVID-19 has forced many countries,
including the U.S., to declare national emergencies, to institute "stay-at-home"
orders, to close financial markets and to restrict operations of non-essential
businesses. Such actions have created significant disruptions in global supply
chains, and adversely impacted many industries. COVID-19 could have a continued
and prolonged adverse impact on economic and market conditions, which could
continue a period of global economic slowdown. Although we have not been
significantly impacted by COVID-19 to-date, the impact of COVID-19 on companies
continues to evolve, and the extent and duration of the economic fallout from
this pandemic, both globally and to our business, remain unclear and present
risk with respect to our financial condition, results of operations, liquidity,
and ability to pay distributions.

Significant Developments During 2021

Capital Markets Activity.

We raised $1.13 billion of capital through issuances of senior unsecured debt

and common stock issuances through public offerings and our “At-The-Market”

? equity offering sales agreement. We used $55.5 million of the net proceeds to

purchase common stock and operating partnership units (“OP Units”) from our

chief executive officer, ACM and certain of its members and certain other

executive officers of ours; and

We raised $556.4 million of capital through the issuances of Series D, E and F

? preferred shares with a weighted average rate of 6.34% and we used $93.3

million of the proceeds to fully redeem our Series A, B and C preferred stock

which had a weighted average rate of 8.14%.

Financing Activity.

We closed four collateralized securitization vehicles (CLO 14, 15, 16 and 17)

totaling $5.20 billion of real estate related assets and cash, of which $4.28

? billion of investment grade notes were issued to third-party investors and

$471.3 million of below investment-grade notes and a $447.2 million equity

interest in the portfolio were retained by us;

? We closed two Private Label securitizations totaling $985.1 million and

retained the most subordinate certificates totaling $85.7 million; and

Completed the unwind of CLO 9 and 11, redeeming $889.2 million of outstanding

? notes which were repaid from refinancing the remaining assets within our

existing financing facilities (including CLO 14 and 17) and cash held by CLO 9

   and 11.


Structured Business Activity.

Grew our structured loan and investment portfolio 122% to $12.16 billion on

? loan originations totaling $9.72 billion, partially offset by loan runoff

totaling $2.52 billion; and

? Recorded income of $34.6 million and received $28.0 million of cash

distributions from our residential mortgage business joint venture.

Agency Business Activity.

? Loan originations and sales totaled $6.41 billion and $6.42 billion,

respectively; and

? Grew our fee-based servicing portfolio 9% to $26.96 billion.


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Dividend. We raised our quarterly common dividend to $0.37 per share, our
seventh consecutive quarterly increase.

Subsequent Events. During February 2022, we closed the following transactions:

We closed a collateralized securitization vehicle (CLO 18) totaling $2.05

? billion, of which $1.65 billion of investment grade notes were issued to

third-party investors and $210.1 million of below investment-grade notes and a

$187.1 million equity interest in the portfolio were retained by us;

? We closed a Private Label securitization totaling $489.3 million and retained

the most subordinate certificates totaling $43.4 million; and

? Raised $72.6 million from the issuance of an additional 3,100,000 shares of our

Series F preferred shares.

Current Market Conditions, Risks and Recent Trends


As discussed throughout this report, the COVID-19 pandemic continues to impact
the global economy in unprecedented ways, swiftly halting activity across many
industries, and continuing to cause significant disruption and liquidity
constraints in many market segments, including the financial services, real
estate and credit markets. The impact of COVID-19 on companies continues to
evolve, the full extent of which will depend on future developments, including,
among other factors, the emergence of new variants in the US and abroad, the
recovery time of the disrupted supply chains and industries, the impact of labor
market interruptions, the impact of government interventions and the
effectiveness of vaccination programs. COVID-19 could have a continued and
prolonged adverse impact on economic and market conditions, which could continue
a period of global economic slowdown. Although we have not been significantly
impacted by COVID-19 to-date, adverse economic conditions have resulted, and may
continue to result, in declining real estate values of certain asset classes,
increased payment delinquencies and defaults and increased loan modifications
and foreclosures, all of which could have a significant impact on our future
results of operations, financial condition, business prospects and our ability
to make distributions to our stockholders.

Since the beginning of 2020, the pandemic has caused a dislocation in the
capital markets resulting in a reduction of available liquidity, with varying
degrees of improvement in 2021. Many commercial mortgage REITs have suffered,
and continue to suffer, from the reduction in available liquidity since access
to capital is critical to grow their business. Despite this reduction in
liquidity, we continue to raise capital through various vehicles to grow our
business.

