Q4 2023 Granite Point Mortgage Trust Inc Earnings Call

Donna: Good morning, my name is Donna, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Granite Point Mortgage Trust's fourth quarter and full year 2023 financial results conference call. All participants will be in listen-only mode.

Good morning, My name is Donna and I'll be your conference facilitator at this time I would like to welcome everyone to the granite point mortgage Trust's fourth quarter and full year 2023 financial results Conference call.

Participants will be on listen only mode.

Donna: After the speaker's remarks, there will be a question and answer period. Please note, today's call is being recorded. I would now like to turn the call over to Chris Petta with Investor Relations for Granite Point.

After the Speakers' remarks, there will be a question and answer period.

Please note today's call is being recorded.

I would now like turn the call over to Chris Petta with Investor Relations for Granite point. Please go ahead.

Chris Petta: Thank you, and good morning, everyone. Thank you for joining our call to discuss Granite Point's fourth quarter and full year 2023 financial results. We on the call this morning are Jack Taylor, our President and Chief Executive Officer, Marcin Herbacek, our Chief Financial Officer, Steve Alpard, our Chief Investment Officer and Co-Head of Origination, Peter Morrell, our Chief Development Officer and Co-Head of Originations, and Steve Plust, our Chief Operating Officer.

Thank you and good morning, everyone. Thank you for joining our call to discuss granite point's fourth quarter and full year 2023 financial results with.

With me on the call. This morning are Jack Taylor, our President and Chief Executive Officer, Marcia Neuropathic, our Chief Financial Officer, Steve Alphorn, Our Chief investment Officer, and co head of origination Peter.

Peter morale, our Chief Development Officer, and co head of originations and Steve <unk>, Our Chief operating officer.

Chris Petta: After my introductory comments, Jack will provide a brief recap of market conditions and review our current business strategy. Steve Alpert will discuss our portfolio, and Morrison will highlight key items from our financial results and capitalization. The press release, financial tables, and earnings supplementals associated with today's call were filed yesterday with the SEC and are available in the investor relations section of our website. We expect to follow up with him, Tim K, in the coming weeks.

After my introductory comments Jack will provide a brief recap of market conditions and review our current business activities, Steve out part will discuss our portfolio in Washington will highlight key items from our financial results and capitalization.

The press release financial tables and earnings supplemental associated with today's call were filed yesterday with the SEC.

And are available on the Investor Relations section of our website.

We expect to file our Form 10-K in the coming weeks.

Chris Petta: I would like to remind you that remarks made by management during this call and the supporting slides may include forward-looking statements, the future uncertain outside the company's control. We're looking for statements to reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of our risks that could affect results. We do not undertake any obligation to update any forward-looking statements. We will also refer to certain non-GAAP measures on this call. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack. Thank you, Chris, and good morning, everyone.

I would like to remind you that remarks made by management. During this call and the supporting slides may include forward looking statements, which are uncertain out side of the company's control.

Forward looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations.

Please see our filings with the SEC for a discussion of some of our risks that could affect results. We do not undertake any obligation to update any forward looking statements.

We will also refer to certain non-GAAP measures on this call. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

A reconciliation of these non-GAAP financial measures to most comparable GAAP measures can be found in our earnings release and slides, which are available on our website.

I'll now turn the call over to Jack.

Thank you, Chris and good morning, everyone.

John A. Taylor: We would like to welcome you and thank you for joining us for Granite Point's fourth quarter and full year 2023 earnings. 2023 was another challenging year for the commercial real estate industry for both property owners and lenders, as transaction volumes have remained extremely low.

Like to welcome you and thank you for joining us for granite Point's fourth quarter and full year 2023 earnings call.

2023 was another challenging year for the commercial real estate industry for both property owners and lenders.

Accident volumes have remained extremely low.

