Franklin BSP Realty Trust Stock

Good day, and welcome to the Franklin BSP Realty Trust Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference call over to Ms. Lindsey Crabbe. Ms. Crabbe, the floor is yours, ma'am.

Good morning, everyone. Welcome to FBRT's Second Quarter Earnings Call. Thank you for joining us. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Michael Comparato, Chief Executive Officer of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Brian Buffone, President of FBRT.

Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports, and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, July 30, 2026. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to the supplementary slide deck on today's call.

With that, I'll turn the call over to Mike Comparato.

Thank you, Lindsey, and good morning, everyone, and thank you for joining us today. I will begin with a few thoughts on the current market environment and our second quarter performance. Then I'll hand it over to Jerry, who will review our financial results, and Brian will provide an update on the portfolio and overall credit trends.

The commercial real estate market remained unsettled during the second quarter. Ongoing geopolitical concerns and conflict continue to put uncertainty in the minds of investors. Higher oil prices have led to inflation concerns, which have in turn led to higher interest rates. At the moment, the higher-for-longer interest rate environment appears to be fairly sticky. The buy-sell transactional volume in the multifamily sector slowed as the bid-ask spread between buyers and sellers is very wide in the current rate environment.

We have remained selective in deploying capital, focusing on our opportunities where our structuring expertise, long-standing relationships and ability to navigate more complex transactions allows us to generate attractive risk-adjusted returns. At the same time, we've maintained discipline in our underwriting, made further progress resolving legacy assets, repurchased shares at a meaningful discount to book value and maintained a strong liquidity position. We've continued to position the portfolio into newer vintage investments with more than 3/4 of our loan book now originated following the interest rate hiking cycle.

Against that backdrop, we were pleased with our second quarter results. We generated distributable earnings that covered our dividend for the second quarter in a row, and we've increased our book value per share. Our stock continues to trade at what we believe is a meaningful discount to the underlying value of the company. As Brian will discuss later, we have just 1% office exposure and approximately 77% of our portfolio has been originated since interest rates began moving higher. We have zero exposure to data centers, life sciences or lab space. We are still under earning on our watch list and REO positions, but we are committed to resolving those as timely and efficiently as possible.

With the repositioning of our dividend, we think we have the proper earnings level to work through the balance of legacy loans and workout assets. We continue to believe repurchasing our stock at these levels is one of the most attractive uses of capital available to us. Overall, we believe the company remains well positioned with a high-quality multifamily-focused portfolio, significant liquidity and a balance sheet that provides flexibility as opportunities emerge. We remain confident in the quality of the portfolio, the progress we've made through legacy assets and our ability to continue creating long-term value for shareholders.

And with that, I'll turn the call over to Jerry.

Great. Thanks, Mike, and thanks, everyone, for joining. I'm going to walk through the financial results for the quarter. FBRT reported GAAP net income of $16.3 million, or $0.13 per fully converted common share. Distributable earnings totaled $28.3 million, or $0.25 per fully converted share. Excluding approximately $1.9 million of realized losses, distributable earnings before realized losses were $30.2 million, or $0.28 per fully converted share. Results this quarter benefited from improved core net interest income and outsized contribution from our conduit business and significantly lower realized losses compared to the first quarter.

This quarter also demonstrated the benefit of our diversified platform. While NewPoint experienced lower origination volumes as rates remain higher for longer, our diversified earnings streams helped support overall results. That said, we continue to have approximately $250 million of equity invested in underperforming assets, and resolving those positions remains a key priority as we move forward. During the quarter, we recorded a $5.2 million CECL provision on our core portfolio. This was mainly due to an increase in the general reserve driven by the change in economic environment as well as a modest addition to specific reserves on a small number of watch list assets.

Book value per fully converted share increased to $14.24 from $14.18 last quarter. Continued share repurchase activity remained an important driver of book value accretion during the quarter. We repurchased over $16 million of common stock during the quarter at an average price of $8.70 per share, continuing what we believe is an attractive use of capital while our shares trade at a substantial discount to book value. Our balance sheet remains in a strong position. Net leverage finished the quarter at 2.6x with recourse leverage of just 0.7x, while approximately 79% of our core financing remains non-mark-to-market. We ended the quarter with nearly $800 million of available liquidity, including cash, CLO reinvestment capacity and available financing.

A few notes on NewPoint. NewPoint generated distributable earnings of $7.4 million during the quarter. Agency originations totaled approximately $399 million, reflecting the slower transaction environment we saw broadly across commercial real estate markets. The servicing platform remains a significant strategic asset for the company. The servicing portfolio increased to nearly $60 billion, providing a recurring earnings stream that continues to complement our lending platform. While quarterly production can fluctuate with market activity, we continue to believe NewPoint represents an important long-term value driver for FBRT. Servicing fees and float income were up $1.2 million in the quarter and provided a stable cash contribution.

With that, I'll turn it over to Brian to give you an update on our portfolio.

Thanks, Jerry, and good morning, everyone. I'll start on Slide 14. Our core loan portfolio finished the quarter at approximately $4.3 billion. As Mike mentioned, transaction activity remained relatively subdued across the industry during the quarter, with borrowers continuing to delay refinancings and acquisitions in the current interest rate environment. As a result, our new originations were limited and were outpaced by repayments during the quarter. We originated approximately $167 million of new loan commitments while receiving roughly $458 million of repayments, resulting in a net decline in the portfolio. Against that backdrop, we remain disciplined in our underwriting standards and continued focusing on opportunities where we believe we can achieve attractive risk-adjusted returns rather than simply prioritizing volume. We also closed on the purchase of our first B-Piece CMBS investment in a number of years as a supplement to our normal balance sheet investments.

Our portfolio remains highly concentrated in multifamily at approximately 80% of outstanding balances, with office exposure remaining at just 1% of the portfolio. Approximately 77% of our investments have now been originated following the interest rate hiking cycle as we continue to transition toward newer vintages. During the quarter, we closed 9 new loans totaling $167 million of commitments. The market for high-quality multifamily loans remains competitive, although we continue to see selective opportunities where our relationships, structuring expertise and ability to execute help differentiate us. While spreads remain tighter than they have been over the past 2 years, we continue to maintain our underwriting discipline with an emphasis on lower leverage loans and experienced sponsors. That being said, total levered returns on assets, particularly with CLO execution, are still quite attractive.

Turning to our credit performance. The overall portfolio performance remained stable during the quarter. Our average risk rating improved to 2.4 from 2.5 last quarter. We ended the quarter with 12 watch list loans compared to 11 last quarter, reflecting 2 additions and 1 successful resolution. 1 asset was removed from watch list during the quarter, while 2 smaller multifamily loans were added as we continue to proactively identify and address emerging issues. The legacy portion of our portfolio is now down to approximately 23% of our total loan book and is predominantly secured by multifamily assets. We are actively working to address and wind down these older exposures as we move the book fully into newer vintage.

Slide 17 covers our foreclosure REO portfolio. We finished the quarter with 6 foreclosure REO assets, unchanged from last quarter, as we sold 1 asset and added another. The addition, Point at Caldwell, was appraised by a third-party vendor above our basis, and that resulted in a write-up in carrying value of approximately $9.7 million. More broadly, our objective remains to monetize these assets efficiently and redeploy capital into accretive opportunities.

With that, I'll turn it back to the operator for a Q&A session.

[Operator Instructions] the first question we have will come from Chris Muller of Citizens Capital Markets.

So I want to touch on NewPoint. You guys have previously given guidance for 2026 with origination volumes in a range of $4.5 billion to $5.5 billion. But I guess halfway through the year, you've done just over $1 billion. So I assume those numbers will be hard to hit in the back half of the year. But breaking that down to a quarterly average would be about $1 billion a quarter for NewPoint. So do you guys think those type of volumes are achievable in the back half of the year?

Chris, it's Mike. Unfortunately, I don't. I don't think anybody had a 4.70% 10-year on their bingo card to start the year. As I mentioned to start the call, just oil going up and past the $100 got everybody spooked on inflation. Inflation has continued to run hotter than anybody would like. I think it's now 5 straight years above the Fed target. And so I think everybody is just dealing with a higher rate environment. And in that environment, most borrowers, they always think that rates are going to go lower or the future is going to always be better. And so we're seeing the vast majority of them opt to go to the floating rate market in the current environment. So I do think in a lower rate environment and something that's more what we saw a few years ago that those volume numbers are certainly achievable. But in the current environment, it is a very much an uphill battle on the agency side of things.

And then say we do get oil prices come down and we get some relief on rates, how fast can that business ramp back up? Like what's the lag from rates moving down to you guys starting to see stuff flow through the pipeline?

Look, I think the pipeline is very strong. I think the last number that we discussed, within the last few days, was we've got $1.7 billion quoted or in underwriting. A lot of borrowers are just waiting. So there could be a switch that flips, right? If you saw -- I'm just arbitrarily picking a number -- a meaningful drop in rates, like rates come down 50 basis points, and we're in the low 4s, I think you could see $1 billion quarter with people that sprint to try to lock in some fixed rate debt. So it's not for a lack of effort. It's not for a lack of opportunity. It's really just a bunch of borrowers basically being bond traders and waiting to see when they want to lock in long-term rates.

And if I could just squeeze a quick housekeeping one in. Looking at your interest rate sensitivity slide, it looks like rates moving higher is a headwind to EPS going forward, which we typically don't see for the mortgage REIT. So can you just talk me through that dynamic?

Jerry, do you want to take that?

Yes, I can come back to you on some specifics there, but I think it's just the overall balance of the portfolio today. So let me come back to you on exactly how that works.

The next question we have will come from John Nickodemus of BTIG.

We were encouraged to see earnings come up from the $0.22 to $0.23 range we've seen in the prior few quarters. Jerry, I know you mentioned there was an impact there from conduit. But based on some of the improvements that your team has made over the last few quarters, is this a level we can expect to see through the back half of the year, maybe a little bit closer to the '$0.22, $0.23' range? Just curious how we should be thinking about earnings looking forward at this time after that bump up.

Yes, happy to comment on that. I did highlight the conduit intentionally. It was a big quarter in terms of what it contributed. And that is probably the hardest thing to predict or at least one of them in our business. So I think this quarter was benefited by, I would say, a couple of onetime things that probably made it a little higher than I would expect. I do think what you mentioned is a reasonable target range with the portfolio we have today. We always have some onetime items, so it's always tricky to predict exactly what they'll be. But we set the level on the dividend intentionally, knowing that we do have some stuff to work through. There'll be some in and some out on these portfolios. And even if the core stuff is really steady, it will ebb and flow a little bit, but we feel comfortable staying above that. I do think if you look at the path we're on, ex some of that onetime stuff, you're trending in the right direction, which is really ultimately what we're trying to do. So sorry, there's not perfect specificity on that, but there is some stuff that's harder to give you exact nominal answers on.

Yes. And John, I would zoom out a little bit on that. And we've held for 2 years that the ultimate earning power or earnings power of the company is closer to where the dividend was prior to the cut. We just said we've got to get through our issues, get these underperforming assets back to performing loans. And there is a fairly clear path to, I think, meaningfully higher earnings. And that is without the benefit of the buyback, right? So now throw in our ability to buy back shares, which I don't think anybody on our side of the call would have thought we would be trading this large of a discount to book, but we're going to take advantage of that. We're going to continue to buy back shares, and that will also drive earnings on a per share basis as well.