Our Agency Business requires limited capital to grow, as originations are
financed through warehouse facilities for generally up to 60 days before the
loans are sold, therefore this lack of liquidity has not and should not, impact
our ability to grow this business. However, our Structured Business is more
reliant on the capital markets to grow, and therefore, a lack of liquidity for a
prolonged period of time could limit our ability to grow this business. In our
Structured Business, 91% of our portfolio is in multifamily assets with most of
these loans containing interest reserves and/or replenishment obligations by our
borrowers.

The federal government, Fannie Mae and Freddie Mac have made certain forbearance
and non-eviction programs available to borrowers and tenants should they need to
counteract any short-term pressure on their properties from COVID-19 and its
impact on the economy. For borrowers, in order to qualify for a forbearance,
they need to demonstrate they have been adversely affected by the pandemic and
their ability to make their loan payments has been impacted. All loan and rent
payments that are suspended remain the obligations of the borrowers and tenants.

Our Agency Business had approved forbearances related to 0.2% of our Fannie Mae
DUS portfolio and 2.6% of our Freddie Mac portfolio as of December 31, 2021. We
are closely monitoring and managing the requests for forbearances and it is
likely there will be additional economic stress during 2022.

In December 2021, the federal reserve announced they will likely raise interest
rates in 2022 to combat inflation. However, interest rates currently remain at
historically low levels. While lower interest rates generally have a positive
impact on origination volume as borrowers look to refinance loans to take
advantage of lower rates, our net interest income may be negatively impacted as
higher yielding loans are paid off and replaced with lower yielding loans.
However, we are somewhat insulated from decreasing interest rates, since a large
portion of our structured loan portfolio has LIBOR floors, which could increase
our net interest income in the future if rates remain at these historically low
levels. Conversely, if interest rates were to rise, it could negatively impact
our net interest income. An increase in rates would cause an increase in
interest expense as most of our debt is variable. However, since a large portion
of our structured loan portfolio has LIBOR floors that are in the money, any
increase in interest income due to rising

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interest rates is not likely to be as substantial as the corresponding increase
in interest expense. See "Quantitative and Qualitative Disclosures about Market
Risk" below for additional details.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs
remain the most significant providers of capital to the multifamily market. In
October 2021, the FHFA announced that its 2022 loan origination caps for Fannie
Mae and Freddie Mac will be $78 billion for each enterprise for a total
opportunity of $156 billion (the "2022 Caps"), which has increased from its 2021
loan origination caps of $70 billion for each enterprise. The 2022 Caps will
continue to apply to all multifamily business, have no exclusions and mandate
that 50% be directed towards mission driven, affordable housing. The FHFA will
also require at least 25% be affordable to residents at or below 60% of area
median income for 2022, up from 20% in 2021. Our originations with the GSEs are
highly profitable executions as they provide significant gains from the sale of
our loans, non-cash gains related to MSRs and servicing revenues. Therefore, a
decline in our GSE originations could negatively impact our financial results.
We are unsure whether the FHFA will impose stricter limitations on GSE
multifamily production volume in the future.

Changes in Financial Condition

Assets – Comparison of balances at December 31, 2021 to December 31, 2020:

Our Structured loan and investment portfolio balance was $12.16 billion and
$5.48 billion at December 31, 2021 and 2020, respectively. This increase was
primarily due to loan originations exceeding loan payoffs and paydowns by $7.20
billion. See below for details.

Our portfolio had a weighted average current interest pay rate of 4.26% and
5.23% at December 31, 2021 and 2020, respectively. Including certain fees earned
and costs associated with the structured portfolio, the weighted average current
interest rate was 4.62% and 5.80% at December 31, 2021 and 2020, respectively.
Our debt that finances our loans and investment portfolio totaled $11.17 billion
and $4.92 billion at December 31, 2021 and 2020, respectively, with a weighted
average funding cost of 2.33% and 2.64%, respectively, which excludes financing
costs. Including financing costs, the weighted average funding rate was 2.61%
and 3.03% at December 31, 2021 and 2020, respectively.

Activity from our Structured Business portfolio is comprised of the following ($
in thousands):

                                                             Year Ended December 31,
                                                               2021            2020
Loans originated (1)                                       $   9,720,515    $ 2,433,679
Number of loans                                                      422            137
Weighted average interest rate                                      4.33 %         5.67 %
(1) During 2021 and 2020, we committed to fund SFR loans
totaling $729.5 million and $261.5 million,
respectively.