John A. Taylor: High interest rates have continued to increase the cost of capital, pressuring property values across sectors. They have also created low visibility for market participants about the future cost of capital and so further reduced liquidity in the sector. Into 2023, we communicated our cautious approach to the market while putting more emphasis on maintaining higher and Proactively Managing Our Portfolio to Protect Our Balance Sheet and Investors' Capital. Our team has decades of experience managing various real estate lending businesses through market volatility caused by various economic, credit, and interest rate cycles. As such, we firmly believe that during challenging periods like today, emphasizing balance sheet stability and protecting the downside is the prudent strategy, both to effectively navigate market uncertainty and to position the business for future success and growth opportunities, even though such steps pressure the company's returns and profits.

High interest rates have continued to increase the cost of capital pressuring property values across sectors.

They have also created a low visibility for market participants about the future cost of capital and so further reduced liquidity in the sector.

Heading into 2023, we communicated our cautious approach to the market, while putting more emphasis on maintaining higher liquidity and proactively managing our portfolio to protect our balance sheet and investors capital.

Our team has decades of experience managing various real estate lending businesses through market volatility caused by various economic credit and interest rate cycles.

As such we firmly believe that during challenging periods like today, emphasizing balance sheet stability and protecting the downside is the prudent strategy.

Both to effectively navigate market uncertainty and to position the business for future success and growth opportunities.

Even though such steps pressure, the company's returns and profitability in the near term.

John A. Taylor: Subs by www.zeoranger.co.uk, In mid-2022, with the expectation of continued Federal Reserve actions and the resulting impact on commercial real estate fundamentals and valuations, we shifted our strategy from new loan originations to increasing liquidity and further diversifying our funding, and to proactively managing our portfolio by collaboratively working with our borrowers. We're pleased to report that in using this approach, we have accomplished a number of our goals in We have reduced our leverage to one of the lowest levels and well below our target.

In mid 2022 with the expectation of continued federal reserve actions and the resulting impact on commercial real estate fundamentals and valuations.

We shifted our strategy from new loan originations to increasing liquidity.

To further diversifying our funding sources and to proactively managing our portfolio by collaboratively working with our borrowers.

We're pleased to report that in using this approach we have accomplished a number of our goals and navigating the market challenges.

We have reduced our leverage to one of the lowest levels in the industry.

And well below our target range.

John A. Taylor: We realize a significant volume of loan repayments, paydowns, and resolutions totaling over $725 million last year, illustrating the liquidity embedded in our portfolio. And we resolved several non-accrual loans as we addressed select credit. Our proactive balance sheet management strategy also enabled us to repay, with cash, two convertible bonds totaling over $275 million within 10 months of each other. The latest of which was in October of 2020, as we did not want to access the capital markets during this challenge.

We realized a significant volume of loan repayments paydowns and resolutions totaling over $725 million last year illustrating the liquidity embedded in our portfolio.

And we resolved several non accrual loans as we address select credit issues.

Our proactive balance sheet management strategy also enabled us to repay with cash to convertible bond maturities totaling over $275 million within 10 months of each other.

The latest of which was in October of 2023, as we did not want to access the capital markets. During this challenging period.

John A. Taylor: We have also opportunistically deployed capital into our own. As part of our Flexible Capital Allocation Strategy, and given the attractive relative value, over the course of 2023, we repurchased about 2 million shares of our common stock, representing some 3.8% of our shares outstanding, generating book value accretion of about $0.35 per common share. We currently have a little over 4 million shares remaining under our existing authorization.

We have also opportunistically deploy capital into our own securities.

As part of our flexible capital allocation strategy and given the attractive relative value.

Over the course of 'twenty to 'twenty, three we repurchased about 2 million shares of our common stock representing solid three 8% of our shares outstanding.

Generating book value accretion of about 35 cents per common share.

We currently have a little over 4 million shares remaining under our existing authorization and we intend to remain opportunistic with respect to any future buyback activity.

John A. Taylor: We intend to remain opportunistic with respect to any future buyback. We believe that despite the significant market challenges our industry has faced over the last couple of years, our granular senior floating rate loan portfolio has delivered relatively attractive returns, benefiting from higher short-term rates and diversification across property types, many markets, and many sponsors who generally remain supportive of their investors, although transaction volumes have remained subdued across the real estate market.