That is perfect and great to hear that that's the overall direction things are going in. And then a little more specific one for me here. I just wanted to ask about one of the downgrades. Saw the Houston loan come into the watch list. I know it's a smaller loan, but also did see it was originated in 2025. I wasn't sure if this was a sponsor issue, asset specific, but just a little more color there given the recent vintage of the loan would be great.

Brian, is that [ La Sirena ]?

Sorry, I was on mute. That's [ La Sirena ].

Okay. So John, [ La Sirena ] is an asset that we foreclosed I want to say 18 months ago, apologies if I'm off by a few quarters there. We actually sold it to another sponsor fairly quickly after we foreclosed on it. We actually made a few million dollar profit selling it. And then they failed in their business plan, and it's come back around full circle to REO. And I believe, Brian, correct me if I'm wrong, we have that under letter of intent, again, already to be sold to someone else, correct?

Correct. We're negotiating on a purchase and sale agreement as we speak.

Yes. So I would say it's accurate, of course, that it was a 2025 origination, but it's really a legacy asset origination that unfortunately has come in and out of the system twice now.

Next, we have Jason Weaver of JonesTrading.

This is Valentin Alvar filling in for Jason Weaver. I know you touched on it a little bit, but the new loans were coming in around 238 basis points over, which is inside your cost of debt. And at the same time, you guys slowed the buyback. And I know you mentioned that the stock is now trading around 0.59x book and liquidity up. So how are you ranking those 2 uses of capital? And is there like a spread level where you'd stop originating and lean into the authorization?

So I don't think -- clearly, our cost of liabilities is not higher than where we're originating loans. It may be on a backward-looking basis for where our legacy liabilities are. But for new origination, we're still originating at a very positive spread. So I would say, generically, warehouse financing today for multifamily is priced in the SOFR 125 to 135 bps range. And then if you go to CRE CLO route on the liability side, that's probably a total cost of funds that's like 150, 160 bps, but you're getting meaningfully higher advance rates. So while the origination figure of SOFR 238 bps appears tight, it is -- as asset spreads are compressing and declining, so are liabilities. So I just wouldn't mismatch legacy liabilities to current originations. And then I missed the second half of the question. Could you just ask that again?

Our inflection point on buyback versus originate?

Yes, go ahead.

Yes. Let me give a little color on that. I think, obviously, it's very accretive to buy back at these levels. There's no question about that. There's multiple ways to calculate an IRR return. But either way, I think it's extremely compelling. You also have to balance that with the structure of the balance sheet we have in that you've got reinvest that opens up on the CLOs. You want to make sure you keep those things full at the same time to keep the effectiveness of that financing structure that you set up. So I think you balance available liquidity depending on where it arrives versus keeping the effectiveness of the core portfolio at a high returning ROE at the same time. So it's a capital balance between those 2 points, I think, in a lot of ways.

Well, at this time, we are showing no further questions. This will conclude our question-and-answer session. I would now like to turn the conference call back over to Ms. Lindsey Crabbe for any closing remarks. Ma'am?

I appreciate you joining us today. Please reach out if you have any further questions. Thanks, and have a great day.

All right. Thank you, ma'am, and thank you to the rest of the management team for your time also. The conference call has now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you. Take care, and have a great day.

Good day, and welcome to the Franklin BSP Realty Trust First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Lindsey Crabbe, Executive Director, Investor Relations. Please go ahead.

Good morning, and welcome to FBRT's first quarter earnings conference call. Thank you for joining us today. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Michael Comparato, Chief Executive Officer of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Brian Buffone, President of FBRT.

Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, April 30, 2026. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website. We will refer to the supplementary slide deck on today's call.

With that, I'll turn the call over to Mike Comparato.

Thank you, Lindsey, and good morning, everyone. Thank you for joining today. I will begin with key developments from the first quarter and an overview of the market, then Jerry will walk through our financial results, and Brian will provide updates on our portfolio.

The quarter played out against an increasingly complex macro backdrop. Geopolitical uncertainty and ongoing conflict have added volatility across markets. But in many ways, commercial real estate has already gone through its correction over the past few years. Values have reset meaningfully across all asset classes, and we believe we are much closer to the end of the cycle than the beginning. What remains is the final phase, working through the legacy positions as lenders move beyond extend and pretend.

Against that backdrop, liquidity in our markets remains strong and competition is high with spreads near cyclical tights. We've stayed disciplined in that environment while continuing to find opportunities in origination. Our origination activity outpaced repayments this quarter, resulting in portfolio growth. That speaks to the strength of our platform and our ability to operate outside of the most crowded parts of the market. In addition, last year, we selectively began deploying capital into equity investments where we saw the potential for strong risk-adjusted returns.

We've already seen meaningful appreciation in those assets with the estimated fair value significantly increasing since our initial investment. This is another good example of how we're using the breadth of our platform to allocate capital opportunistically and enhance overall returns. We expect the equity allocation of the portfolio to increase throughout 2026, but we will also strategically exit equity investments if the pricing is compelling.

On the credit side, we continue to make progress resolving legacy assets, including reducing our REO count this quarter. We believe the majority of the legacy issues have been identified and are prioritizing resolution and redeployment of capital over holding underperforming assets. Within NewPoint, first quarter activity was seasonally higher, which is typical -- excuse me, seasonally lighter, which is typical. If rates stabilize, we would expect origination volumes to build throughout the remainder of the year. As we've said before, even modest movements in rates today have an outsized impact on transaction activity.

All in all, I would put this in the excellent category for a quarter. Our adjusted distributable earnings covered our dividend. We increased book value. We bought back a meaningful amount of stock at a substantial discount to book value. The Board approved more stock buybacks post quarter end. We sold our largest REO position early in the second quarter, grew the overall portfolio size, issued a highly accretive CRE CLO that closed in the second quarter. We integrated the entire BSP servicing book into NewPoint and we had meaningful appreciation on 2 equity investments. The team really did an outstanding job this quarter.

And with that, I'll hand it off to Gerry.

Great. Thanks, Mike. I appreciate everyone joining the call today. I'll walk through the financial results for the quarter. FBRT reported GAAP net income of $12.3 million or $0.08 per fully converted common share. Distributable earnings for the quarter were $13.5 million or $0.09 per fully converted share. Distributable earnings includes $12.3 million of realized losses tied to foreclosure real estate that we sold. Excluding these losses, distributable earnings were $0.22 per fully converted share.

Results this quarter were supported by relatively stable net interest margins compared to Q4, along with a more normalized contribution from NewPoint, which I'll touch on briefly. During the quarter, we recorded a CECL provision of $13.5 million, which included a $1.3 million benefit from our general reserve and a $14.8 million specific reserve primarily tied to one watch list loan. Book value per share increased to $14.18, driven by our share repurchase activity. We've been consistent in allocating capital where we see the best risk-adjusted return, and we view our stock as one of those opportunities.

We repurchased nearly $40 million of common stock during the quarter. Subsequent to quarter end, the Board reauthorized the share repurchase program with $50 million available through December 31, 2026. Net leverage ended the quarter at 2.84x with recourse leverage standing at 1.16x. Excluding the leverage on NewPoint assets, our net leverage for the vehicle was 2.62x and with our current leverage target in the range of 2.75 to 3x with NewPoint excluded.

Subsequent to quarter end, we issued an $880.4 million managed CRE CLO. In connection with that transaction, we called the 2022 vintage CLO that had exited its reinvestment period. We continue to maintain strong liquidity and financial flexibility with reinvestment capacity now available across 3 CLOs. Looking ahead, we expect earnings to benefit from the larger core portfolio and a more stable contribution from NewPoint over the course of 2026.

Slide 11 highlights NewPoint's contribution for the quarter. Distributable earnings from NewPoint totaled $5.6 million, which is more consistent with what we view as a normalized steady-state level of income from the platform. Agency origination volume was $646 million in Q1, reflecting typical seasonal softness compared to the back half of 2025. At quarter end, the MSR portfolio was valued at approximately $217 million and generated $6.7 million of income in Q1, representing an average MSR rate of roughly 100 basis points.

NewPoint's servicing portfolio totaled $58.1 billion at quarter end. The quarter-over-quarter increase was largely driven by integration efforts, including the successful transition of all BSP real estate loans onto the NewPoint servicing platform, which occurred over the course of the quarter. The full earnings benefit from this transition will be realized in the coming quarters. This marks a significant milestone in our integration process and positions us to be a more differentiated servicing provider going forward. We continue to see NewPoint as a meaningful driver of long-term value with increasing contribution expected as volumes build, MSR and the servicing book grow and the benefits of integration come through.

With that, I'll turn it over to Brian to give you an update on our portfolio.

Thanks, Jerry, and good morning, everyone. I'll start on Slide 14. Our core portfolio finished Q1 at roughly $4.6 billion. As Mike mentioned, we grew that core loan portfolio during the quarter with net growth of $173 million. This was driven by $468 million of new loan commitments in addition to future funding commitments from previously closed loans. was partially offset by $323 million of repayments.

We expect continued modest portfolio growth throughout the rest of this year. Approximately 79% of our loans are backed by multifamily assets and our office exposure is extremely limited sitting at just 1% of our core portfolio. That office loan exposure is now only $55 million across 3 loans, 2 of which are performing and the third is nonperforming and on our watch list. During the quarter, we originated 26 loans at a weighted average spread of 278 basis points with multifamily accounting for 92% of that production. We remained active in a highly competitive market but stayed disciplined in how we deployed capital.

Our focus continues to be on high-quality multifamily loans with lower loan-to-value profiles where we believe we are best positioned from a risk-adjusted return perspective. Our pre-rate hike portfolio continues to be reduced and now represents approximately 29% of our total loan commitments with $175 million of payoffs during the first quarter tied to that vintage. This continued runoff reflects steady progress in rotating the portfolio into newer post-rate hike originations.

Turning to Slide 16. The overall portfolio remains stable with an average risk rating of 2.5 and 11 loans on watch list at quarter end. During the quarter, we resolved one watch list loan completing that loan sale within the quarter, and we added 2 multifamily loans during the quarter.

Slide 17 covers our foreclosure REO portfolio. We reduced our REO count to 6 assets at quarter end, down from 7 last quarter, reflecting continued execution on asset resolutions. But the most meaningful milestone in resolving our REO positions came very shortly after quarter end with the sale of the Raleigh multifamily asset, which was by far our largest REO position. Our financing of that sale will return equity associated with that investment from a negative to a positive contribution next quarter. Write-downs associated with that sale were recognized this quarter and contributed to realized losses as we continue to take a proactive approach to resolving these positions.

With that, I would like to turn it back over to the operator to begin the Q&A session.

[Operator Instructions] The first question comes from Matthew Erdner from JonesTrading.

I'd like to kind of touch on NewPoint to start. a lot better quarter this quarter than the prior. Could you talk a little bit about the timing of when those loans were kind of transferred on to the servicing book and if it had the full effect for this quarter? And then if you expect any kind of normalization of that going forward?

Yes. This is Jerry. I'll take that. It occurred during first quarter. So you're not getting the entirety of the benefit, effectively done kind of mid-first quarter. But keep in mind, you've got to have the personnel to run that ahead of that. So from a contribution in the first quarter perspective, you're certainly not capturing the entirety of what we expect that to contribute on a go-forward basis. And when we gave our estimations last quarter on kind of the expected growing contribution for 2026, the back or latter half of the year beyond this will show the full benefit of having the yield in its entirety throughout the rest of the quarters of the year. So it's going to be more positive than it was in Q1.

Got it. That's helpful. And then turning to the watch list real quick. Is there, I guess, anything specific that you guys are seeing kind of across the Southeast, Southwest from a borrower profile perspective that's leading to kind of, I guess, the Texas and Arizonas finding their way onto the watch list?