Loans paid-off / paid-down                                 $   2,516,771    $ 1,208,071
Number of loans                                                      167             85
Weighted average interest rate                                      6.27 % 
       6.56 %

Loans extended                                             $   1,235,888    $   748,640
Number of loans                                                       69             43


Loans held-for-sale from the Agency Business increased $106.7 million, primarily
from an increase in Private Label loan originations. Our GSE loans are generally
sold within 60 days, while our Private Label loans are generally expected to be
sold and

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securitized within 180 days from the loan origination date. Activity from our
Agency Business portfolio is comprised of the following ($ in thousands):

                         Loan
                     Originations     Loan Sales
Fannie Mae          $    3,389,312    $ 3,675,763
Private Label            1,436,853        985,094
Freddie Mac              1,016,142      1,081,702
FHA                        430,320        480,275
SFR - Fixed Rate           136,931        192,335
Total               $    6,409,558    $ 6,415,169


Capitalized mortgage servicing rights increased $42.8 million, primarily due to
MSRs recorded on new loan originations, partially offset by amortization and
write-offs. Capitalized mortgage servicing rights represent the estimated value
of our rights to service mortgage loans for others. At December 31, 2021, the
weighted average estimated life remaining of our MSRs was 8.5 years.

Securities held-to-maturity increased $45.0 million, primarily due to the
purchase, at a discount, of APL certificates in connection with our Private
Label securitizations.

Investments in equity affiliates increased $15.4 million, primarily due to
income from our investment in a residential mortgage banking business of $34.6
million and contributions totaling $14.0 million made to AMAC III and a new
investment in a private equity fund, partially offset by $31.8 million of
distributions received from our residential mortgage banking investment and AMAC
III. See Note 8 for details.

Due from related party increased $71.9 million, due to an increase in funds from
payoffs to be remitted by our affiliated servicing operations related to real
estate transactions at the end of the reporting period. These amounts were
remitted to us in January 2022.

Other assets increased $86.4 million, primarily due to increases in unsecured
loan fundings, current tax assets, interest receivables from portfolio growth
and the fair value of our interest rate and credit default swaps ("Swaps").

Liabilities – Comparison of balances at December 31, 2021 to December 31, 2020:

Credit and repurchase facilities increased $2.25 billion, primarily due to
funding of new structured loan activity.

Collateralized loan obligations increased $3.38 billion, primarily due to the
issuances of four new CLOs, where we issued $4.28 billion of notes to
third-party investors, partially offset by the unwind of two CLOs totaling
$889.2 million.

Senior unsecured notes increased $617.7 million, primarily due to our issuances
of $355.0 million of 5.00% notes and $270.0 million of 4.50% notes.


Due to related party was $26.6 million and $2.4 million at December 31, 2021 and
2020, respectively, and consisted of loan payoffs, holdbacks and escrows to be
remitted to our affiliated servicing operations related to real estate
transactions.

Other liabilities increased $90.2 million, primarily due to increases in accrued
compensation, deferred tax liabilities, good faith deposits on new loan
originations and the fair value of our rate lock and forward sale commitments.

Equity


During 2021, we completed public offerings of our Series D, E and F preferred
stock totaling 23,000,000 shares with a weighted average rate of 6.34%. These
offerings generated net proceeds of $556.4 million and we used $93.3 million of
the proceeds to fully redeem our Series A, B and C preferred stock which had a
weighted average rate of 8.14%.

During 2021, we sold 29,140,369 shares of our common stock through public
offerings and our “At-The-Market” agreement, raising net proceeds totaling
$514.6 million. We used $55.5 million of the net proceeds to purchase a total of
3,170,900 of common


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stock and OP Units from our chief executive officer, ACM and its members and
certain other executive officers of ours. We also issued 386,459 shares of
common stock and cash to fully redeem our remaining 5.25% convertible senior
notes (the "5.25% Convertible Notes").

See Note 16 for the details of our dividends declared and our deferred
compensation transactions during 2021.

Agency Servicing Portfolio


The following table sets forth the characteristics of our loan servicing
portfolio collateralizing our mortgage servicing rights and servicing revenue ($
in thousands):

                                                                         December 31, 2021
                                             Wtd. Avg.    Wtd. Avg.                                            Annualized
                     Servicing                Age of      Portfolio                                           Prepayments        Delinquencies
                     Portfolio      Loan     Portfolio    Maturity      Interest Rate Type     Wtd. Avg.    as a Percentage     as a Percentage
Product                 UPB         Count     (years)      (years)    

Fixed Adjustable Note Rate of Portfolio (1) of Portfolio (2)
Fannie Mae $ 19,127,397 2,710 3.0 8.8 98 %