We believe that despite the significant market challenges our industry has faced over the last couple of years, our granular senior floating rate loan portfolio has delivered relatively attractive returns benefiting from higher short term rates and diversification.

Across property types, many markets and many sponsors who generally remains supportive of their investments.

Although transaction volumes have remained subdued across the real estate market. Our portfolio has benefited from its broad diversification in middle market focus and as I mentioned earlier, we realized a strong pace of loan repayments last year of over 20% of our portfolio.

John A. Taylor: Our portfolio has benefited from its broad diversification and middle market focus. And, as I mentioned earlier, we realized a strong pace of loan repayments last year of over 20% of our portfolio. The loan payoffs have been across property types, the largest of which, or about 35%, was related to loans collateralized by office borrowers.

The loan payoffs have been across property types, the largest of which or about 35% was related to loans collateralized by office properties.

John A. Taylor: In fact, over the last couple of years, our exposure to office loans has significantly declined by over $500 million, or about 30%, primarily due to repayments and paydowns, and also select loan reservations. Many of our repayments have come from loans that have been previously amended to allow borrowers more time to progress on their business plans and complete their exits through either property sales or refinancing. This illustrates the benefit of working with our borrower. However, the pace of repayments remains volatile and uncertain, and we will continue to manage our business accordingly. While we believe our conservative underwriting has helped our portfolio performance, given the severity of market challenges, we are not immune to experiencing select credit issues, which we continue to proactively address, including the resolution of a San Diego office loan in the fourth quarter.

And in fact over the last couple of years, our exposure to office loans has significantly declined by over $500 million or about 30%.

Primarily due to repayments and pay downs and also select loan resolutions.

Many of our repayments have come from loans that had been previously amended to allow borrowers more time to progress on their business plans and complete their exits who either property sales or refinancing.

This illustrates the benefit of working with our borrowers.

The pace of repayments remains volatile and uncertain and we will continue to manage our business accordingly.

While we believe our conservative underwriting has helped our portfolio performance given the severity of market challenges, we are not immune to experiencing select credit issues, which we continue to proactively address including the resolution of the San Diego office alone in the fourth quarter.

John A. Taylor: As we progress on various resolution strategies for certain loans, during the fourth quarter, we downgraded two loans from a risk rating of 4 to a risk rating of 5. Both the Baton Rouge mixed-use retail and office assets and the Chicago office assets are in various stages of resolutions involving potential property sales by their sponsors, which Steve will address shortly. Our GAAP results include additional credit loss provisions mainly related to the 5-rate. Overall, the fourth quarter CECL reserve was 4.7% of total, versus about 4.9% less. Overall, market sentiment has improved somewhat over the past months, following the recent shift in the Fed's stance pointing to anticipated reductions in the Federal Fund's target rate during 2020. And we believe that sentiment and activity will likely continue to improve, particularly during the second half of the year. However, the continued strength in the labor market and consumer spending supporting the overall performance of the U.S. economy may impact the timing of such interest rates and further delay the recovery in the commercial real estate market.

As we progress on various resolutions strategies for certain loans during the fourth quarter, we downgraded to launch from a risk rating of four two a risk rating of five.

Both of Baton Rouge, mixed use retail and office assets and the Chicago office assets are in various stages of resolutions involving potential property sales by their sponsors, which Steve will address shortly.

Our GAAP results include additional credit loss provisions mainly related to the five rated loans, while their overall fourth quarter seasonal reserve was four 7% of total commitments versus about four 9% last quarter.

Overall market sentiment has improved somewhat over the past months. Following the recent shift in the fed's stance pointing to anticipated reductions in the federal funds target rate during 2024.

We believe that sentiment and activity will likely continue to improve particularly during the second half of the year.

However, the continued strength in the labor market and consumer spending supporting the overall performance of the U S economy may impact the timing of such interest rate cuts, which may further delay the recovery in the commercial real estate market.