Matt, it's Mike. I don't think much has changed, honestly, probably in the past 2 years in that regard. Rates are kind of in the same spot that they've been. Everybody has been hoping for greener pastures that just haven't really materialized. We've also been talking for the past 2 years just about borrower behavior and how difficult it's been to predict what borrowers are going to keep things current and pay loans down versus those that are walking away.

So I would say largely not much has changed. We just learn more things every quarter. We got almost $200 million of paydowns from those kind of legacy 2021, 2022 vintage originations. So I continue to say that not everything originated in those years necessarily is bad and is losses, right? We've had billions of dollars of paydowns at par on that stuff. It's just the natural kind of adverse selection of working through the rest of that portfolio. And I think the team is doing a great job, but I don't think there's any new information that we have today that we haven't had for the last few quarters or years. It's just kind of working through the system.

The next question comes from Timothy D'Agostino from B. Riley Securities.

It'd be great to just hear a little bit more on your capital management and balance sheet management going forward. Obviously, you repurchased about $40 million of common stock and the Board increased the repurchase program back to $50 million. So I guess, going forward, is buying back stock continue to be kind of a focal point? How do you feel about -- obviously, the dividend was cut last quarter. How do you feel about that going forward? I'm just trying to get an overall sense. Obviously, book value increased quarter-over-quarter, which is a positive.

Tim, it's Mike. Thanks for the question. Let me start with the dividend, so I'll answer backwards and then go to the share repurchases. So I think we were -- we're pretty straightforward in saying we thought the earnings potential of the company was in that -- where the dividend previously was, right? We thought through the passage of time, the recycling of the REO portfolio and nonperforming loans into performing investments that we could get back up into that general area.

The cut obviously was a decision that we made just to stop burning book value while we went through that transition. So I don't think anything has changed from a macro perspective. I think we still believe the earnings power of the firm is substantially higher than what we performed this quarter. It's really just about the team continuing the execution of getting through those legacy assets, liquidating the REO and getting that capital reinvested. So I would hope that earnings continue to move in the upward right trajectory. And I think that's been consistent with what we've said all along.

With respect to share repurchases, we walk in the office every day looking for what we think are the best investments for our capital on any given day. Our shares are clearly one of those options. So I can't tell you, obviously, the magnitude at which we would buyback on any given day, week or month, but it's something that the Board is supportive of. And Jerry, Brian and I and the rest of the management team discussed it regularly.

The next question comes from John Nickodemus from BTIG.

Regarding the 2 loans moved on to the watch list, just if you wouldn't mind expanding on sort of what drove both of those downgrades. I know one went from a prior 3 rating to a 5 and the other from a 2 to a 4. So I'd just love to hear a little more detail on specifically what went into those changes this quarter.

John, it's Mike again. I would say, again, this is based on mostly borrower behavior. One of them went from a 2 to a 4 because a borrower defaulted. Shortly after the default, I think they realized that, that was not the greatest outcome for them. They actually came whole on all of the payments due, including about $300,000 of default interest and late fees. So that loan is current as we sit here today. But given that it did have a default, we thought it appropriate to risk rate it at a 4.

With respect to the loan that was risk rated at I would say this is exhibit A of trying to figure out borrower behavior and what happens next. These are, I would say, average to above average assets in average to above average locations. This is a major, major sponsor who has been contributing, I would say, an exceptional amount of equity to the property and keeping the loan current for several years. And unfortunately, they just decided that the well had run dry. We thought that they were going to right size the loan and continue to keep things current, and they woke up and said no loss.

And so we got a valuation in conjunction with that default that currently indicates that it would be a loss. Obviously, we'll see when we actually exit the positions, what that turns out to be, but that's kind of the back story behind that one.

That's super helpful for both of those. And then just the other one for me. Congratulations again on the sale of your largest REO position. I was just curious how you're thinking through the remaining 5 assets and any sort of timing or just what the cadence could look like for those potentially being sold throughout the rest of 2026?

Yes. Brian, do you want to take that one?

Sure. on the majority of them, we are actively marketing for sale. We hope to have resolution in Q2, Q3 on 2 or 3 of them. But right now, we are actively looking to resolve those. And as Jerry and Mike both pointed out, redeploy that capital back into what is our core portfolio on multifamily assets on the lending side, but very actively in the market on those and hope to have resolution within the next couple of quarters there.

And I would add to that, John, the 2 that are closest to being sold, indications are that they will be collectively at or maybe even above where we have them currently marked.

The next question comes from Chris Muller from JMP Securities.

So following up on a prior question. On the increase in specific CECL reserves, so there wasn't much of a change in risk ratings in the quarter, 1 new 4-rated loan and 1 new 5-rated loan. Was that increase in specific reserves due to those downward migrations? Or is it more related to the other watch list loans?

It's really just position. Yes, go ahead, Jerry, sorry.

Yes, we're saying the same thing. It's the one position that went to a 5. That's the majority of the increase in the quarter. It's just a specific provision on that asset.

Got it. Makes a lot of sense. And then I guess shifting gears to the NewPoint business. You guys originated $1.1 billion in 4Q and then down to $646 million in 1Q. And Jerry touched on this a little bit. But how much of that dip was due to seasonality? And how much was due to the conflict in the Middle East causing some interest rate volatility? I'm just trying to see where the seasonally adjusted baseline for this business should be.

Yes, Chris, a harder question to answer, obviously. I think Q1 is seasonally lower historically in the agency business overall. But we are just in this really complicated rate environment, right? We saw the 10-year briefly hit kind of 3.75%, 3.80%. And I would say borrowers became euphoric again and the amount of inquiries shot through the roof. And then we completely reversed ourselves. And I think the high I saw was 4.48% in just the past few weeks. And so every borrower has kind of said, well, I'm going to wait again.

So we're just in this unfortunate period of -- I've said this a few times, 25 basis points with 4.25% kind of being the start rate. At 4.50%, I think everything comes to a screeching halt. And at 4%, I think you're going to see a deluge of transactional volume. And so unfortunately, right now, we're at the higher end of that range to really see origination ramp, you need to see rates come down a little bit and have borrowers stop bridging and taking floating rate debt hoping for that lower rate environment. But I can't say it's 60-40, 70-30. There's just no way that I could really answer that or measure that for you.

Got it. That's fair. And if I could just squeeze one last one in. Is that dynamic of interest rate volatility also impacting your guys' conduit business? And that business has been a nice contributor to earnings. It looked like it was about $0.06 this quarter. If we do see rates start to settle in a little bit, could there be some upside to the conduit business as well?

I think there could be. I also think there's potentially upside to the conduit business in that we are buying our first CMBSB piece that we bought in probably 5 years. And I think we're going to be able to give borrowers much more certainty of execution within that space, which is a very sought-out commodity. But we talk about this regularly. You didn't directly ask this, but I'm going in a slightly different direction.

When you put all of the pieces on the board now and how we've acquired NewPoint, we have a conduit business, we've got a servicing business, and we've got a floating rate debt business and a growing equity business. FBRT in its totality has kind of become a perfect hedge for itself, right? If rates go down, it benefits this side of the group. It probably is to the detriment of others. As rates go up, we do more floating rate business, maybe the conduit underperforms and the agency underperforms. But what we really have built is something that should be just a natural hedge based on rates overall. And I think that the market will figure that out in the coming quarters and years as the different pockets of the company perform in certain market environments.

[Operator Instructions] The next question comes from Gabe Poggi from Raymond James.

A lot of what I wanted to ask has been asked. I want to ask kind of a 20,000-foot question here. FBRT has, over the last years, rent against newer vintage. Obviously, you got 70-plus percent of the book in newer vintage multi. Two questions on that. Can you, Mike, talk about just general market color between what you're seeing in the transaction market between newer vintage product and older and then kind of A/B/C product?

And then the piggyback to that is, as you mentioned, potential more equity investments, is there at even Benefit Street in totality, more want or interest in potentially owning some of the multifamily that you guys have been in and around the hoop on for longer from an equity perspective because of longer-term tailwinds?

Gabe, thanks for the question. I appreciate it. I'll channel my inner Charles Dickens and say it's kind of a tale of 2 -- the best of times and the worst of times when it comes to Class A new vintage to the older stuff. It seems like everybody, whether that is equity or credit, wants to be in the nicer, newer vintage, higher-quality assets. It's easy for an equity investor to walk into their investment committee or look themselves in the mirror and say, okay, I'm buying a brand-new asset below replacement cost, construction starts have declined, supply is declining. If I own this thing for 5, 7 years, 10 years, as long as I just operate it correctly, don't over lever it, I'm probably going to have a pretty good investment experience.

For credit guys, it's the same exact conversation. It's slightly different, but it has the same foundations, which is this is the best -- new best asset in the market. If the buyer is below replacement cost, we're substantially below replacement cost. And I just think that, that's a very, very easy thesis for people to understand and sink their teeth into. For example, I mean, Austin is the most -- probably 1 of the 3 most oversupplied markets in the country.

We closed 2 loans last quarter in Austin on brand-new delivered stuff, I think 2024, maybe even the 2025 vintage assets, where we were lending at $135,000 to $140,000 a unit. And we just kind of all looked at ourselves and said, if that's not money good, wow, like we're in trouble. So I think that everybody is kind of piling into that space. And I think the exact same is true of people avoiding kind of the 1970s and 1980s vintage stuff. It feels like that has to correct a little bit more on cap rates.

There are a small handful of equity investors that are actively trying to play in that 1980s vintage stuff. And I don't think you're going to get more equity investors there until you see returns adequately reflect the additional risk of buying kind of that older vintage asset. So I would say we've generally avoided it as well from a lender standpoint. But with the void there, we are slowly talking about does it make sense to go back into some of that 1980 vintage stuff if we're getting paid appropriately, if our attachment point is priced appropriately. So definitely a tale of 2 different worlds, and it will be interesting to see how that kind of plays out over the course of the next 12 to 18 months. But I do still think that older vintage stuff has to correct a little bit more.

With respect -- I'm sorry for the long-winded answer, but with respect to equity investment, yes, with respect to the equity investments, we always look at them and just say, is this the type of stuff that we want to own long term? As you and I have talked about, as I've talked about with the market, we are generally bullish on commercial real estate. I think what's always left out of that question of debt versus equity is duration. And commercial real estate is an outstanding inflation hedge. If you own it long enough and just let inflation compound and let inflation do a thing, you're probably going to have a good investment experience.

So every time we've got a loan that is downgraded to a 4 or downgraded to a 5, we sit in the room and we have a conversation, hey, is this the type of asset that we want to own for the next 5, 7, 10 years? Or is it time to move on, take our licks and just reinvest the capital. So -- and that question -- that answer is different, obviously, for every asset and location that we look at. But it is certainly something that we take into consideration. I think there's probably some assets that we wish we kept a little bit longer, but it is something that certainly goes into the narrative and something that we talk about actively.

This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for closing remarks.

We appreciate you joining us today. Please reach out if you have any further questions. Thanks, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Franklin BSP Realty Trust Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Director of IR. Please go ahead.

Good morning, and welcome to FBRT's Fourth Quarter Earnings call. Thank you, Megan, for hosting our call today. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Richard Byrne, Chairman of FBRT; Michael Comparato, Chief Executive Officer of FBRT; Jerome Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Brian Buffone, President of FBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially.

The information conveyed on this call is current only as of the date of this call, February 12, 2026. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to the supplementary slide deck on today's call.

