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Arbor Realty Trust (NYSE:ABR)
Q3 2020 Earnings Call
Oct 30, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and welcome to the third-quarter Arbor Realty Trust earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to turn the call over to your speaker today, Paul Elenio, chief financial officer. Please begin sir.

Paul Elenio -- Chief Financial Officer

OK. Thank you and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended September 30, 2020. With me on the call today is Ivan Kaufman, our president and chief executive officer.

Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business, financial conditions, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today.

Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today, or the occurrences of unanticipated events. I'll now turn the call over to Arbor's president and CEO, Ivan Kaufman.

Ivan Kaufman -- President and Chief Executive Officer

Thank you, Paul, and thanks to everyone for joining us on today's call. We hope that you and your family are safe and healthy. We all realize the difficulties and complexities that our country and the entire world continue to deal with from the effects of COVID, so we appreciate your participation during these challenging times. As we've discussed on our last few calls, we are very well-positioned to succeed in the current economic climate.

We've built a viable operating platform both focusing on the right asset class with very stable liability structures and strong liquidity and active balance sheet and a GSE agency business and many diversified income streams that generate strong core earnings and dividends in every market cycle. We have also developed the business model that provides many diversified opportunities for growth, which clearly puts us in a class by ourselves, and it allowed us to be a top-performing commercial mortgage REIT in the space. We had another record quarter with our third-quarter results reflecting the continued commitment and successful execution of our business strategy and a diverse platform we have developed. Our continued momentum and truly remarkable third-quarter results have once again allowed us to increase our dividend to $0.32 a share.

This is our second consecutive quarterly dividend increase reflecting a 7% increase so far this year and represents a payout ratio of around 70%, compared to an industry average of 90% to 95%. As Paul will discuss in more detail, our core earnings for the third quarter were $0.50 per share, which is an incredible accomplishment and a true testament to the value of our franchise and a many diverse income streams we have created. We continue to realize significant benefits from many areas of our diverse platform including substantial growth in our GSE agency platform that continues to produce strong margins and increased servicing fees, continued growth and significant benefits from the size and scale of our balance sheet business, substantial income from our residential business, strong performance of our multifamily focused portfolios with very few delinquencies and extremely low forbearances and reductions in our overhead and general and administrative expenses. And these recurring benefits combined with our projected origination's strong pipeline and credit quality of our portfolio puts us in a unique position to be able to continue to produce significant core earnings going forward and we are properly positioned to excel in this environment.

The strong core earnings outlook has allowed us to once again increase our dividend, which now reflects an 11% yield based on yesterday's closing stock price. Prior to the pandemic, we were trading at a much lower dividend yield of around 8%, which if applied to our current dividend would result in a stock price of $16 a share, and again we believe based on our resiliency and strong performance that we should be trading above those levels and we feel this is a great opportunity for shareholders to realize substantial value appreciation. We continue to experience significant growth in our GSE agency platform. We originated $1.5 billion in GSE agency loans in the third quarter and $3.6 billion for the first nine months of this year, which is up approximately 11% from last year's comparable period.

Pipeline is also at an all-time high and as a result, we expect to produce a very strong originations volume in the fourth quarter and likely grow our agency production by as much as 20% to 30% over last year's numbers, while maintaining very strong gain on sale margins. In this unprecedented environment, our GSE agency platform continues to offer a premium value as it requires limited capital and generate significant long-dated predictable income streams, and produces significant annual cash flow. Additionally, our $22.6 billion GSE agencies servicing portfolio, which we have grown 12.5% already this year is mostly prepayment-protected and generates over $100 million a year and growing in reoccurring cash flow. This is an addition to the strong gain on sale margins that we continue to generate for origination platform, which combined with new and increased servicing revenues will continue to contribute greatly to our core earnings and dividends.