John A. Taylor: Although we have seen a modest pick-up in transaction volumes in the industry, we believe the future path of macro trends remains uncertain. Fundamental performance across property types continues to be uneven, and High Interest Rates All Contribute to Continued Constrained Liquidity in the Real Estate Market. As such, in the near to medium term, we will continue to emphasize maintaining higher..., working with our borrowers to facilitate repayments, and resolving our non-accrual loans, giving them a meaningful impact on our returns. We believe that these actions, over time, will help improve our run rate profitability while positioning us to redeploy our capital into attractive investments and grow our portfolio as the real estate market stabilizes. I would now like to turn the call over to Steve Alpart to discuss our portfolio activities in more detail. Thank you, Jack, and thank you all for joining our call this morning.

Although we have seen a modest pickup in transaction volumes in the industry. We believe the future path of macro trends remains uncertain.

The lateral performance across property types continues to be uneven and high interest rates all contribute to continued constrained liquidity in the real estate market.

As such in the near to medium term, we will continue to emphasize maintaining higher liquidity working with our borrowers to facilitate repayments and resolving our non accrual loans, giving their meaningful impact on our returns.

We believe that these actions over time will help improve our run rate profitability, while positioning us to redeploy our capital into attractive investments and grow our portfolio as the real estate market stabilizes.

I would now like to turn the call over to Steve <unk> to discuss our portfolio activities in more detail.

Thank you Jack and thank you all for joining our call. This morning.

Steven Cole DeLaney: We ended the fourth quarter with a total portfolio, an outstanding principal balance of about 2.7. One hundred and sixty million of future funding, accounting for only about six percent of total, our portfolio remains well-diversified across regions and properties. 73 loan investments with an average size of about $37 million. Most of our loans continue to benefit from higher short-term interest rates. Deliver an attractive, carry a generally favorable credit profile, and stabilized LTV at origination of 64.

We ended the fourth quarter with total portfolio commitments of $2 9 billion and then outstanding principal balance of about $2 7 billion with $160 million of future funding accounting for only about 6% of total commitment.

Our portfolio remains well diversified across regions and property types and include 73 loan investments with an average size of about $37 million.

Most of our loans continued to benefit from higher short term interest rates and deliver an attractive income stream and carry a generally favorable credit profile with a weighted average stabilized LTV at origination of 64%.

Steven Cole DeLaney: Our realized portfolio yield for the fourth quarter was about 8.3%, net of the impact of the nonaccrual loan, which we estimate to have been about 90. During the fourth quarter, we funded $15 million of existing loan commitments and upsides for about $49 million related to the previously disclosed, This is a Risk Rated 5 San Diego office. So far in the first quarter, we have funded about $7 million. During 2020.

Our realized portfolio yield for the fourth quarter was about eight 3% net of the impact of the non accrual loans, which we estimate to have been about 90 basis points.

During the fourth quarter, we funded $15 million of existing loan commitments and upsize it and one new loan for about $49 million related to the previously disclosed resolution of the risk rated five San Diego Office law.

So far in the first quarter, we funded about $7 million of existing commitment.

During 2023, we realized over $725 million of loan payoffs, including over $255 million in the fourth quarter, consisting of full loan repayment principal paydowns and select loan resolutions.

Steven Cole DeLaney: We realize over $725 million, including over $255 million in the fourth quarter, consisting of full loan repayments, principal paydowns, and select loan resolutions. About 35% of the repayment volume is related to office property, and about 28% is multifamily.

About 35% of the repayment volume it was related to office properties and about 28% where multifamily assets with the balance allocated primarily between hotel and industrial loan.

Steven Cole DeLaney: The balance is allocated primarily between hotel and industrial loans. Despite the broader market challenges, our volume of loan repayments has been relatively healthy. We have benefited from some more liquidity in the middle market and our broad portfolio diversification across primary and secondary markets. Even the market is uncertain. Payments are hard. In the near term, we anticipate our loan portfolio balance to trend lower as we maintain our cautious stand. Please see the complete disclaimer at https://sites.google.com.au/policies/privacy/interest rates follow the current consensus path and decline in the second half.

Right the broader market challenges our volume of loan repayments has been relatively healthy.

Holding from office asset.