           2 %       3.99 %             12.00 %              0.20
Freddie Mac            4,943,905    1,317          2.8         10.9        86 %          14 %       3.82 %             17.01 %              0.79
Private Label          1,711,326      102          1.2          8.6       100 %           - %       3.64 %                 - %                 -
FHA                      985,063       90          2.0         33.9       100 %           - %       3.01 %             23.69 %                 -
SFR - Fixed Rate         191,698       45          0.9          6.7       100 %           - %       4.54 %                 - %                 -
Total               $ 26,959,389    4,264          2.8         10.1        96 %           4 %       3.90 %             12.50 %              0.29


                                             December 31, 2020
Fannie Mae       $ 18,268,268    2,712    2.8     9.0     97 %   3 %  4.12 %   6.40 %  0.33
Freddie Mac         4,881,080    1,413    2.6    11.7     88 %  12 %  3.99 %  11.47 %  0.65
FHA                   752,116       89    3.0    32.9    100 %   - %  3.39 %  33.60 %     -
Private Label         726,992       40    1.0     9.1    100 %   - %  3.81 %      - %     -
Total            $ 24,628,456    4,254    2.7    10.3     95 %   5 %  4.06 %   8.05 %  0.37


Prepayments reflect loans repaid prior to six months from loan maturity. The
(1) majority of our loan servicing portfolio has a prepayment protection term and

therefore, we may collect a prepayment fee which is included as a component

of servicing revenue, net.

Delinquent loans reflect loans that are contractually 60 days or more past

due. As of December 31, 2021 and 2020, delinquent loans totaled $77.6 million
(2) and $91.3 million, respectively, of which $9.8 million and $19.6 million,

respectively, were in the foreclosure process. No loans were in bankruptcy as

of December 31, 2021 and 2020.

Our servicing portfolio represents commercial real estate loans originated in
our Agency Business, which are generally transferred or sold within 60 days from
the date the loan is funded. Primarily all of the loans in our servicing
portfolio are collateralized by multifamily properties. In addition, we are
generally required to share in the risk of any losses associated with loans sold
under the Fannie Mae DUS program, see Note 11.

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Comparison of Results of Operations for Years Ended 2021 and 2020

The following table provides our consolidated operating results ($ in
thousands):

                                                     Year Ended December 31,       Increase / (Decrease)
                                                       2021            2020          Amount        Percent
Interest income                                    $     466,087    $  339,465    $     126,622         37 %
Interest expense                                         212,005       169,216           42,789         25 %
Net interest income                                      254,082       170,249           83,833         49 %
Other revenue:
Gain on sales, including fee-based services,
net                                                      123,037        94,607           28,430         30 %
Mortgage servicing rights                                130,230       165,517         (35,287)       (21) %
Servicing revenue, net                                    74,814        54,385           20,429         38 %
Property operating income                                    185         3,976          (3,791)       (95) %
Loss on derivative instruments, net                      (2,684)      (58,335)           55,651       (95) %
Other income, net                                          7,566         4,109            3,457         84 %
Total other revenue                                      333,148       264,259           68,889         26 %
Other expenses:
Employee compensation and benefits                       171,796       144,380           27,416         19 %
Selling and administrative                                45,575        37,348            8,227         22 %
Property operating expenses                                  718         4,898          (4,180)       (85) %
Depreciation and amortization                              7,215         7,640            (425)        (6) %
Provision for loss sharing (net of recoveries)           (6,167)        14,822         (20,989)         nm %
Provision for credit losses (net of recoveries)         (21,113)        61,110         (82,223)         nm %
Total other expenses                                     198,024       270,198         (72,174)       (27) %
Income before extinguishment of debt, gain
(loss) on real estate, income from equity
affiliates and income taxes                              389,206       164,310          224,896        137 %
Loss on extinguishment of debt                           (3,374)       (3,546)              172        (5) %
Gain (loss) on real estate                                 3,693         (375)            4,068         nm %
Income from equity affiliates                             34,567        76,161         (41,594)       (55) %
Provision for income taxes                              (46,285)      (40,393)          (5,892)         15 %
Net income                                               377,807       196,157          181,650         93 %
Preferred stock dividends                                 21,888         7,554           14,334        190 %
Net income attributable to noncontrolling
interest                                                  38,507        25,208           13,299         53 %
Net income attributable to common stockholders     $     317,412    $  163,395    $     154,017         94 %


nm - not meaningful

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The following table presents the average balance of our Structured Business
interest-earning assets and interest-bearing liabilities, associated interest
income (expense) and the corresponding weighted average yields ($ in thousands):

                                                                        Year Ended December 31,
                                                          2021                                          2020
                                           Average      Interest     W/A Yield /         Average      Interest     W/A Yield /
                                          Carrying      Income /      Financing         Carrying      Income /      Financing
                                          Value (1)      Expense      Cost (2)          Value (1)      Expense      Cost (2)
Structured Business interest-earning
assets:

Bridge loans                             $ 7,340,522    $ 384,406           5.24 %     $ 4,402,763    $ 259,845           5.90 %
Mezzanine / junior participation
loans                                        215,837       18,954           8.78 %         174,622       15,421           8.83 %
Preferred equity investments                 213,616       21,570          10.10 %         207,736       22,701          10.93 %
Other                                         29,772        1,493           5.01 %          82,604        4,968           6.01 %
Core interest-earning assets               7,799,747      426,423           5.47 %       4,867,725      302,935           6.22 %
Cash equivalents                             443,779          616           0.14 %         382,303        2,958           0.77 %
Total interest-earning assets            $ 8,243,526    $ 427,039           5.18 %     $ 5,250,028    $ 305,893           5.83 %


Structured Business
interest-bearing liabilities:

CLO                               $ 3,503,175    $  64,318    1.84 %     $ 2,462,799    $  56,800    2.31 %
Warehouse lines                     2,149,729       57,993    2.70 %         985,693       34,444    3.49 %
Unsecured debt                      1,157,275       67,353    5.82 %         877,420       52,378    5.97 %
Trust preferred                       154,336        4,771    3.09 %         154,336        5,911    3.83 %
Debt fund                                   -            -       - %          22,378        1,431    6.38 %
Total interest-bearing
liabilities                       $ 6,964,515      194,435    2.79 %     $ 4,502,626      150,964    3.35 %
Net interest income                              $ 232,604                              $ 154,929

(1) Based on UPB for loans, amortized cost for securities and principal amount

for debt.

(2) Weighted average yield calculated based on annualized interest income or

expense divided by average carrying value.

Net Interest Income

The increase in interest income was mainly due to a $121.1 million increase from
our Structured Business, primarily due to an increase in our average core
interest-earning assets from loan originations exceeding loan runoff, partially
offset by a decrease in the average yield on core interest-earning assets. The
decrease in the average yield was primarily due to lower rates on originations,
as compared to loan runoff.

The increase in interest expense was mainly due to a $43.5 million increase from
our Structured Business, primarily due to an increase in the average balance of
our interest-bearing liabilities, due to growth in our loan portfolio and the
issuance of additional unsecured debt. This was partially offset by a decrease
in the average cost of our interest-bearing liabilities, mainly from decreases
in LIBOR and the issuances of CLOs at lower rates.

Agency Business Revenue


The increase in gain on sales, including fee-based services, net was primarily
due to a 33% increase in the sales margin from 1.44% to 1.92%, as a result of
the increased mix of Private Label , SFR and FHA loan sales, which carry higher
sales margins.

The decrease in income from MSRs was primarily due to a 16% decrease in the MSR
rate from 2.43% to 2.05% and a 7% decrease in loan commitment volume. The
decrease in the MSR rate was primarily due to lower Fannie Mae loan commitments,
which carry a higher servicing fee.

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The increase in servicing revenue, net was primarily due to the growth in our
servicing portfolio, as well as an increase in prepayment penalties.

Other Revenue


The losses on derivative instruments in both 2021 and 2020 were primarily from
our Agency Business and were predominantly from losses recognized on our Swaps
held in connection with our Private Label loans.

Other Expenses


The increase in employee compensation and benefits expense was primarily due to
increases in headcount and incentive compensation as a result of the portfolio
growth in both business segments, as well as commissions in our Agency Business
in connection with increased Private Label securitization activity and higher
sales margins.

The increase in selling and administrative expenses was primarily due to higher
professional fees (legal and consulting) and rent expense in both business
segments. Administrative expenses were also lower in 2020 as a result of the
COVID-19 pandemic due to travel restrictions and fewer events. We also recorded
a $2.5 million litigation settlement related to a hotel property that we sold in
2020.

The decreases in both provision for loss sharing and provision for credit losses
were primarily due to the reversal of CECL reserves in both business segments in
connection with improved market conditions and expected future forecasts.

Loss on Extinguishment of Debt


The loss on extinguishment of debt in both years was deferred financing fees
recognized in connection with the unwind of CLOs, along with a loss recognized
in connection with the unwind of the Luxembourg commercial real estate debt
fund
in 2020.

Gain (Loss) on Real Estate

The gain recorded in 2021 was from our acquisition of an office property (for
full satisfaction of the underlying debt) with an appraisal value in excess of
the outstanding loan and the sale of a repurchased Fannie Mae loan. The loss
recorded in 2020 was from the sale of a hotel property, substantially offset by
a gain on the sale of a repurchased Fannie Mae loan.