From a liquidity perspective, we are very pleased to report that we have current cash and liquidity position of approximately $500 million, which not only provides us with adequate liquidity to navigate the current market conditions, but also gives us offensive capital to take advantage of accretive lending opportunities. This has allowed us to replace our run-off and continue to grow our balance sheet loan book with high-quality multifamily bridge loans that generate attractive levered returns and create a substantial pipeline of future GSE agency originations volume and long-dated servicing revenues. We are very pleased with the high-quality balance sheet we have created that is also financed with the appropriate liability structures. Our balance sheet loan book has grown to $5.1 billion and is financed with $3.4 billion of debt.

Approximately $2.5 billion dollars or 75% of that debt is non-recourse non-mark-to-market CLOs and approximately $900 million is financed for warehouse to repurchase facilities that is secured by $1.2 billion in assets, with eight different banks that we have long-standing relationships with. Additionally, the majority of the loans being financed in these bank lines are also rated and CLO-eligible, greatly mitigating the risk of financing these loans to short-term facilities. It is also very important to highlight that over 90% of our book, our senior bridge loans, and more importantly, 80% of our portfolio is in multifamily assets, which has been the most resilient asset class in all cycles and continues to significantly outperform all other asset classes in this recession as well. Additionally, we've had tremendous performance of multifamily portfolio with well over 99% collections and no loan modifications with great concessions to date.

And most of the loans in our portfolio contain interest reserves and/or replenishment obligations by our borrowers giving us the ability to effectively manage our portfolio through this dislocation. As a reminder, we have very little exposure to the asset classes that have been affected the most by this recession such as retail and hospitality. Our total exposure to these asset classes is approximately $175 million or approximately 3% of our portfolio. We also believe we have adequately reserved these assets and do not feel at this point that any material further impairment will be necessary, which gives us confidence that our adjusted book value of $9 or $0.74 actually reflects the current impact of the recession.

We also continue to see very positive trends related to our GSE agency business collections, which we believe reflects the strength of our borrowers and the quality of our GSE agency portfolio. We only have a handful of delinquent loans outstanding and extremely low forbearance numbers in our portfolio through October. Loans in forbearance represent less than 0.4% of our $16.5 billion Fannie Mae book and around 6% of our $5 billion Freddie Mac loan book, which is unchanged since July and we've had very few requests for forbearance in the last several months. And as a result of these extremely low forbearance numbers, we have recovered almost all of the 700,000 of servicing advances that we had outstanding last quarter and currently we have less than 20,000 unrecovered servicing advances.

In summary, we are extremely pleased to have built such a versatile operating platform that is multifamily centric with many significant diversified income streams that continue to produce strong core earnings and dividends and all cycles. We are also well-positioned to succeed in the current economic climate and are excited about the many opportunities we see to continue to grow our franchise core earnings and dividends going forward. We believe this puts us in a class by ourselves and our performance and track record speak for themselves. We believe that an investment in our company today at these levels will provide a tremendous long-term return and our primary focus remains on continuing to maximize shareholder value.

I will now turn the call over to Paul to take you through the financial results.

Paul Elenio -- Chief Financial Officer

Thank you, Ivan. As our press release this morning indicated, we had another exceptional quarter producing core earnings of $67 million or $0.50 per share. These results have translated into record-high ROEs of approximately 22% for the third quarter and 19% for the first nine months of the year. As Ivan touched on, we continue to benefit from several positive aspects of our diverse business model including significant growth in our agency platform, LIBOR floors and a large portion of our balance sheet loan book, substantial income from a residential banking joint venture, and reductions in our overhead and general administrative expenses.

And these benefits clearly demonstrate the value of our operating platform and the diversity of our income streams and more importantly, gives us great confidence in our ability to continue to generate strong core earnings and dividends. As we mentioned earlier, we had another phenomenal quarter from our residential banking business as a result of the continued historic low interest rate environment. We recorded $32 million of pre-tax income from this investment in the third quarter which contributed approximately $0.15 a share on a tax-effective basis to our core earnings for the third quarter. The income from this investment further emphasizes the diversity of our income streams and acts as a natural hedge against declining interest rate specifically earnings on our escrow balances.