With that, I will turn the call over to Rich Byrne.

Great. Thanks, Lindsey, and good morning, everyone, and thank you for joining us today. Before we begin, I'd first like to share some important management updates with you. We announced all of these the other day. First, I'm pleased to announce that Mike Comparato, who many of you already know very well, has been appointed Chief Executive Officer. This is effective immediately. Mike currently leads our commercial real estate practice at Benefit Street Partners and has been instrumental in building and scaling that platform to what it is today.

He brings deep commercial real estate expertise, a strong command of capital markets and, of course, a proven track record. Concurrently with that, with Mike's promotion, Brian Buffone will assume the role of President. Brian is a seasoned real estate veteran and a long-standing member of our investment team. His experience, institutional knowledge and investment acumen will continue to be invaluable as we execute our strategy and serve our investors. Together, these appointments represent a natural progression of FBRT's leadership, and I am excited to say, leave the company well positioned to execute its strategy in a dynamic market. I will remain actively engaged as Chairman, focused on strategic oversight and supporting Mike and Brian through this transition.

So with that, let me turn the rest of the call over to Mike.

Thanks, Rich. Good morning, everybody. And before my prepared remarks, I want to thank Rich for his years of service as FBRT's CEO. Rich has been an integral part of the company becoming a middle market leader in the commercial real estate finance market, and we all appreciate his dedication over the years to the company's success. I also want to take a brief moment and congratulate Brian on being promoted to President of FBRT. Brian has been a long-time leader within Benefit Street and will now be playing a much more prominent role in FBRT.

Now on to the company. For several quarters, we have discussed our earnings under covering our dividend. After a thoughtful analysis, we decided it was no longer prudent to sacrifice book value to pay that dividend. Accordingly, management has recommended and the Board has approved a reset of the quarterly dividend to $0.20 per common share beginning the first quarter of 2026. The company continues to have earnings power to support a meaningfully higher dividend than $0.20. That has not changed. But in the near term, rather than returning capital to shareholders by over distributing, we want to stabilize our book value and better match our current earnings to our dividend.

Our priorities are sustainable dividend coverage, book value growth and building more consistent durable earnings. The dividend reset is driven by several factors. The recent declines in SOFR, the timing of our originations and repayments and the overall size of our loan portfolio has impacted short-term returns. In addition, spreads are at multi-decade tights, which means that new loans coming into the portfolio are generally making lower returns than loans that are paying off. REO liquidations are taking longer than originally anticipated, keeping equity locked in underperforming investments.

We continue to make very good progress on the REO liquidation front, unfortunately, just at a slower pace than desired. Lastly, but most importantly, with our acquisition of NewPoint, we made the intentional decision to no longer be a pure-play mortgage REIT. Today, we are a commercial real estate investment platform. This means a lower overall dividend yield, but significantly more earnings stability and stronger long-term book value growth. This cannot be overstated.

We are a different company today than we were 6 or 9 months ago. In acquiring NewPoint, we have intentionally traded some higher near-term returns from credit investments for steadier recurring servicing and fee revenue. This type of revenue typically trades at a lower yield than pure-play mortgage REITs since it produces a much more consistent and predictable ongoing cash flow stream. When looking at our company and dividend yield today versus where we have been, the overall picture should be viewed based on a blend of our mortgage REIT operations plus that recurring revenue stream business.

As we scale NewPoint, its contribution over time will continue to increase and be accretive to overall earnings. We have also recently made a few strategic investments in commercial real estate equity investments. In the current market environment, equity investments yield lower current returns in credit investments, but should provide longer-term growth and upside in earnings. An agency servicing platform and select equity investments are key to a strategy that delivers stronger long-term growth in book value for our shareholders over time and creates a company where the total return should be more meaningful than just our dividend returns to shareholders.

We fully recognize we must demonstrate FBRT's repositioning to the market, and the team is working around the clock to do so. Again, FBRT should no longer be compared to pure-play mortgage REITs. We are positioning the company with a differentiated mix of dividend yield, stability and growth, which traditional mortgage REITs do not provide. Looking ahead, our focus is on balancing attractive current income with disciplined book value growth. We believe this approach strengthens the durability of our model and better aligns our yield strategy with the business we are building.

Before turning the call over to Jerry and Brian, I want to take a minute just on overall market conditions. Market conditions overall continue to improve. Liquidity is abundant and virtually any capital markets transactions from CMBS to SASB to CRE CLO is met with a deluge of orders, driving spreads tighter. As a result, we are witnessing spreads that are the tightest we've seen since pre-GFC days. We are also seeing regional banks slowly return to the market, primarily in the multifamily space. Their financing quotes typically come with large depository relationships and recourse, but we are hearing about banks quoting whole loans with the same pricing as AAA-rated bonds on CRE CLOs.

We are reluctant to chase spreads to the levels that are currently being bid in the market today for commodity multifamily loans. The returns are anemic. And if SOFR continues to fall, they only get worse. However, saying all of that, given the breadth of our product offerings, we are still able to originate ample loans that fit not only our credit criteria, but also generate returns that are significantly more interesting for our investors. Brian is going to address a few of our watch list positions as well as provide some updates on the REO portfolio.

But first, I'll turn the call over to Jerry to walk through our financial results in more detail.

Great. Thanks, Mike. I appreciate everyone being on the call today. I'm going to go through the financial results for the quarter. FBRT reported GAAP net income of $18.4 million or $0.13 per fully converted common share. Distributable earnings for the quarter were $17.9 million or $0.12 per fully converted share. Turning to distributable. We had earnings -- we had distributable earnings, which included $9.8 million of realized losses. Now $7.7 million of that was related to debt extinguishments and the balance to REO sales. If you take these out, our distributable earnings was $0.22 per fully converted share or nearly flat to where we were last quarter.

Timing was the primary driver of the quarter-over-quarter change in distributable earnings. Early in Q4, we completed a $1 billion CLO, FL12 that increased our nonrecourse financing capacity. With this transaction, we called several older CLOs that were past the reinvestment periods, which produced a debt extinguishment charge that I mentioned of $0.07 per share. The new CLO should lower financing costs in 2026 and additionally add meaningful origination capacity. We grew the core portfolio slightly in Q4 as originations outpaced payoffs.

The principal balance rose modestly as we originated about $528 million of new commitments while receiving roughly $510 million of loan repayments, a small, but important reversal from Q3 when the core portfolio declined as we conserve liquidity for the NewPoint acquisition. During the quarter, we recorded a net CECL benefit of $4.8 million. However, that included $3 million of loan-specific reserves for 4 watch list loans. One of those loans was subsequently transferred to REO and the associated specific reserve was charged off.

Importantly, we continued our share buybacks in Q4, repurchasing $14.4 million of common stock, which contributed $0.05 to book value. Subsequent to quarter end, our Board reauthorized the company's share repurchase program, providing $50 million available for future share repurchases through December 31, 2026, to further support the stock price. Book value per share ended the quarter at $14.15, reflecting our dividend outpacing our earnings. Net leverage remains well within our targets, ending the quarter at 2.5x with recourse leverage standing at 0.81x.

We have ample financing capacity and liquidity with reinvest available on 2 of our CLOs. As we redeploy the capacity created by our financing actions, we expect earnings to benefit in 2026 as our core loan portfolio grows and we see a more stabilized contribution from NewPoint. Turning to Slide 11 for updates on NewPoint. NewPoint contributed modestly in Q4. This was expected given a lower origination cadence in the quarter and paired with higher tax reserves at the TRS that reduced NewPoint's reported earnings in Q4. We expect NewPoint's distributable earnings contribution to operate at a run rate of approximately $25 million to $33 million per year.

Agency volume came in at $1.1 billion of new loan originations in the quarter. We expect agency volumes to be between $4.5 billion and $5.5 billion in 2026. At quarter end, the MSR portfolio was valued at approximately $220 million and generated $8.8 million of income in Q4, reflecting an average MSR rate of approximately 82 basis points, and the implied life of that portfolio was 6.4 years. NewPoint managed a servicing portfolio that was $47.8 billion at quarter end.

The NewPoint BSP integration work continues to move forward. We've made significant progress on the migration of BSP's loans and that servicing book onto NewPoint, and we're on pace to complete that transition by the middle of the first quarter. The addition of the BSP loans will increase NewPoint's servicing book by approximately $10 billion and help to contribute to the increase in earnings power of NewPoint in 2026. We remain confident NewPoint is very accretive over the long term as origination and servicing volumes grow and integration synergies continue to build.

With that, I'll turn it over to Brian to give you an update on our portfolio.

Thanks, Jerry. Good morning, everyone. I just quickly want to start by saying thank you to Rich and Mike for their kind words and support earlier. And as I step into this role, I look forward to continuing to execute our strategy alongside Mike and the broader FBRT team. I'll start on Slide 15. Our core portfolio finished Q4 at roughly $4.4 billion with about 77% of our loans backed by multifamily assets and very limited office exposure. During the quarter, we originated 37 loans at a weighted average spread of 284 basis points with multifamily representing 76% of our new loan originations. Our pipeline is robust, but given current spreads, we are selective on pacing, as Mike mentioned earlier.

Our conduit business had an incredible quarter, one of the largest in the history of the company, and that reflects an improved CMBS market liquidity and healthy investor demand. Our pre-rate hike book represents roughly 32% of the total loan commitments of $1.3 billion in multifamily or 82% of that pre-rate hike book. Credit mix remains steady. 76% of those legacy loans are risk rated 2 or 3 at quarter end, and we're continuing to work through the positions that need extra attention on the watch list.

Importantly, the office loan exposure is now only $57 million across 3 loans with an average loan size of $19 million. That's down from $130 million in the prior quarter due to 2 office loans paying off in full during the fourth quarter. Credit quality across the portfolio remained stable with an average risk rating of 2.4 at quarter end. And during the quarter, 2 loans were removed from the watch list. One was repaid in full and the other was taken as REO and subsequently sold while 2 new multifamily assets were added.

Borrower engagement remains high, and we are actively working towards resolution on each position. A notable change on our watch list was the Georgia office loan that was extended 18 months in exchange for a 5% principal paydown. That original loan amount of $27.5 million has now been paid down to $21.1 million, and the borrower continues to make monthly debt service payments. That loan will stay on nonaccrual. On Slide 19, I'll cover our foreclosure REO portfolio. Our foreclosure REO balance declined to 7 positions at quarter end, down from 9 in the last quarter, reflecting continued progress resolving those legacy assets.

During the quarter, the team moved 3 assets off the REO list, selling them at our adjusted debt basis. Remaining reserves related to those assets were charged to distributable earnings this quarter, which contributed to our realized loss. We added a new property to our foreclosure REO in Q4, a Texas multifamily asset. However, it is already under LOI, and we expect resolution to that asset in the first half of this year. We remain highly focused on resolving the remaining positions so we can redeploy that capital into our core loan portfolio.

And with that, I'd like to turn it back over to the operator to begin the Q&A session.

[Operator Instructions] The first question comes from Matthew Erdner with JonesTrading.

Rich, congrats on a great run as well and Mike and Brian, you guys also. I want to touch on spreads and kind of the compression there. You guys have mentioned or kind of hinted at laying off the gas a little bit there. It looks like conduit was pretty successful. So how should we think about capital allocation this quarter if the core portfolio has, I guess, muted originations somewhat?