Income from Equity Affiliates


Income from equity affiliates in 2021 and 2020 primarily reflects income from
our investment in a residential mortgage banking business of $34.6 million and
$75.7 million, respectively. The income from this investment was driven by the
historically low interest rates and strength in the residential housing market
during COVID-19.

Provision for Income Taxes

In 2021, we recorded a tax provision of $46.3 million, which consisted of
current and deferred tax provisions of $35.4 million and $10.9 million,
respectively. In 2020, we recorded a tax provision of $40.4 million, which
consisted of a current and deferred tax provisions of $35.7 million and $4.7
million, respectively. The increase in the tax provision was primarily due to an
increase in pre-tax income from our Agency Business, partially offset by lower
income generated from our investment in a residential banking business in 2021,
compared to 2020.

Preferred Stock Dividends

The increase in preferred stock dividends was due to the issuances of our Series
D, E and F preferred stock, which included a significantly larger number of
shares than our Series A, B and C preferred stock that were redeemed in the
second quarter of 2021.


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Net Income Attributable to Noncontrolling Interest


The noncontrolling interest relates to the outstanding OP Units issued as part
of the 2016 acquisition of ACM's agency platform (the "Acquisition"). There were
16,325,095 OP Units and 17,560,633 OP Units outstanding as of December 31, 2021
and 2020, respectively, which represented 9.7% and 12.5% of our outstanding
stock at December 31, 2021 and 2020, respectively.

Comparison of Results of Operations for Years Ended 2020 and 2019


For a discussion of our results of operations for the year ended 2020 compared
to 2019, please refer to Item 7 of Part II, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report
on Form 10-K for the year ended December 31, 2020, which was filed with the SEC
on February 19, 2021, and is available on the SEC's website at www.sec.gov and
the "Investor Relations" section of our website at www.arbor.com.

Liquidity and Capital Resources


Sources of Liquidity. Liquidity is a measure of our ability to meet our
potential cash requirements, including ongoing commitments to repay borrowings,
satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing
agreement and, as an approved designated seller/servicer of Freddie Mac's SBL
program, operational liquidity requirements of the GSE agencies, fund new loans
and investments, fund operating costs and distributions to our stockholders, as
well as other general business needs. Our primary sources of funds for liquidity
consist of proceeds from equity and debt offerings, proceeds from CLOs and
securitizations, debt facilities and cash flows from operations. We closely
monitor our liquidity position and believe our existing sources of funds and
access to additional liquidity will be adequate to meet our liquidity needs.

We are monitoring the COVID-19 pandemic and its impact on our financing sources,
borrowers and their tenants, and the economy as a whole. The magnitude and
duration of the pandemic, and its impact on our operations and liquidity, are
uncertain and continue to evolve. To the extent that our financing sources,
borrowers and their tenants continue to be impacted by the pandemic, or by the
other risks disclosed in our filings with the SEC, it would have a material
adverse effect on our liquidity and capital resources.

We had $11.17 billion in total structured debt outstanding at December 31, 2021.
Of this total, $7.64 billion, or 68%, does not contain mark-to-market provisions
and is comprised of non-recourse CLO vehicles, senior unsecured debt and junior
subordinated notes, the majority of which have maturity dates in 2023, or later.
The remaining $3.53 billion of debt is in credit and repurchase facilities with
several different banks that we have long-standing relationships with. While we
expect to extend or renew all of our facilities as they mature, we cannot
provide assurance that they will be extended or renewed on as favorable terms.

In addition to our ability to extend our credit and repurchase facilities and
raise funds from equity and debt offerings, we have approximately $900 million
in cash and available liquidity as well as other liquidity sources, including
our $26.96 billion agency servicing portfolio, which is mostly prepayment
protected and generates approximately $121 million per year in recurring cash
flow.

At December 31, 2021, we had $61.4 million of securities financed with $30.8
million of debt that was subject to margin calls related to changes in interest
spreads.

To maintain our status as a REIT under the Internal Revenue Code, we must
distribute annually at least 90% of our REIT-taxable income. These distribution
requirements limit our ability to retain earnings and thereby replenish or
increase capital for operations. However, we believe that our capital resources
and access to financing will provide us with financial flexibility and market
responsiveness at levels sufficient to meet current and anticipated capital and
liquidity requirements.

Cash Flows. Cash flows provided by operating activities were $216.8 million
during 2021 as net income of $377.8 million was partially offset by cash
outflows due to loan originations exceeding loan sales in our Agency Business,
increases in unsecured loan fundings and decreases in the fair value of our
Swaps, as well as certain other non-cash net income adjustments (increases in
interest receivables from portfolio growth in our Structured Business).