And we believe this investment will continue to contribute meaningfully to our core earnings going forward and we are expecting the fourth-quarter results to be less than the last two quarters, largely due to seasonal nature of the business. Our adjusted book value of September 30 was approximately $9.74, adding back roughly $70 million of non-cash general seasonal reserves on a tax-effective basis. This is a 3.5% from approximately $9.40 last quarter, largely due to significant core earnings we generated in the third quarter. And as Ivan mentioned earlier, we are not expecting any material additional writedowns at this point, giving us confidence in our adjusted book value.

Looking at our results from our GSE agency business in the third quarter. We generated $17 million of core earnings and approximately $1.5 billion and originations and $1.2 billion in loan sales. The margin on our third quarter GSE agency loan sales were up 1.63%, compared to 1.46% for the second quarter, mainly due to stronger margins and our Fannie Mae business and a higher mix of FHA loans during the quarter, which is a higher-margin business. As Ivan mentioned, we also have a very robust pipeline and we expect to produce very strong origination volumes for the balance of the year.

In the third quarter, we recorded $42 million of mortgage servicing rights income related to $1.5 billion of committed loans representing an average MSR rate of around 2.77%, which was up slightly from 2.69% rate for the second quarter. Our servicing portfolio grew 4.5% this quarter to $22.6 billion at September 30 with a weighted average servicing fee of 44.8 basis points and an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $101 million gross annually, which is up approximately $14 million on an annual basis from the same time last year. Additionally prepayment fees related to certain loans that have yield maintenance provisions was $2 million for the third quarter, compared to $3 million for the second quarter.

And our balance sheet lending operation we grow our portfolio of $5.1 billion in the third quarter on $292 million in new originations. Our $5.1 billion investment portfolio had an all-in yield of 5.93% at September 30, compared to 6.10% at June 30, mainly due to higher rates on runoff as compared to new originations during the quarter and from the impact of non-performing loans. The average balance in our core investments was up to $5 billion this quarter from $4.8 billion last quarter mainly due to the full effect of our second-quarter growth. The average yield on these investments was 5.98% for the third quarter, compared to 6.16% for the second quarter, mainly due to more acceleration of fees from early runoff in the second quarter, higher interest rates on runoff as compared to originations and from the impact of non-performing loans.

The total debt on our core assets was approximately $4.5 billion at September 30, with all-in debt cost of approximately 3.09%, compared to a debt close to around 3.14% at June 30. The average balance on our debt facilities was up slightly to approximately $4.6 billion for the third quarter from $4.5 billion for the second quarter, mostly due to financing the growth in our portfolio and the average cost of funds on our debt facilities decreased to approximately 3.06% for the third quarter compared to 3.26% for the second quarter due to a decrease in the average LIBOR rates during the third quarter. Overall net interest spreads in our core assets increased slightly to 2.92% this quarter, compared to 2.90% last quarter and our overall spot net interest spread was down to 2.84% at September 30, compared to 2.96% at June 30. Lastly, the average leverage ratio on our core lending assets including the trust preferred and perpetual preferred stock as equity was down slightly to 86% in the third quarter from 87% in the second quarter and our overall debt to equity ratios on a spot basis came down as well to 3.021 at September 30, from 3.121 at June 30, excluding general CECL reserve.

That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time. Operator?

Questions & Answers:


Operator

[Operator instructions] We will take our first question from Steven DeLaney with JMP Securities. Please go ahead. Your line is open.

Steven Delaney -- JMP Securities -- Analyst

Thank you. Well, good morning, gentlemen, and once again, congratulations on an excellent quarter. I think I say that every quarter, but you've made it hard not to.

Ivan Kaufman -- President and Chief Executive Officer

Thank you.

Steven Delaney -- JMP Securities -- Analyst

Sure, Ivan. I'd like to start, Paul with the gain on sale margin on the agency book 163 versus 132. I heard your comments and we know Fannie better than Freddie and FHA is better than anything, but I'm looking at the table on the first page of a press release and I don't see a big shift toward Fannie and FHA anything material. So is there anything else, a little more subtle in that 163? I'm looking at our model for the last two years and 140, 150 something like that.