We have benefited from some more liquidity in the middle market and our broad portfolio diversification across primary and secondary markets.

Given the market uncertainty repayments are hard to predict.

The near term, we anticipate our loan portfolio balance to trend lower as we maintain our cautious stance and continue to prioritize meaning higher levels of liquidity.

Interest rates follow the current consensus path and decline in the second half of the year. We would anticipate some continued improvement in the commercial real estate capital markets with the real estate markets, improving transaction volumes, increasing and repayment levels normalized.

Steven Cole DeLaney: We would anticipate some continued improvement in the commercial real estate capital market. Real Estate Markets Improving, Transaction Volumes Increasing, and Repayment Levels Normalizing. While higher interest rates have generally benefited our returns and those of our industry, increased capital costs and reduced liquidity have negatively affected certain borrowers and, in turn, the performance of several of our law firms. During the fourth quarter, we downgraded two loans from risk rankings of 4 to 5, including an $86 million senior loan collateralized by a mixed-use retail and office property in Baton Rouge, Louisiana.

While higher interest rates have generally benefited our returns and those of our industry increased capital costs and reduced liquidity have negatively affected certain borrowers and in turn the performance of several of our allowance.

During the fourth quarter, we downgraded to loans from risk rankings of four to five including an $86 million senior loan collateralized by a mixed use retail and office property in Baton Rouge, Louisiana, and an $80 million senior loan secured by an office property with the retail component in Chicago.

We have been monitoring these assets for some time and both are in various stages of potential resolutions.

Steven Cole DeLaney: An $80 million senior loan secured by an office property with a retail component in Chicago. We have been monitoring these assets for some time, and both are in various stages of potential. The borrower on the Baton Rouge loan has launched a sale process for the property. The process remains ongoing, and while it is difficult to predict the timing and ultimate outcome, we hope to reach a potential resolution in the next couple of quarters. The borrower on the Chicago property is also in negotiations to potentially sell the asset. However, the process is in its early stages.

Sure on the Baton Rouge, La and has launched a sale process for the property the process remains ongoing and while it is difficult to predict the timing and ultimate outcome, we hope to reach a potential resolution in the next couple of quarters.

The borrower on the Chicago property is also in negotiations to potentially sell the asset. However, the process is in its early stages.

In addition, during the quarter, we also moved to a risk ranking of four.

A smaller $26 million senior loan secured by our.

Secured by an office property located in Boston that has been negatively impacted by the ongoing soft leasing environment in that market.

We are in active discussions with the borrower on this asset as we evaluate potential next steps with respect to this law.

Steven Cole DeLaney: In addition, during the quarter, we also moved to a risk ranking of 4. A smaller $26 million senior loan secured by an office property located in Boston that has been negatively impacted by the ongoing soft leasing environment in that market. We are in active discussions with the borrower on this asset as we evaluate potential next steps with respect to this loan. These actions, along with the repayments realized in the fourth quarter, resulted in a portfolio weighted average risk ranking as of December 31st, compared to 2.7 in the prior period.

These actions along with the repayments realized in the fourth quarter resulted in a portfolio weighted average risk ranking of.

Two eight as of December 30, <unk> compared to $2 seven in the prior period.

As we previously disclosed during the quarter, we resolved a nonaccrual $93 million San Diego office loan through a coordinated deed in lieu transaction and a sale of the property to a new buyer, while providing $49 million.

Senior floating rate acquisition alone to the new ownership, who invested meaningful cash equity into the transaction.

Steven Cole DeLaney: As previously disclosed, during the quarter, we resolved a non-accrual $93 million San Diego office loan through a coordinated Deeds-in-Lieu transaction and a sale of the property to a new buyer, while providing $49 million. Senior Floating Rate Acquisition Loan to the new ownership, who invested meaningful cash equity into the transaction. We worked collaboratively over many months with our previous borrower and the new owner to bring this transaction to a successful conclusion, and in the process, created an attractive earning asset at a reset. As discussed on our last call, during the quarter, we also opportunistically sold a $31.8 million senior loan collateralized by an office property located in Dallas, which resolutions resulted in losses, most of which had been previously accounted for in our book Considering the impact of the non-performing loans on our run rate profitability, we are actively pursuing various resolution paths for these assets to allow us to redeploy our capital and improve our operating resources. The borrower on a $28 million Minneapolis hotel loan can be conducting a sale process for the property, and that process remains ongoing.