Cash flows used in investing activities totaled $6.75 billion during 2021. Loan
and investment activity (originations and payoffs /paydowns) comprise the
majority of our investing activities. Loan originations from our Structured
Business totaling $9.21 billion, net of payoffs and paydowns of $2.37 billion,
resulted in net cash outflows of $6.84 billion.

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Cash flows provided by financing activities totaled $6.89 billion during 2021
and consisted primarily of net proceeds of $3.39 billion from CLO activity, net
cash inflows of $2.25 billion from debt facility activities (financed loan
originations were greater than facility paydowns) and $1.70 billion of proceeds
from the issuance of common and preferred stock and senior unsecured notes,
partially offset by $227.1 million of distributions to our stockholders and OP
Unit holders and $92.8 million for the redemption of preferred stock.

Agency Business Requirements. The Agency Business is subject to supervision by
certain regulatory agencies. Among other things, these agencies require us to
meet certain minimum net worth, operational liquidity and restricted liquidity
collateral requirements, purchase and loss obligations and compliance with
reporting requirements. Our adjusted net worth and operational liquidity
exceeded the agencies' requirements as of December 31, 2021. Our restricted
liquidity and purchase and loss obligations were satisfied with letters of
credit totaling $50.0 million and $18.7 million of cash collateral. See Note 14
for details about our performance regarding these requirements.

We also enter into contractual commitments with borrowers providing rate lock
commitments while simultaneously entering into forward sale commitments with
investors. These commitments are outstanding for short periods of time
(generally less than 60 days) and are described in Note 12.

Debt Facilities. We maintain various forms of short-term and long-term financing
arrangements. Borrowings underlying these arrangements are primarily secured by
a significant amount of our loans and investments and substantially all our
loans held-for-sale. The following is a summary of our debt facilities (in
thousands):

                                                                    December 31, 2021
                                                                                                Maturity
Debt Instruments                                Commitment       UPB (1)         Available      Dates (2)
Structured Business
Credit and repurchase facilities               $  4,914,169    $  3,533,016    $  1,381,153    2022 - 2024
Collateralized loan obligations (3)               5,924,705       5,924,705               -    2022 - 2026
Senior unsecured notes                            1,295,750       1,295,750               -    2023 - 2028
Convertible senior unsecured notes                  264,000         264,000               -       2022
Junior subordinated notes                           154,336         154,336               -    2034 - 2037
Structured Business total                        12,552,960      11,171,807

1,381,153


Agency Business
Credit and repurchase facilities (4)              2,151,253         960,683
      1,190,570       2022
Consolidated total                             $ 14,704,213    $ 12,132,490    $  2,571,723

(1) Excludes the impact of deferred financing costs.

(2) See Note 14 for a breakdown of debt maturities by year.

(3) Maturity dates represent the weighted average remaining maturity based on the

underlying collateral as of December 31, 2021.

(4) The $750 million Multifamily As Soon as Pooled ® Plus (“ASAP”) agreement we

have with Fannie Mae has no expiration date.



We utilize our credit and repurchase facilities primarily to finance our loan
originations on a short-term basis prior to loan securitizations, including
through CLOs. The timing, size and frequency of our securitizations impact
the
balances of these borrowings

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and produce some fluctuations. The following table provides additional
information regarding the balances of our borrowings (in thousands):

                      Quarterly                            Maximum
                       Average        End of Period      UPB at Any
Quarter Ended             UPB              UPB            Month-End
December 31, 2021     $ 3,771,684    $      4,493,699    $  4,493,699
September 30, 2021      3,191,129           3,409,598       3,409,598
June 30, 2021           2,327,114           2,021,412       2,588,456
March 31, 2021          2,177,350           2,220,307       2,262,160

December 31, 2020       1,939,759           2,238,722       2,238,722
September 30, 2020      1,406,219           1,454,419       1,454,419
June 30, 2020           1,692,940           1,240,910       2,033,312
March 31, 2020          1,829,495           1,851,758       2,003,278

December 31, 2019       1,391,215           1,681,146       1,681,146
September 30, 2019      1,433,481           1,388,248       1,444,342
June 30, 2019           1,255,288           1,624,457       1,624,457
March 31, 2019          1,055,169           1,034,934       1,084,046

Our debt facilities, including their restrictive covenants, are described in
Note 10.

Off-Balance-Sheet Arrangements. At December 31, 2021, we had no
off-balance-sheet arrangements.

Inflation. In December 2021, the federal reserve announced they will likely
raise interest rates in 2022 to combat inflation. If interest rates were to
rise, it could negatively impact our net interest income. An increase in rates
would cause an increase in interest expense as most of our debt is variable.
However, since a large portion of our structured loan portfolio has LIBOR floors
that are above index rates, any increase in interest income due to rising
interest rates is not likely to be as substantial as the corresponding increase
in interest expense. See "Quantitative and Qualitative Disclosures about Market
Risk" below for additional details.