132 might have been lower than normal, but is 163, do you think that's a sustainable level? Just a little more color about that, please, because it's an important number.

Paul Elenio -- Chief Financial Officer

Sure, Steve. It's Paul. So one of the things I said in my commentary is you need to compare the 163 to 146 from last quarter because although we put up 132 last quarter, we had the private-label securitization in there. So if you back out to private-label securitization you're at 146 versus 163.

Still a meaningful move as you mentioned, from 146 of which is around where we've been running to 163 this quarter. You're right, there wasn't really much of a shift in the Fannie, Freddie business, but it has to do with loan sales not loan originations as you know. We book our gain on loan sale so while there wasn't really much of a move in FHA originations, which have been strong, there was a bigger move in FHA loan sales because of the timing of when loan sell versus originate. So we had significantly more FHA loan sales this quarter than last quarter, which carry a higher margin and on the Fanie business we did sell it just had a higher margin and maybe Ivan can comment a little bit on what's going on in the market, but we did have some deals and it matters on the size of the deal, there's a lot of different factors that go into the margin, but the margin has been very robust on the Fannie product.

Steven Delaney -- JMP Securities -- Analyst

That's helpful color.

Ivan Kaufman -- President and Chief Executive Officer

Steve, I'll give a little bit of color on that. I think we had a healthy margin. We probably had no super big loans which generally carry a smaller margin. We might have a little bit of benefit during that initial dislocation period kind of in the summer a little before the summer that we continue to operate very effectively and perhaps, we're in a better position than most and had a healthier pipeline.

We had a little less competition in that period of time just because many other competitors or more like deer in headlights situation and it gave us an ability to take a little step ahead of everybody. But from us, our pipeline is extraordinarily strong. Probably the highest it's ever been and as we've indicated in our comments, we are expecting an even stronger fourth quarter than what we've had. So I think we'll be able to maintain the margins that we customarily have and hopefully, we'll be able to do a little bit better.

Steven Delaney -- JMP Securities -- Analyst

OK. Thank you. Ivan, could you talk a little bit about the refi dynamic for Agency multifamily borrowers? We all know what's going on in residential single family. You see it at Cardinal, we see it in these resi mortgage IPOs that are coming to market and it's just gangbusters.

So obviously, your loans have like lockouts and they have yield maintenance, is there a scenario where you can work with borrowers and get them a lower coupon -- refine a lower coupon, and steel collect some yield maintenance for yourself so you end up with a win-win situation with your existing servicing book?

Ivan Kaufman -- President and Chief Executive Officer

Sure. Well, there are a couple of components. First of all, FHA does have the product and they do have a modification product then you'll see an uptick on that in general and that will occur. On the Fannie Mae loan book, if people do exit a little earlier, we do get an up on some of the yield maintenance and increases our revenue going forward.

So you won't see that as much on the Fannie book as you do on the FHA book and our FHA book is not that big, but on a Fannie Mae book, we saw a little bit last time maybe Paul can comment on that. We haven't seen that start to occur yet but it's still possible that there may be a little bit of an uptick on that side.

Paul Elenio -- Chief Financial Officer

Steve, that's right. Ivan is right. We haven't really seen as being meaningful yet, but some commentary we had $490 million of run-off in the servicing portfolio. We put on $1.5 billion in new originations so that's really nice growth.

Of the $490 million, we did recapture 40% of that run-off through new originations and I think what's meaningful as well is the balance sheet business continues to feed the agency business and that's one of our key strategies. Of the $206 million that ran off in the third quarter on the balance sheet book, we were able to recapture 65% of that through agency product. So it's really feeding that servicing book very, very nicely. One other point I think we should continue to emphasize is that that servicing portfolio continues to grow at a healthy clip.