He worked collaboratively over many months with our previous borrower and the new owner to bring this transaction to a successful conclusion and in the process created an attractive earning asset at a reset basis.

As we discussed on our last call during the quarter. We also opportunistically sold if $31 $8 million senior loan collateralized by an office property located in Dallas.

These two resolutions resulted in losses, most of which had been previously accounted for in our book value through our seasonal reserves.

Considering the impact of the nonperforming loans have on a run rate profitability. We are actively pursuing various resolution path for these assets to allow us to redeploy our capital and improve our operating results.

Borrower on a $28 million Minneapolis hotel loan has been can be conducting a sale process for the property and that process remains ongoing.

We are in active discussions with the sponsors on the $37 million La mixed use office and retail loan and the $93 million Minneapolis office, one regarding next steps and potential resolutions both of which are likely to take longer than some of the other assets. We are looking to resolve given local market conditions.

With respect to the Oreo office property in Phoenix, we are actively asset managing the property, which continues to generate modestly positive operating income.

Steven Cole DeLaney: We are in active discussions with the sponsors on the $37 million L.A. mixed-use office and retail loan and the $93 million Minneapolis office loan regarding next steps and potential resolution, both of which are likely to take longer than some of the other assets we are looking to resolve, given local markets. With respect to the REO office property in Phoenix, we are actively asset managing the property, continuing to generate modestly positive operating income, and continuing to evaluate potential next steps, including a sale process. Please see the complete disclaimer at www.sites.google.com or at www.sites.google.com.

We continue to evaluate potential next steps, including a sale process.

I'm pleased with our progress to date on these assets and remain focused on resolving all the nonperforming loans were also pleased that the majority of our borrowers remain committed to their assets.

I will now turn the call over to Martin for a more detailed review of our financial results and capitalization.

Thank you Steve Good morning, everyone and thank you for joining us today.

Yesterday afternoon, we reported a fourth quarter GAAP net loss of $17 $1 million or 33 cents per basic share.

Which includes a provision for credit losses of $21 $6 million or <unk> 42 cents per basic share mainly.

Mainly related to certain risk rated five loans.

<unk> loss for the quarter was $26 4 million or <unk> 52 cents per basic share, including a write off of $33 $3 million or 65 cents per basic share.

Marcin: We're also pleased that the majority of our borrowers remain committed to their assets. I will now turn the call over to Marcin for a more detailed review of our financial results and capital. Thank you, Steve. Good morning, everyone, and thank you for joining us.

Weighted to the resolution of our San Diego Office phone, we disclosed in December.

Marcin: Yesterday afternoon, we reported a fourth quarter gap net loss of $17.1 million, or $0.33 per basic share, which includes a provision for credit losses of $21.6 million, or 42 cents per basic share, mainly related to certain risk-rated 5 loans. Distributable loss for the quarter was $26.4 million, or $0.52 per basic share, including a write-off of $33.3 million, or $0.65 per basic share, related to the resolution of our San Diego office loan we disclosed in December. Distributor earnings before realized losses were $7 million, or 14 cents per basic share, and reflected the impact of loan repayments and additional loans placed on non-accrual status during the quarter.

Our earnings before realized losses was $7 million or <unk> 14 per basic share and reflects the impact of loan repayments and additional loans placed on non accrual status during the quarter.

Our book value at December 31 was $12 91 per common share.

The decline of about 37 per share or about two 7% from Q3.

The decrease was primarily due to the loan loss provision the impact of which was partially offset by our accretive for purchases of 1 million common shares during the quarter, which we estimate benefited book value by about 60 per share.

Our seasonal reserve at year end was about $137 million or $2 71 per share.

Representing about four 7% of our portfolio commitments.