Matt, thanks for the question. I don't want to take the prepared remarks out of context. We have the pedal to the floor on origination. Our goal is to get assets up to a level where we're meaningfully growing earnings, and we can only do that by closing loans, obviously. I think the point of the message was we are not actively chasing the commodity 88-mile an hour fastball over the part of the plate, multifamily loan. We're kind of focusing on the other aspects of our business where we can originate as well, whether that's construction lending, some other areas that we're active. So we've got -- I think we've got a $1.7 billion under application pipeline. So we are by no means slowing down. We're just kind of changing the mix of what the origination looks like so that we aren't dropping to the tightest spreads that the market is. We have to selectively pick a few where we compete there. But generally, we're trying to play a little bit wider.

And then I guess turning to kind of the dividend reset, should we kind of expect that to be a good baseline for run rate earnings going forward? And then I guess within that, following up on the last question, what's an ideal portfolio size that you're looking to get that core back to by the end of the year to get back to that $0.20 coverage?

Well, we're at -- we're above $0.20 today. And so let me answer the question backwards. I think our goal by year-end would be to have the book -- our core book between $4.8 billion and $5 billion overall. With respect to earnings, look, we fully expect this to be 1 or 2 trough quarters, right? That is the earnings potential of this company hasn't changed, right? We laid out the path to getting back to $0.35, $0.36. We still believe with conviction that we have that earnings ability to get back to that level. The issue is it's just taking us a little bit longer to get there than we had hoped.

So I'm expecting that we are fully growing earnings over the course of the next several quarters on this path back to that kind of mid-30s. We just did not want to continue shrinking the size, the balance sheet of the company paying out cash over distributing because it just makes it even harder to get back to that level. So we've talked about for several quarters, the borrower behavior and the unpredictability of borrowers.

The same, unfortunately, has been true on the REO disposition. We have made tremendous progress. And just when you think you're selling another asset or 2 or 3, a buyer zigs instead of zags. So we're navigating what I would say is a significantly better market than what it was 2 years ago, but it's still just taking us a little longer than we had hoped. So very long-winded answer. I apologize for that. But no, I would not view this as the steady-state earnings of the company. I think earnings are going in one direction from here, and that is higher.

The next question comes from Steve Delaney with Citizens JMP Securities.

Congratulations on all the promotions that we heard about last night, well deserved. Just looking at the -- where you're trying to allocate capital, and I hear you loud and clear about the excessive competition and maybe traditional bridge loan products. You have -- you're primarily a lender, I guess, as we think about it, while some of it is maybe more like the multifamily and doing the NewPoint business like maybe like a WD or somebody like that, I think that's certainly value added. But the one -- you have one investment REO -- is that going to be a one-and-done thing? Or should we expect that going forward, you will have some percentage of your capital in direct real estate investments or the carry plus the potential capital gain?

Thanks, Steve. A lot there. Let me try to answer it. So we actually have more than one equity investment on the books. We bought 2 large assets, I think, both in 2025 that are in joint ventures. So they might be booked slightly differently, but I believe those -- I believe we have roughly $400 million to $500 million of gross assets that own. I don't know the percentage off the top of my head, but we do have more equity investments on the book today than just that one Academy Sports distribution facility.

We appreciate you pointing out Walker & Dunlop, and I think that's part of my message in the prepared remarks, they're trading at a 4% dividend yield. So what we're trying to get the market to view us as really this conglomerate within the commercial real estate, right? Like let's put a dividend yield of 4% or 5% on the NewPoint operations. Let's put a dividend yield of 8% to 10% on our mortgage REIT operations, and let's put a dividend yield of 4% or 5% on the equity investments that we have because that's where equity REITs trade, but those also are positions for growth in the company.

It's going to take us time to educate the market on that front and let them see that, and we have to prove it, and I think we'll do that. But yes, we are primarily a debt shop. That said, we do make a lot of equity investments in other vehicles outside of FBRT. I think we bought close to $1 billion of commercial real estate assets in the last 18 months. So again, a longer-winded answer here. But yes, I think that you should expect to see a slightly higher allocation of the book to some equity -- select equity investments over the next few years.

No, that's very helpful. And it was a twisted kind of question to begin with, but I appreciate the color on the -- especially on the investment side on the investment REO.

Yes. And I would just add, you're not going to wake up one morning and see FBRT have 25% of its equity invested in equity investments, right? That is not happening anytime soon. Could we have 5%, 10% a few years from now? Possibly. But yes, we are not on the path to Starwood. I think they're at like 50% equity investment. That is not the goal or expectation.

You're still going to be a finance company primarily. And on your agency business with NewPoint, will we be -- I have not -- forgive me, but I haven't been through the deck yet. But will we be able to kind of look at that operation in terms of its origination sale and servicing business to Freddie and Fannie, et cetera. Will we see sort of what your little WD component of the company looks like in terms of the TRS?

Jerry, do you want to take that?

Sure. Yes. There's a page in the Supplemental deck, and there's obviously going to be more information in the 10-K that will give you more segment information on the details within that operating segment for us. So you'll be able to see some of the volume information. We break out the income by component, servicing, gain on sale, and you could see the cost structure as well. So hopefully, that should be helpful in answering some of the questions. And additionally, we gave kind of a high-level range for volume and expected income contribution in '26 as well to just help put a guidepost out there for kind of where we see things.

Well, congrats on the progress, and we applaud what you're doing. We've got 22 plain vanilla commercial mortgage REITs, and I think that's enough. So it will be exciting to see how you guys position the company over the next year or 2.

Our next question comes from John Nickodemus with BTIG.

First of all, Rich, all the best in your role as Chairman. Congrats, Mike and Brian, in your new roles. Earlier in 2025, you estimated that there was $0.08 to $0.12 of DE per quarter that could be unlocked from reinvesting equity tied up in nonperforming loans in REO. Based on progress your team has made since then, where do you estimate that figure stands today?

I think we're actually slightly higher than that today. I don't know if I have the number, Jerry, I don't know if you have the number at your fingertips. But John, I think you've hit the crux of exactly why we concluded to a dividend cut is that it's -- that earnings is there. It's black and white. It's not questionable. It's just a matter of when do we recoup it. And unfortunately, it just taking a little bit longer than we had anticipated. So Jerry, I don't know, do you have the number? I know obviously, we have the numbers, but I don't know if you have them at your fingertips.

We have the numbers. I would say the range has not substantially changed, and Mike is right. It's been -- it's not that the quantum has necessarily changed. It's the timing to unlock that the balance of that earning power, whether its resolutions have taken longer, we've kind of cycled through additional assets as we kind of work down through the balance of our legacy portfolio. Our ability to kind of take that back and redeploy in our core portfolio is still there. We're really working with time more than we're working with a change in potential earnings power with that equity that's there.

Great the timing being the key driver makes a lot of sense. And then, Jerry, something that you touched on earlier just about the 2026 full year guidance for the volumes and distributable earnings contribution from NewPoint. I noticed the volume had come down a bit and then the earnings contribution had come up from the deck you put out in September. Just curious what was driving those changes as we look toward 2026 NewPoint.

I think we were guiding '25 before. And in '25, I think we're kind of middle of that range. So essentially, we bumped it up a little bit from where we are today, kind of what we hit in '25 kind of based on all the scaling that we've talked about plenty of times on our calls over the last year or so. The range is also, again, it's up a little bit from where we were this year. I think this year, we were at the high end of what we provided for everybody on a 2025 year-to-date total. Obviously, it's a little chunkier in how it came in the 2 quarters.

And one of the reasons we give annual projections is because this business will have some chunky quarters, right? We wanted to kind of give a bit of a range there. And then the reason we kind of simplified it into 2 line items is just the mix can obviously change quite a bit in terms of the end distributable performance. So rather than kind of be overly specific, we want to put a decent range on there to kind of cover the various outcomes. I think in terms of one of the other upsides is the servicing integration that I mentioned, putting that $10 billion of our own book on to the business is going to be a pretty big driver in terms of additional income growth that we should see through the balance of '26.

Our next question comes from Timothy D'Agostino with B. Riley Securities.

Congrats on the quarter and the promotions and transitions. Looking at the results for '25 at Fannie Mae, understanding kind of that multifamily volume was a lot higher this year compared to years past. I just wanted to get the overall sense of how that business is progressing year-to-date in '26, if that momentum from '25 is still carrying over? And if you could provide any color on kind of how you're feeling about the year ahead in that channel.

So I think, unfortunately, we're living in a world that is highly, highly tethered to rates and the slightest of move. I mean this is probably more so than ever in my career. I was talking about this with someone the other day when the 10-year is at 4.25%, I said, if the 10-year dropped to 4% flat, I think you would see volume just go through the roof. And if you see the 10-year go to 4.5%. I think things are going to come to a screeching halt. And it's just shocking that a 25 basis point move in either direction could have that outcome.

We are in an incredibly rate-sensitive environment, and everybody has been sitting and waiting and waiting and waiting for rates to go lower. And if they go lower, I think you're going to see just a massive, massive amount of volume come through the market. And unfortunately, if they go higher, we're going to see the opposite. So if you could tell me where the 10-year is going for the next 6 to 12 months, I could give you a much better answer. But it is just incredibly rate sensitive at the moment. And I think that's for all of our businesses.

And then sorry if I missed it earlier in the call, but regarding the loan portfolio, payoffs persisted at a pretty high rate. However, funded volume obviously came in just above that. Are most of these repayments behind you? Do you think we could still see some higher figures in the first half of '26? Just kind of any color on repayments of the portfolio.

Yes. So repayments are obviously a blessing and a curse. We are cycling through the legacy portfolio. I think we are head and shoulders above the balance of the industry in terms of addressing that legacy portfolio. As Brian mentioned, I think we're down to 32% of the portfolio being backward looking. And look, honestly, I think this is just where the market is completely mispricing and misunderstanding FBRT. We talked about it a few earnings calls ago. But the market right now is looking at a dividend yield, albeit a lower one given the cut, but it's just not factoring in the overall return.

And if you look at the company as a collection of loans, if you took a loan portfolio of this quality out to the market today, it would trade at $0.97. Look at ARI. I mean, look at what they sold, what Athene bought ARI loans for. The disconnect between our book value and our share price is it's inexplicable. So we will just continue to do what we do. We will continue to deliver on the REO portfolio. We will continue to just recycle out of those legacy positions. But we re-underwrite this portfolio and risk-rate it every single quarter.

And short of a black swan event that I cannot predict, there is absolutely no way that the book value disconnect is anywhere close. It's not even a fraction of what the losses we will realize as we cycle through this. So we're going to have to show it to the market, which we plan on doing in 2026. I have the highest of conviction that we are right in that regard, but we got to get through it, which we will do in the next few quarters.

This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

We appreciate you joining us today. Please reach out if you have any further questions.

Good day, and welcome to the Franklin BSP Realty Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Lindsay Crabbe, Director of Investor Relations. Please go ahead.

Good morning, and welcome to FBRT's third quarter earnings call. Thank you, Cindy, for hosting our call today. As the operator mentioned, I'm Lindsey Crabbe, with me on the call today are Richard Byrne, Chairman and CEO of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Michael Comparato, President of FBRT.

Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, October 30, 2025. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to the supplementary slide deck on today's call.

With that, I will turn the call over to Rich Byrne.

Great. Thanks, Lindsay, and good morning, everyone. I'm going to start on Slide 4 by reviewing our third quarter results. And then as always, we will open the call up for everyone's questions. I'll begin with key developments from the third quarter. Jerry is going to walk through our financial results, including NewPoint's strong contribution to its first full quarter with us at FBRT. And Mike is going to provide updates on several more topics, including market conditions, our watch list and our REO activity.