It's not just about the gain on sale that we're booking, which is significant, but it's about that annuity and our servicing life is over nine years at this point. Mostly prepayment protected and as Ivan said in his commentary and mine as well, it's generating over $100 million gross annually in servicing fees so if we can continue to build that portfolio through our own originations, through refining some of our balance sheet run-off and other run-off that other people have we're going to continue to create a substantial annuity going forward.

Ivan Kaufman -- President and Chief Executive Officer

Just a little color on that as well. We're seeing a longer duration product so there were a lot of five-year loans and floating-rate loans that were done over the last couple of years. Now, we're seeing more of a shift to 10 and 12 years so the duration of our income stream is going to be even longer than it was historically and the mix of 10- and 12-year product will be a greater percentage.

Steven Delaney -- JMP Securities -- Analyst

Interesting. That makes sense given where the yield curve is. Listen, thank you both, and good job.

Ivan Kaufman -- President and Chief Executive Officer

Thanks, Steve.

Operator

We will take our next question from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani -- KBW -- Analyst

Thank you very much. Can you comment on the credit performance and if you're seeing any both pockets of resilience in the portfolio or any sectors of risk? Multifamily has been quite a puzzle this cycle. I think initially in the March-April timeframe a lot of people thought rent collections would decline, there would be move-outs to the single-family and that would cause some credit issues in the multifamily space. So far we haven't really seen that.

We've seen some of the large apartment holders and denser urban areas being impacted, but the overall space is proving very resilient. So I'm just wondering if you could comment on that.

Ivan Kaufman -- President and Chief Executive Officer

Clearly, the rent collections are remarkably amazing. They are only off slightly rather than significantly and the areas that are most vulnerable of course, are the urban areas specifically, New York City, and specifically market-rate apartments in New York City and other areas like San Francisco. Those are the vulnerable areas. However, we haven't seen it go through in terms of people making their payments as far as or making their payments as renters.

I think we're all anxiously waiting to see what happens with the stimulus bill. I think the stimulus bill helped quite a bit initially, it's gone away. Everybody thought when it went away there would be an impact, the impact we haven't seen. However, if there is some softness in the market, I think the baseline of where we are as a firm and we have a lot of room.

Even if things fall off a little bit. We have an extraordinary amount of room before our loans get impacted. So we feel really comfortable, specifically with our portfolio on our balance sheet. We have a lot of structure on our loans, which really allows our loans to perform not just based on the assets, but based on the bars as well.

So we feel relatively comfortable. But I think if you're looking at stress points in the market, I would look at the Class A. I would look at their lease up situations and I would look in the urban areas where these Class A buildings are not being released and there are a lot of concessions. We as a firm don't have a lot of exposure to that and we feel fairly comfortable, but if I was in the market that's what I'd be concerned about.

Jade Rahmani -- KBW -- Analyst

Why do you think that the Freddie balance rates have been much higher? You mentioned 6% versus Fannie at 0.4%.

Ivan Kaufman -- President and Chief Executive Officer

They have different policies and a lot of the forbearance is on the smaller loans. I do want to point out that we are on the lowest of the spectrum for both agencies. I think the forbearance numbers for Freddie is over 10. We're well below that, and specifically being small balance oriented.

I think Freddie's policies were a little bit more liberal and Fannie Mae's policies were more let's see if you need help, let's see if you'd be affected and they gave us as a service for the ability to really make the evaluation as to whether the borrowers were affected and then apply good business judgment whether they needed help or not, whereas Freddie was more waving it in. I think they've altered that philosophy a little bit and I think you're seeing a lot more forbearance on Freddie Mac small balanced business and I think once again on the small balanced business, we are, as you know, one of the leading originators in that space very active in that space. We know how to manage it extremely well. So even there we're seeing probably half of the forbearances that the rest of the industry is seeing.

Jade Rahmani -- KBW -- Analyst

OK. I think that the multi-family space has definitely experienced sort of a refi wave not as pronounced as in the single-family space where those mortgages on prepayment protected. So there is a lot more volatility in single-family but generally, how do you think about the sustainability of the agency volumes right now? Is there any portion of this uptick that you expect to abate in coming quarters?