Derivative Financial Instruments


We enter into derivative financial instruments in the normal course of business
to manage the potential loss exposure caused by fluctuations of interest rates.
See Note 12 for details.

Significant Accounting Estimates

Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification™, the authoritative reference for accounting
principles generally accepted in the U.S. ("GAAP"). The preparation of financial
statements in conformity with GAAP requires the use of estimates and assumptions
that could affect the reported amounts in our consolidated financial statements.
Actual results could differ from these estimates.

A summary of our significant accounting policies is presented in Note 2. Many of
these accounting policies require judgment and the use of estimates and
assumptions when applying these policies in the preparation of our consolidated
financial statements. Each quarter, we assess these estimates and assumptions
based on several factors, including historical experience, which we believe to
be reasonable under the circumstances. These estimates are subject to change in
the future if any of the underlying assumptions or factors change.

Non-GAAP Financial Measures

Distributable Earnings. We are presenting distributable earnings because we
believe it is an important supplemental measure of our operating performance and
is useful to investors, analysts, and other parties in the evaluation of REITs
and their ability to provide dividends to stockholders. Dividends are one of the
principal reasons investors invest in REITs. To maintain REIT status, REITs are
required to distribute at least 90% of their REIT-taxable income. We consider
distributable earnings in determining our quarterly dividend and believe that,
over time, distributable earnings are a useful indicator of our dividends per
share.

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We define distributable earnings as net income (loss) attributable to common
stockholders computed in accordance with GAAP, adjusted for accounting items
such as depreciation and amortization (adjusted for unconsolidated joint
ventures), non-cash stock-based compensation expense, income from MSRs,
amortization and write-offs of MSRs, gains/losses on derivative instruments
primarily associated with Private Label loans not yet sold and securitized, the
tax impact on cumulative gains/losses on derivative instruments associated with
Private Label loans sold during the periods presented, changes in fair value of
GSE-related derivatives that temporarily flow through earnings, deferred tax
provision (benefit), CECL provisions for credit losses (adjusted for realized
losses as described below), amortization of the convertible senior notes
conversion option gains/losses on the receipt of real estate from the settlement
of loans (prior to the sale of the real estate). We also add back one-time
charges such as acquisition costs and one-time gains/losses on the early
extinguishment of debt and redemption of preferred stock.

We reduce distributable earnings for realized losses in the period we determine
that a loan is deemed nonrecoverable in whole or in part. Loans are deemed
nonrecoverable upon the earlier of: (i) when the loan receivable is settled
(i.e., when the loan is repaid, or in the case of foreclosure, when the
underlying asset is sold); or (ii) when we determine that it is nearly certain
that all amounts due will not be collected. The realized loss amount is equal to
the difference between the cash received, or expected to be received, and the
book value of the asset.

Distributable earnings are not intended to be an indication of our cash flows
from operating activities (determined in accordance with GAAP) or a measure of
our liquidity, nor is it entirely indicative of funding our cash needs,
including our ability to make cash distributions. Our calculation of
distributable earnings may be different from the calculations used by other
companies and, therefore, comparability may be limited.

Distributable earnings are as follows ($ in thousands, except share and per
share data):

                                                                 Year Ended December 31,
                                                          2021             2020             2019
Net income attributable to common stockholders        $     317,412    $     163,395    $     121,074
Adjustments:
Net income attributable to noncontrolling interest           38,507           25,208           26,610
Income from mortgage servicing rights                     (130,230)        (165,517)         (90,761)
Deferred tax provision                                       10,892            4,726              150
Amortization and write-offs of MSRs                          91,356           65,979           71,105
Depreciation and amortization                                10,900           11,486           11,194
Loss on extinguishment of debt                                3,374            3,546            7,439
Provision for credit losses, net                           (39,856)           73,402            1,193
Loss on derivative instruments, net                             432           43,596            1,687
Gain on real estate from settlement of loan                 (2,466)                -                -
Stock-based compensation                                      9,929            9,046            9,515
Loss on redemption of preferred stock                         3,479                -                -
Distributable earnings (1)                            $     313,729    $     234,867    $     159,206
Diluted distributable earnings per share (1)          $        2.01    $   

1.75 $ 1.37
Diluted weighted average shares outstanding (1) 156,089,595 133,969,296 116,192,951

Amounts are attributable to common stockholders and OP Unit holders. The OP
(1) Units are redeemable for cash, or at our option for shares of our common

stock on a one-for-one basis.

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