But to start, as we previously said, the third quarter was a transitional period for FBRT. It was highlighted by the successful closing, as I said, of our acquisition of NewPoint, which occurred on the first day of the quarter, July 1. The NewPoint integration so far is going exceptionally well. NewPoint had a record volume quarter. It was actually the highest in its history with $2.2 billion of originations. This resulted in $1.8 billion increase in the agency servicing portfolio. In total, NewPoint contributed $9.3 million to distributable earnings in its first full quarter as part of our company. Overall, our distributable earnings were $0.22 per fully converted share. Jerry is going to provide additional details on distributable earnings as well as NewPoint.

As expected, maintaining liquidity for the acquisition limited our new loan originations early in the quarter. As such, our core portfolio size declined slightly. We originated approximately $304 million in new loan commitments in the quarter and funded $196 million of those, primarily in multifamily with the bulk of our origination activity occurring mid-quarter or later. And we received $275 million in loan repayments.

We expect our core portfolio to return to its target size of at least $5 billion over the next few quarters. At quarter end, we had $522 million of available liquidity. But following quarter end, we closed our 12th CRE CLO, which refinanced several older CLOs past their reinvestment periods. While these CLO calls will result in some noncash extinguishment debt charges in the fourth quarter, the transaction lowers our interest expense and adds approximately $1 billion of origination capacity to our total loan portfolio.

Our average risk rating held steady at 2.3. We continue to make progress on the legacy portfolio and actively manage our watch list and REO assets. Three new loans were added to the watch list this quarter, while one was removed following full repayment. We expect to remove several watch list loans in Q4 via loan modifications or asset sales.

On the REO front, we sold 2 properties this quarter and have a few more slated to close in Q4. You'll hear a lot more about that momentarily. As these legacy issues are resolved, additional capital will be available for us to deploy into our core portfolio. Post interest rate hike originations now represent approximately 60% of our book.

Importantly, we have resumed share repurchases in Q4. We view our stock as significantly discounted and believe it's an important activity supported at these levels. Through October 24, we have repurchased 540,000 shares for approximately $6 million and have $25.6 million remaining on our buyback allocation. Our Board of Directors expanded our buyback authorization through December of next year.

While this was a transitional quarter, we view it as one that sets the stage for stronger results ahead. We're focused on integrating NewPoint, redeploying liquidity and leveraging our expanded capabilities to grow earnings and book value as we move through the remainder of this year and well beyond.

With that, I'll pass things over to Jerry.

Great. Thanks, Rich. I appreciate everyone being on the call today. I'll continue to walk through the third quarter financial results, and I'm going to start on Slide 6. FBRT reported GAAP net income of $17.6 million or $0.13 per fully converted common share. Distributable earnings for the quarter were $26.7 million or $0.22 per fully converted share. Distributable earnings for this quarter include $1.7 million of realized losses related to a REO sale. Excluding this realized loss, distributable earnings were $0.23 per fully converted share. Book value at quarter end was $14.29 per fully converted share, and the decrease in book value per share was caused by under coverage of the dividend and by the NewPoint acquisition.

In regards to the dividend under coverage, the key drivers we outlined last quarter to move toward coverage remain intact, and I'll highlight some of the progress we've made on those fronts. At the end of the third quarter, we issued an approximately $1.1 billion CRE CLO, which settled on October 15. The transaction carries an initial advance rate of 88% and a weighted average interest cost of SOFR plus 1.61%, before accounting for discount and transaction costs. The CLO has a 30-month reinvestment period, meaning it should be an accretive liability for us for 3 to 5 years.

In conjunction with the new CLO, we also financed approximately $500 million of assets with the money center bank. Together, these financings allowed us to call several older CLOs, generating roughly $250 million of cash and reduce our financing cost by about 65 basis points. Combined, these transactions are expected to add an incremental $0.05 to $0.07 per share of quarterly earnings once this cash is deployed into new assets.

We expect to begin realizing this benefit in early 2026.

Mike will provide more details on our REO portfolio, but we did reduce our REO balance this quarter through an additional asset sale. We continue to sell REO and redeploy that capital into new originations. We estimate this activity can contribute approximately $0.08 to $0.12 per share per quarter to distributable earnings over time. We also saw a strong contribution from NewPoint in its first full quarter as part of FBRT, generating $9.3 million of distributable earnings or $0.09 per fully converted share.

Beyond the immediate earnings contribution, NewPoint is already driving meaningful intangible benefits, including increased deal flow for balance sheet lending, stronger customer relationships, additional CMBS opportunities and access to a much larger real estate platform we can leverage both operationally and strategically across our business.

Moving to Slide 8. Our average cost of debt on our core portfolio was SOFR plus 2.31%. As I mentioned, FL12 closed shortly after quarter end on October 15. We've been a consistent leader and repeat issuer in the CRE CLO market, and this transaction was met with very strong investor demand. With the addition of FL12, approximately 75% of our core book is now financed through nonrecourse non-mark-to-market structures, and we have reinvestment capacity available on 2 of our CLOs. Our net leverage position ended the quarter at 2.55x with our recourse leverage standing at 0.84x.

Turning to Slide 11 for updates on NewPoint. With the acquisition closing on July 1, we now have a full quarter of results to share, along with progress on our integration efforts. Agency volume came in at the high end of our range at $2.2 billion of new loan origination in the quarter. You can see the breakdown of those volumes by agency on the slide. We now expect full year originations to come in toward the upper end of our initial guidance. We recorded $19.7 million of MSR income in the third quarter, representing an average MSR rate of approximately 91 basis points.

At September 30, our MSR portfolio was valued at approximately $221 million with an implied life of 6.6 years. The change in value of the MSR portfolio provided a $0.04 increase to book value this quarter. NewPoint managed a servicing portfolio that was $47.3 billion at quarter end.

Integration work is well underway across our business. The migration of BSP loan servicing began during the third quarter with full completion expected by the first quarter of 2026. Once complete, the full migration of FBRT's loan servicing book is expected to generate $0.04 to $0.06 per fully converted share annually to earnings.

We expect NewPoint's earning contribution to FBRT to grow meaningful over time as income is directly linked to cumulative agency and FHA origination volume and the expansion of the servicing portfolio. We continue to expect NewPoint to be accretive to GAAP earnings and book value per share in the first half of 2026 and accretive to distributable earnings in the second half of 2026.

With that, I'll turn it over to Mike to give you an update on our portfolio.

Thanks, Jerry, and good morning, everybody. I'm going to start on Slide 13. Our core portfolio ended the quarter at $4.4 billion across 147 loans with multifamily assets making up 75% of the portfolio. More broadly across the CRE market, we are seeing a continuation of the trend we noted last quarter. After years of pause, borrowers and lenders are finally resetting, marking assets somewhat realistically with the exception of office and moving capital again. It's a necessary step towards a healthier market.

Spreads on whole loan origination have tightened to levels that are less than compelling at the moment. Leverage returns are still in an acceptable range, but they are no longer the euphoric levels we enjoyed in 2023 and 2024. While we have capital to deploy, we are being thoughtful as to pacing given the spread environment. We're confident in our ability to continue to underwrite attractive and differentiated deal flow.

In addition, we are also considering additional investment opportunities outside of the whole loan space, ranging from CMBSB pieces, horizontal risk retention investments as well as SASB and CRE CLO bond investments. As always, we are trying to find the best risk-adjusted returns for our capital.

Multifamily fundamentals continue to improve. New supply is slowing, concessions are generally burning off and rent growth is reappearing in some markets. Quality assets are leasing well. Differentiation is back and higher quality assets in stronger markets are outperforming as they should.

Even with the increased competition and tighter spread environment, we continue to find attractive opportunities for FBRT. During the quarter, we originated 11 loans at a weighted average spread of 447 basis points and mezzanine loan at a spread just over 1,300 basis points, resulting in a combined weighted average spread of 511 basis points on all loans originated in this quarter. These spreads were achieved due to a focus on construction financing given the tightening of spreads in the traditional bridge loan market.

We're encouraged by the strength of our fourth quarter pipeline, and we've already closed approximately $120 million of new loan commitments through today's call. Our conduit business had a very strong quarter, reflecting improved CMBS market liquidity and healthy investor demand. If market conditions hold, our CMBS performance in the fourth quarter could be one of the strongest quarters in the history of the company.

Loans originated prior to the interest rate hikes now represent approximately 40% of our total loan commitments. The majority of this collateral is multifamily totaling $1.6 billion or approximately 80%, followed by hospitality at $178 million or approximately 10%. At quarter end, 82% of these legacy loans were risk rated at 2 to 3, largely consistent with last quarter. The overall composition and performance of this group remains stable, and we continue to make progress addressing these positions requiring additional attention, which are reflected on our watch list.

Notably, post quarter end, our net lease headquarter office asset paid off in full. The remaining office loan exposure is now only $70 million across 4 loans with an average loan size of $17.6 million. Office loan exposure is now only 1.6% of our entire portfolio, and we expect this figure to shrink again in the fourth quarter.

Slide 17 summarizes our watch list. We had 10 positions on our watch list at the end of the quarter, and we continue to actively manage each, and borrower engagement remains high. One multifamily loan originated in July 2021 paid off in full this quarter. Within the remaining positions, one is a Georgia office building that was extended in January and has remained current on all payments.

The 307-unit student housing property in Norfolk, Virginia has now been stabilized at approximately 92% occupancy and the sponsor is looking to liquidate the asset in the coming quarters.

The Phoenix office building is under contract with a meaningful nonrefundable deposit, and we expect to be repaid in full in early November. The remaining watchlist loans are multifamily assets originated in 2021 and 2022, and we remain in active dialogue with the borrowers. We expect 2 assets to be sold in Q4. Unfortunately, one appears it will be a short sale, and we have accordingly marked down the position by $2.3 million this quarter.

Reiterating last quarter's call, while the watch list count ticked up slightly, request for modifications continues to slow, which is another sign that FBRT is in the later innings of this cycle. While we are not completely out of the woods, we get closer to the edge of the woods with every passing quarter.

Slide 18 covers our foreclosure REO portfolio, which has 9 foreclosure REO positions at quarter end compared to 10 last quarter. We sold 1 multifamily asset during the quarter at our debt basis and have 4 additional assets under PSA. Two PSAs are nonrefundable, and we are expecting closing in the next 2 weeks. Our team continues to work diligently to enhance value and optimize execution before bringing properties to market.

Our largest REO asset in Raleigh, North Carolina is now operating at 91% occupancy. We will be exploring options for this asset in Q1 next year. This could be an outright sale, but we will also explore joint venture opportunities as we think this is a very unique asset.

Finally, I'll spend a minute on NewPoint. The acquisition of NewPoint has made us one of, if not the largest middle market lenders in the country with over 300 employees. We are extremely encouraged by the origination activity we saw in the third quarter. We are already seeing meaningful cross-selling and collaboration between the platforms and my confidence and conviction in the acquisition continues to grow.

As we have spent more time with the company, it is clear that we have some of the most talented people in the industry, including, but not limited to, Jerry Borger, our President of Agency Lending; Rob Rozak, the President of Affordable; and Eric Lindauer, our Head of Healthcare and FHA Lending. These leaders are bringing new products to our platform and give us yet another offering to our clients from what we've already believed to be a market-leading product offering. This is truly just the beginning of what NewPoint can bring to FBRT.

As Rich mentioned, the third quarter was very much a construction zone for FBRT. We are now highly focused on playing offense. Our integration plan with NewPoint is on track, and we firmly believe FBRT has more tailwinds than headwinds. We are excited to continue the path to dividend coverage.