Ivan Kaufman -- President and Chief Executive Officer

I think it's going to be a very, very consistent originations scenario with these interest rates. You have to keep in mind that the nice part about the originations business we're in, as loans are generally five, seven, and 10-year loans and they run off accordingly. There's always a new wave of loans that are running off, so as loans come out of their prepayment period, there is a whole new wave of loans that are eligible and at these interest rates, you can see a consistent level of production. The key is going to be all the assets performing because generally to refinance loans you need for the agencies 90% economic occupancy.

So the pandemic, if it continues and if there is some softness in some of the areas may impact the ability to refinance some of the loans. But that's specifically more geared toward the urban areas, like New York and San Francisco and other metro areas that are suffering from people not moving in, but we expect there to be a continued flow and we expect business to be very, very active all the way through 2021 and forward.

Jade Rahmani -- KBW -- Analyst

Thank you very much. Do you want to touch on the single-family rental initiative? I know that's been a space you've been actively investing in and it seems that the Arbor platform, particularly on the technology side could be useful in procuring some of that business because I know some lenders have struggled to get scale in that space, and it seems, something that would really skew Arbor's wheelhouse here.

Ivan Kaufman -- President and Chief Executive Officer

We love that space as we've previously indicated. There are a couple of aspects to that space. The one space that we think we're going to be the leading provider of financing in is the build to rent communities. I think we have close to 10 projects under application, which would probably put us as the number one lender in that space and we're developing a huge reputation.

So there is a construction component to it, which we're well equipped for both on a technology and process side and then once those loans become -- those projects become built we end up putting a bridge on it. And then after the bridge, we ended up putting a permanent loan on it hopefully through the agencies if they qualify. We love that business. We're putting a lot of effort, a lot of technology into that space.

The other side of the business is providing financing for people buying scattered sites and that's a very active part of our business and we expect that to grow. So we dedicated a lot of time to it, a lot of energy and a lot of technology and I think we're going to really see the benefit may be in the fourth quarter of this year and certainly going to carry through very strongly into next year.

Jade Rahmani -- KBW -- Analyst

Thanks for taking the questions.

Paul Elenio -- Chief Financial Officer

Thank you, Jade.

Operator

And we will move next with Stephen Laws with Raymond James. Please go ahead. Your line is open.

Stephen Laws -- Raymond James -- Analyst

Hi. Good morning. Ivan, you commented on the strong volumes you expect to continue in Q4. Is this $1.4 billion, $1.5 billion a quarter a good run rate? What kind of visibility do you have moving into 2021? And any seasonality we should think about around the volume?

Ivan Kaufman -- President and Chief Executive Officer

So I think Paul gave a little comment about our volume. Were up around 11% year to date and he expects us to be up approximately 20% and maybe as much as 30% for the year. So that indicates to you that we're going to have even a stronger fourth quarter and our numbers should be much stronger. You could do the math and understand that our volume is going to be very, very strong to get the overall numbers up to that percent.

Our pipeline is at the strongest level it has ever been and we're closing more than we've ever done historically. But the best news for us is that as we're closing so many loans, our pipeline is still staying at the same level. So in the current environment, we're very, very optimistic and we just hope it continues and the numbers are just extraordinarily strong for us right now and the pipeline is strong. And the good news to on a technology basis and a personnel basis, we're able to handle this volume and these increases with about the same staff, maybe even less than we had last year.

Stephen Laws -- Raymond James -- Analyst

Great. And, Paul, thinking about the MSR margin, I know you touched on the gain on sale in Steve's question, but MSR has been -- I don't know if elevated is the right word -- higher the last few quarters, given the longer duration, it looks like you mentioned 10 to 12 years earlier. Is this higher MSR margin something we should see continue, or how do you think about that as we move forward?

Paul Elenio -- Chief Financial Officer

Yes. Steve, it's a great question and it has been elevated the last few quarters. And it's a combination of a few factors, one that you mentioned and Ivan mentioned, we're seeing more 10, 12-year product than we ever had before us. So the longer duration of that servicing fee, obviously adds premium value to it.

