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…

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…

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…

[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.