And with that, I'd like to turn the call back to the operator to begin the Q&A session.

[Operator Instructions] First question comes from Matthew Erdner of JonesTrading.

I appreciate the comments as always. I'd like to kind of touch on the origination volumes and what led to the higher end of your range? And then also what's going to lead to the higher end of the range in 4Q? Is it just a matter of you guys kind of winning the deals and being more competitive there? Or is the market really starting to open up?

Yes, I think we've just been able to cultivate the balance sheet. We've been able to convert a handful of loans from a floating rate basis into our CMBS product. And that usually has incrementally less competition than a widely marketed deal. So I think, again, subject to market conditions holding, if we can execute where we stand today we're close, Q4 will be a monster quarter for us in the CMBS group.

Got it. That's good color there. And then I'm guessing that kind of plays into what you were saying about alternative investments and kind of, I guess, not necessarily going away from the core portfolio, but while spreads are tight, explore those other options.

Yes. I don't want to mislead. We are actively, actively originating in our core business, which is originating whole loans for the balance sheet. I think we're seeing some opportunities in markets where things haven't tightened as much as they have on the traditional bridge lending side of things. So if we can find better returns with the same or better overall credit and liquidity profile, we're going to explore those things.

And I think, again, that's always been kind of the pitch of what differentiates BSP. We're not a one-hit wonder. We literally can do anything and everything within the capital stack and along the life cycle of an asset. So we're just waking up every day, looking to find what we think are the best risk-adjusted returns and focusing our efforts in those areas.

Great. That's helpful. And then, Jerry, I have one quick one for you, and then I'll step out. As it relates to the comp and benefits expense line item, what should we expect there kind of going forward? And how should we think about that overall?

It's going to be variable for one. So think of it trending with volume, right? A lot of our volume drives the comp since it's directly tied to profit share on what we're originating. So you can, to some extent, flex off what you're seeing. I will say that it will be a little bit trickier than that because you'll kind of scale throughout the year in terms of people hitting hurdles and stuff like that in terms of volume targets and things like that. So you might scale into a greater share in the second half of the year than the first half. So it won't be easy to extrapolate just off what you see in Q3. I think you're going to need to see a few quarters to kind of get the normal range. But you can kind of back in this quarter to see the general share on that in terms of how it's going to weigh.

The next question comes from Timothy D'Agostino of B. Riley Securities.

The first one, just on repayments, $275 million in the quarter. I was wondering if in the fourth quarter, you are still seeing elevated repayments as of October end.

Jerry, do we have a quarter-to-date repayment summary? I feel like we've not have...

We do. I would expect repayments are relatively in line with what we've seen throughout the year. In terms of kind of pace, I don't think we've been markedly off what we've seen throughout the earlier portion of the year. I would say fourth quarter is also one of the tougher ones to predict because you get more variability in people trying to close things out before the end of the year. So it could certainly change because we still have 2 full months left. But I would say if you're run rating, it wouldn't be too far off.

Okay. Great. And then just a quick follow-up. On the core portfolio, is there like a target size that you are aiming for? I think right now, the portfolio is about $4.4 billion. I was wondering if throughout '26 or later on, if there's a level you would like to reach.

Yes. I think overall, we're targeting a stabilized portfolio side on a whole loan basis of between $5 billion and $5.5 billion.

The next question comes from Chris Muller of Citizens Capital Markets.

Congrats on a nice quarter here. So great to hear the record quarter for NewPoint. And I guess even though it was a record quarter for them, do you guys view this as a good run rate going forward? Or could there be some further upside to volumes with the NewPoint acquisition?

Chris, thanks for the question. Look, we had a very large transaction that closed in Q3. We're always out whale hunting for large transactions when we can find them. I don't think it's repeatable every single quarter. So I think I wouldn't -- as Jerry just said, I wouldn't use 1 quarter to extrapolate forward. We do not have any expectation that NewPoint is going to put up $8 billion of origination in 2026. So it was a great quarter. Again, we're very excited about the cross-selling that's going on. They're originating bridge loans for our balance sheet. We're originating agency loans for their agency execution. In early days, it really could not be going better than how it's gone. But no, this is probably a bit of an outlier, and I would look to the kind of the overall total annual guidance that Jerry shared historically.

Got it. And given the large transaction that was in there, those usually have lower margins with them. Was that the case here, so we could see some margin improvement going forward?

Yes. There is slight margin tightening on that individual transaction.

Got it. And then I guess just the other one I have here is more of a broader question. With all the talk of the GSEs coming out of conservatorship, can you guys share your thoughts on that? And if it does happen, what type of impact to the market would you expect?

Yes. I mean we've been getting that question for a while. I think it's obviously difficult to answer overall. So this is completely just personal speculation. Several administrations have talked about doing this. It is untangling a very complicated web. Where I do feel very confident is that this administration is not going to do something that is going to disrupt the mortgage market and mess with people's homes and that's with the market overall. My guess would be if this is figured out that the solution there could be an explicit guarantee rather than the implicit guarantee. I think that's the easiest way to solve any sort of volatility or concern. But again, I'm still sceptical that this happens or happens quickly because I do think it's a very, very complicated web to untangle.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

We appreciate you joining our call today. Please reach out if you have any further questions. Thank you and have a great day.

Good morning, everyone, and thank you for joining us today. I'm Lindsey Crabbe, and I'm pleased to serve as today's moderator. Joining me are Rich Byrne, CEO of FBRT; Mike Comparato, President of FBRT; and Jerry Baglien, CFO and COO of FBRT.

Before we get started, there's just a few housekeeping notes. We are going to record this webinar and post it to our website so anyone can join if they'd like to in the future. And please take a moment to review the forward-looking statement slide that should be on your screen here in a moment. Today, we're going to cover the key aspects of the Newpoint acquisition and our previously filed pro forma financial statements. [Operator Instructions].

So moving on, I'll ahead and get started. As many of you know, we closed our acquisition of Newpoint on July 1. To quickly recap, Newpoint is a leading vertically integrated commercial real estate finance company. Newpoint provides loan origination, servicing, asset management and a suite of agency products. And Newpoint is one of just 19 multifamily originators in the U.S. approved by all 3 GSEs: Fannie Mae, Freddie Mac and FHA/HUD. This acquisition adds a scaled agency origination and servicing platform to FBRT, which enhances our income stability and creates a pathway for long-term book value per share growth.

With that, let's jump into our discussion.

Mike, would you be able to walk through what we are aiming to accomplish by bringing Newpoint onto our balance sheet and maybe go through how it strategically changes FBRT?

Happy to. And thank you, Lindsey, for the opening, and thank you, everybody, for joining this morning. I don't think we could be more excited about the acquisition, I think, as we've talked about on all of our earnings calls. This is something that we've been trying to accomplish literally for the decade that I've been running Benefit Street Partners Real Estate Group.

We've always touted to the market that we had one of, if not the broadest product offerings out there in terms of our expertise and ability to do everything, kind of a cradle-to-grave one-stop shop. We can do construction loans, bridge loans, all asset classes. We've got a CMBS platform. So our pitch to clients was always, come to us, we can do everything. That one thing that was missing in that everything was the agency business. And I think especially given how active we are in the multifamily sector, it was just a big piece that was missing in the puzzle, and that piece now fits.

So it is now -- FBRT is now legitimately a cradle-to-grave provider of debt capital to the market, and we can go from construction to bridge, now to full-blown agency. And I think the cross-selling of those products for the FBRT and BSP teams and the Newpoint teams is just tremendous. It's going to give us an advantage in the marketplace that we're already seeing bear fruit today and benefiting from today.

As I mentioned on our last earnings calls, we've already transacted with borrowers who previously had no reason to transact with us before because we didn't have agency licenses. So for all of those reasons, I think it's a great add to the business. I think the 2, I don't want to say ancillary benefits, but it's an incredibly capital-light business. Other -- obviously, we committed a lot of capital to acquiring it. But unlike the whole loan origination business that we run on the day-to-day business, the agency business is 100% financed by warehouse lines. So we don't have to commit capital to close loans and then we sell them to agencies. So it's an incredibly efficient investment for us overall.

And then I would say, lastly, just having the servicing business. Again, we're very -- everything we do is internal. We underwrite everything internally. We originate everything internally. We asset manage everything internally. We now get to service everything internally. And that's not only great for our clients, but it's also going to be a huge cost savings for FBRT and also a place that we can grow our third-party servicing for outside parties. So I touched on a lot of things in that answer and sorry for going so long, but there are so many ways in which this Newpoint acquisition should pay dividends for a long, long time.

That's really helpful, Mike. I guess just drilling in a little bit more, are you able to share a bit more on the cross-selling that we've seen since the close of the acquisition late in -- or early in Q3?

Absolutely. And I can even give an example of a loan, I think we're closing tomorrow, hopefully, really interesting opportunity with one of the top 10 multifamily owners in the United States. Again, we had never transacted with this group before because we didn't have the agency licenses, and they're acquiring a large portfolio of assets. I think it's 47 or 48 individual assets, and they have different business plans for both.

Some they want to own long term, just part of their long-term portfolio. Others, they want to add a little bit of value with some CapEx and renovations and then sell those over the next 1, 2, 3 years. So our joint venture -- I don't want to say joint venture, but our ability to jointly sell our products was incredibly helpful for this client. And so we're writing an agency loan on like 30 of the 47 properties for a 5-year basis or 7-year basis. And then we're putting the other 17 on a short-term floating rate loan on our balance sheet that just has a ton of flexibility. There aren't any platforms out there that could offer them that.

And so not only did we solve a problem for the borrower, but we also got paid a little bit of a premium to the market because we didn't have competition that was ready and able to do that. So the cross-selling has been great. I think we're closing our first new -- we're closing our first agency originated loan within the BSP ecosystem in the next week or 2. We've already closed several Newpoint originated loans for the balance sheet program. So the cross-selling is happening. The closings are happening. And I think most importantly, we're able to talk to clients and just offer them something that hasn't been available in the market before.

That's great. I think that also really leads into my next question. You probably answered some of it already with that. But let's expand on how this truly gives us a competitive edge? Why a sponsor might choose FBRT over a competitor? I think there's probably a lot of points there you can walk through, but maybe highlight what you think the most important ones are.

Yes. I mean I think I just touched on it for a minute. I'll keep going, though. The agency business is very much a commodity business, right? What you get from Fannie and Freddie, any agency lender should be able to get from Fannie and Freddie. So how do you differentiate yourself within that space?

I mean, one, of course, is service. You can just be better, more responsive, work faster, but also it's other products. And so if we're going head-to-head with another agency lender with a borrower, how do we differentiate? We tell them all the other things that we can do. It's not necessarily we might not be able to help you on this deal, but if you have a construction loan in a few quarters, if you have a bridge loan in a few quarters, if you need this or if you need that, we've got all of these things.

So the sales pitch to every borrower out there is we've got a set of tools that other people just don't have. And if you give us your agency business, you get access to all of these other tools that other people don't have. So that should help us win ties, but it also should just grow the pie just larger overall. So I think it's -- again, I think this is a real life-changing moment for FBRT overall.

Does it take 3 months or 12 months to fully integrate and get the thing running like a well-oiled machine? That's obviously to be determined. We're hoping sooner rather than later. And I think we've already made tremendous progress on that integration, but it's going really, really well so far.

Okay. Great. Now I think we want to move into some of our financials. FBRT published pro forma financials on August 1, which provides a view of how Newpoint would have historically been consolidated and demonstrates the capital efficiency of this business. Can you just expand on that capital efficiency and then maybe highlight any key points that we might want to bring up on those pro formas?