Especially being prepayment protected, the lock out, the longer; and the second aspect is the industry as a whole and we've seen the real benefit from this is our servicing fees on our new Fannie Mae loans have been very, very strong. We've been getting 60, 70 basis points on new Fannie Mae loans that we put on as servicing. How long will that continue? It will be dependent on many factors, but clearly, that combination of higher servicing fees and longer duration locked out asset has grown this MSR rate and I do think in the near term, that is a sustainable MSR rate at this point.

Stephen Laws -- Raymond James -- Analyst

Great. Appreciate the color there. Switching over to the balance sheet portfolio. Can we talk about capacity to grow from here or are we really going to continue to see reinvestment of repayments? I don't have the numbers right in front of me, but I think it was slight positive, I think $120 million maybe of growth.

But can you talk about the capacity, the growth on balance sheet portfolio and what you're seeing there with the new investment opportunities?

Ivan Kaufman -- President and Chief Executive Officer

So the market is fairly competitive right now, even more than I thought. We've been able to maintain our level and grow a little bit because, as we indicated on the prior earnings calls, when it was dislocated, we were still originating where most people were out of the business. So we were able to build a little bit of a pipeline and now things are remaining competitive. We have a little bit of advantage, which we have little liability structures in place that we put in place with our CLOs.

So we have competitive funding, which gives us an edge. We will maintain our balance sheet in my view and try and grow a little bit. It all depends on how much run-off that occurs. But our outlook is that we should be able to maintain and grow a little bit through the fourth quarter.

Stephen Laws -- Raymond James -- Analyst

Great. I appreciate you taking my questions this morning.

Paul Elenio -- Chief Financial Officer

Thanks, Steve.

Operator

[Operator instructions]

Ivan Kaufman -- President and Chief Executive Officer

I think I see Charlie in the queue.

Operator

And we will move next with Charlie with J.P. Morgan. Please go ahead. Your line is open.

Unknown speaker -- J.

Hey. Good morning, guys. Thanks for taking the questions. Most have been covered already, but I was wondering if you could give an update and really your outlook for APL on the private securitization market? I mean, with the agency business still growing nicely and as you mentioned the pipeline looking pretty good heading into year end to next year, how do you guys think about the trajectory of that segment over the next year or so?

Ivan Kaufman -- President and Chief Executive Officer

I think it's going to be very slow. I think the spread between where the agencies are and where the APL execution is too wide right now to generate significant volumes. There are some products that fit well into it, but we think it's going to be very slow going. Right now agency originations on a gross coupon are somewhere between $275 and $310 million.

And on the APL side, you're at least 50, maybe 75 basis points wide of that. So we don't see that as something that we're going to be able to do in large scale. And next securitization, if we were going to do, it would probably be on the $300 to $400 million market. It would probably take us based on what we're seeing another three to four months to aggregate that kind of collateral.

So it's a slow goal right now. It depends, based on where things we're at.

Unknown speaker -- J.

Appreciate the color, Ivan. Thanks.

Operator

And it appears that we have no further questions at this time. I would now like to turn the program back to Ivan Kaufman, CEO, for any closing remarks.

Ivan Kaufman -- President and Chief Executive Officer

All right. Well, thanks again for your participation. It's been a record and an outstanding quarter and the great news is more to come. Very optimistic about our pipeline, and our balance sheet, and our performance and looking forward to a great fourth quarter and the conclusion of a fantastic year in some very, very difficult time.

So everybody stay healthy and stay tuned. Have a great day. Bye bye.

Operator

[Operator signoff]

Duration: 39 minutes

Call participants:

Paul Elenio -- Chief Financial Officer

Ivan Kaufman -- President and Chief Executive Officer

Steven Delaney -- JMP Securities -- Analyst

Jade Rahmani -- KBW -- Analyst

Stephen Laws -- Raymond James -- Analyst

Unknown speaker -- J.

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