I think I touched on the capital efficiency. Oh there you go, Jerry. I was going to have Jerry. Thanks, Jerry. Go ahead.

Yes. Yes, happy to jump in. You kind of hit a little bit of this already, Mike. So I'm going to repeat some of what you said. But when we say capital efficiency, what we're referring to is how much additional equity from the business is going to be tied up in Newpoint. And I think this is one of the more attractive parts of it in that there's none. I mean, in our view, other than sort of investing and growing the business, potentially adding team members and things like that as we scale, there's not really capital needed for deal flow.

Like Mike mentioned, these are 100% financed assets as they're originated. So it doesn't require more equity than what we already invested in the business. I mean that's one of the beauties of it. It's very capital light on the balance sheet side of the business. And the only real operating cost is your personnel. There's no machinery. The personnel are the machinery that generate all this. And we don't have to raise a bunch more equity to scale this business. It really scales with the firepower that they have in the business and what we're lending to it with all the stuff that Mike talked about before with our synergies. So it's hyper efficient and only gets more efficient as we scale it from here on out.

Great. That's a good segue into accounting for Newpoint. We put together a slide, it's the next slide in the deck that walks through some of what an agency loan would look like as we consolidate Newpoint. So Jerry, would you mind just kind of walking through some of this and helping explain what distributable earnings might look like after once we consolidate Newpoint?

Sure. There's a lot of things to touch on here. Distributable in some ways, is fairly simple. I mean all we're trying to get to is what is the cash flow that's being generated off this business. And so you really just have to back out the noncash items. You're going to take out any noncash activity from the MSRs. That's really 2 components. It's the initial valuation that you put on.

When you rate lock a loan, you're going to put the value of that future MSR onto your book at fair value. So that's essentially the discounted cash flow value of all those income streams that you're going to get from the mortgage servicing rights. That becomes an asset on your book. You'll place it on at a day 1 value. That gain, if you will, isn't a cash gain, obviously. It's just -- it's all to be received in the future. It amortizes down over the life of that loan, right?

As the loan starts to wear off and you get close to maturity, the value of those servicing rights declines because the cash flows start to go away as you get towards the end. Those are both noncash activities. So we take that out of our distributable earnings. All that we're leaving in from the servicing side is the actual cash flow from the servicing. So whatever we're getting paid to actually service those assets. That stays in. That's your real income. That's what we can distribute it to investors. So that will stay in. The noncash parts come out of there.

The other piece, similar to our existing business is just any loan loss reserves. So even though we're selling these loans into securitizations, you still retain some risk exposure on the Fannie Mae assets in particular. There is a risk sharing agreement. There's some variability across our portfolio and the exact metrics of that, but you have to reserve for some probability of share losses in the future. The probability on that is much lower than on a transitional lending book, but it's still similar in terms of how we'll run the CECL process. We'll have to look at what is the risk of the loans, what's our potential loss share on those and that will flow through in the same way that we reserve on our balance sheet loans for potential credit losses.

Again, that's a noncash activity. Other than a realized loss in that regard, those would be reversed out as well. So those will be quarterly reserves one way or the other depending on both specific and macroeconomic activity at the time we're making those on a quarterly basis. So there's a few things there, kind of unique on the MSR side. The CECL stuff should be pretty consistent with how you've thought about CECL in the past on our balance sheet.

Okay. Great. And I'm sure we'll probably have some follow-ups on those. But for now, I'd like to move on to -- you mentioned servicing. And maybe just talking a little bit more about how the MSRs will help support book value growth in the future. I would love to hear more about that.

Sure. And I think this is probably one of the key parts of the acquisition for us, is this puts us in a very unique position in the mortgage REIT space. I think we have a tool now that almost no one else has outside of really Arbor. And it's that we are able to grow the book value of this company on a go-forward basis, at least for the foreseeable future. And that's because those MSRs that we just talked about before on distributable earnings, they do create assets every time you rate lock a loan. So you're adding a real asset to the balance sheet, right?

Every time you lock in that servicing contract, you're getting cash flows for the next 5 to 40 years depending on the product type that we're originating. And the book value of those goes right to the balance sheet. So you're adding assets every time you close the loan. So you get a gain on sale, which is great, but then you get those long-term income streams from the servicing side. Those will continue to accrue, basically building book value to you reach an inflection point where you're originating just as much as you have paying off every single quarter. At that point, you'll come to a stabilization of the addition of those future cash flows to what's coming off.

One of the things we liked about this book, in particular, is that -- I think the average life is about 6.8 years on the servicing book, which means we're not quite to the midpoint on what we're getting. So even if you ran at a steady state, we did know better with their originations than they did the year or so before we bought them, it's a while before you reach that equalization point, right, that you have as much coming off as you have going on.

So even if we ran flat, we would still be adding to the value of those assets because they're not starting to amortize away yet. Our expectation is that we're going to grow that volume on a go-forward basis that you can see our projections that we put in here and published when we released everything for last quarter. We're planning on growing this, which means that's going to push that inflection point out even further.

So you're talking 5 to 10 years potentially depending on how effective we are growing this business before you get to that equilibrium point, which means every single quarter, give or take a little bit, obviously, you have an ebb and flow in certain quarters. But certainly, on an annual basis, you should expect to see that value of that MSR book grow that's going to drive some actual growth in your book value. So I think that's in this space, an extremely powerful tool because usually the best you can do is break even on our book, right? You hope that every loan you make pays you back you get that money back and you recycle it again.

And generally speaking, you're only going to degrade that book value because no one is perfect with credit losses in perpetuity. This gives us a way to kind of offset the real risk in the industry, and I think give people some upside to growing this business in its totality.

Yes. That's helpful. I think it really does make the case for why FBRT is going to be so unique here moving forward. And then talking about servicing a little bit more, what are the opportunities for third-party servicing beyond our own originations?

Yes. I think that's an aspirational part of the business for us. We have a fair amount of work to do, and this will get into some other stuff we're going to hear on later, but putting these 2 businesses together and fully matching up all the efficiencies, getting rid of all the duplicative costs and in making this thing run as smooth as we would like it to, to really be a best-in-class operator is going to take some time. I've mentioned this before when I've talked to individual investors, and I think we've hinted at it on our other calls. It's -- you can't flip the switch, and we show that in kind of the projections on our near-term earnings on this in the long term.

But part of that long-term return is not just taking in our own servicing, but I think being active on and another, whether that's purchasing MSRs, whether that's going out and trying to win new issue business, I think we'll have the chance to do both. I think we've got some pretty good expertise across a wide spectrum of different real estate credit products at this point, which will make us appealing for some of this third-party business. And I think that's a chance to scale beyond our internal deal flow, which I think that's kind of the key engine of growth.

But long term, I do think this becomes another avenue of growth for us as we look to use that servicing group as a real strategic avenue to kind of enhance our balance sheet.

Great. And you touched on this a bit, but I would like to talk about just how heavy the lift is before we really start realizing synergies. We shared some of our expectations on our Q2 earnings call, and those are on the screen again. Nothing's changed on this slide. But maybe we could talk about are the expectations you're macro driven? And just a little bit more on timing, I think, would be helpful for the audience?

Yes, this probably goes in a couple of parts, and maybe I'll let Mike get on some of the deal stuff because I think you mentioned some. But let me start with some practical things. I think if you look at how a lot of services and expenses shake out for any business, a lot of that is engaged on an annual basis, which goes back to flip the switch concept. Some of that just has to burn off naturally before you can eliminate it, doing just basic things, audit cost, tax costs, legal costs, service providers, a lot of those things are engaged on a more programmatic and day-by-day basis.

I mean it might take a couple of quarters or through the end of the year into early next year before some of that just normal business operating cost. That's -- with shared service providers are no longer needed service providers on a go-forward basis just naturally goes away. The other part of it is just in terms of personnel overlap, expertise we have in-house, refining the structure of the organization. Again, that happens maybe slightly quicker, but the cost flow through also takes some time as well.

So again, it's probably a couple of quarters, which all this ties into kind of our near-term projections in the range, which looks a little lower than you might expect in terms -- versus kind of the teens return we want longer term.

You just have some natural drag in the burn-off and the integration of these 2 businesses. So it's not a perfect time line, but I do think it takes a few quarters through early next year to kind of get through the bulk of that and then you start to really see, I think, the efficiencies of the 2 businesses on a more combined basis.

Now I think the deal flow, Mike can probably speak to you better than I, because I think we have seen a lot of power in that regard much, much quicker as you would expect, because we can interface people directly now and start to wrap our arms around some of that.

Yes. And I touched on that earlier, Jerry, and whether it's new point-related cross-selling or BSP related origination. The one thing, and I think the only thing that matters is our pipeline is outstanding. I would borderline use the word phenomenal. We've got so many great things going on. It seems like every cylinder is hitting from the CMBS group to balance sheet to just kind of everything that we do is all working at the moment, and I think just a Newpoint deal is the cherry on top for that. So couldn't be more excited about what we're going to accomplish between now and the end of the year and then getting the final integration done with Newpoint and just where it goes from here.

But the idea is to grow, right? And Jerry said it, we didn't have a way to grow book value as a mortgage REIT, right? You made a loan for 10, you got some interest and hopefully, you got 10 back. This is an opportunity to actually grow book value and I think makes us very, very unique within the sector. And at the same time, gives a lot of stability to the earnings, right? That servicing business is very, very sticky. It's very predictable. And so hopefully, that will take some of the volatility out of quarterly earnings as well.

Great. That's helpful. And then just to remind everyone, if you do have any questions, you're able to enter them in the chat box on your screen. I just have one final one, and that's one I think we've touched on before. But can you just address how we're thinking about GSE reform risk?

Yes. I mean, we've talked about it before. At least I've talked about it on panels and other Q&A. I don't know how much we addressed it on our earnings call. But it's pretty difficult to handicap at the moment. But I think any outcome is ultimately an acceptable outcome. I do think the reality is that this is much harder to figure out and actually execute than the world might think. I think the past 3 administrations have all talked about unwinding the conservatorship.

It's a very, very tangled web, it's very complicated. What I can say with almost absolute certainty is, I do not think this administration or any administration is going to do something that's going to mess with homeownership and the cost of mortgages in the U.S. So if they don't find a path that is very, very clear that doesn't disrupt the market, I just don't think that they'll go down it. I don't know if that means an explicit guarantee instead of the implicit security. I don't know what that means. I'm just very confident that we're not going to introduce uncertainty to our housing market.

Could there be more competitors invited into the space? Maybe. I'm not sure that, that matters, whether you have 5 competitors, 14 competitors or 22 competitors. 5 is enough. So I wouldn't think the introduction of more lenders really changes the dynamic very much. I just think that we've got something here that's very unique. I don't think the GSE reform has any sort of major risk because whatever happens applies to everybody. It's not going to be unique to Benefit Street or FBRT.

And I just don't see them doing something that's going to meaningfully disrupt the market. So as long as we're on a level playing field with everybody else, I think with our product offering and with the athletes that we have, we're going to outperform.

Well, that is a great way to wrap it up. Thanks, Mike and Jerry. That ends the prepared portion of what we have. We will post the replay to our website and then you guys all have my contact information. If you have any follow-up questions from this, please feel free to reach out. We'll also share just this updated slide deck on the website, so you have the accounting there on what a Newpoint originated loan might look like. But again, thank you so much for joining us today. And if you have any follow-ups, please reach out.

Thanks, everyone.

Thanks.