Marcin: Our book value at December 31st was $12.91 per common share, a decline of about $0.37 per share, or about 2.7% from Q3. The decrease was primarily due to the loan loss provision, the impact of which was partially offset by our accretive repurchases of 1 million common shares during the quarter, which we estimate benefited book value by about 16 cents per share. Our CECL reserve at year-end was about $137 million, or $2.71 per share, representing about 4.7% of our portfolio commitments, as compared to about $149 million, or 4.9% of total commitments last quarter. The modest change in our CECL reserve was mainly related to the write-off of the allowance related to the San Diego asset, loan repayments, and slightly better macro assumptions used in estimating the general reserve.

That's compared to about $149 million or four 9% of total commitments last quarter.

The modest change in our seasonal reserves was mainly related to the write off of the allowance related to the new asset.

Loan repayments and slightly better macro assumptions used in estimating the general reserve.

Partially offset by additional specific allowance recorded on the two new risk grade five loans.

Two thirds of our total seasonal reserves or about $90 million is allocated to certain individually assessed loans switching.

Which implies an estimated loss severity of about 27%.

As of year end, we had about $450 million of loans on nonaccrual status.

Most of which are in various stages of resolutions.

The additional loans that were placed on nonaccrual.

Marcin: Partially offset by additional specific allowance recorded on the two new risk-rated five loans. Two-thirds of our total CECL reserve, or about $90 million, is allocated to certain individually-assessed loans, which implies an estimated loss severity of about 27%. As of year end, we had about $450 million of loans on non-accrual status, most of which are in various stages of resolution. The additional loans that were placed on non-accrual accounted for over $5 million of interest income during the fourth quarter.

<unk> for over $5 million of interest income during the fourth quarter.

Given the impact our nonperforming assets have on run rate profitability, we anticipate our earnings to be our dividend in the near term.

As we make progress on resolving these assets, we believe the company's profitability should improve over time, though the exact timing and ultimate outcomes remain difficult to predict.

Turning to liquidity and capitalization, we ended the quarter with over $188 million of unrestricted cash.

Our total leverage continued to modestly decline to two one times in Q4.

Marcin: Given the impact our non-performing assets have on run-rate profitability, we anticipate our earnings to be below our dividend in the near term. As we make progress on resolving these assets, we believe the company's profitability should improve over time, though the exact timing and ultimate outcomes remain difficult to predict. Turning to liquidity and capitalization, we ended the quarter with over $188 million of unrestricted cash, and our total leverage continued to modestly decline to 2.1 times in Q4 from 2.2 times in Q3, mainly due to long payoffs and repayment of the convertible notes in October, which was partially offset by an additional $100 million in borrowings related to an upsizing of the J.P. Morgan facility during the quarter. Our funding mix remains well Following the repayment of our convertible notes, we have no corporate debt maturities remaining.

From two two times in Q3, mainly.

Mainly due to loan payoffs and repayment of the convertible notes in October.

Which was partially offset by an additional $100 million in borrowings related to an upsizing of the JP Morgan facility during the quarter.

Our funding mix remains well diversified and stable and we enjoy continued support from our lenders highlighting the strength of these long standing relationships.

Following the repayment of our convertible notes, we have no corporate debt maturities remaining.

As of a few days ago, we carried about $170 million in unrestricted cash.

I would like to thank you again for joining us today, and we will now open the call for questions.

Thank you the floor is now open for questions. So if you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be.

Necessary to pick up the handset before pressing the starkey once again that is star one to register a question at this time.

Operator: As of a few days ago, we carried about $170 million in honors straight to cash. I would like to thank you again for joining us today, and we will now open the call for questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Today's first question is coming from Steve Delaney of citizens JMP. Please go ahead.

Good morning, everyone. Thanks for taking the question Steve Albert You mentioned in your comments, a Boston loan I believe you indicated it was downgraded to a five.

Was that.

In event that took place here in the first quarter of 2024.

Steve DeLaney: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. Once again, that is star 1 to register a question at this time. Today's first question is coming from Steve DeLaney of Citizens JMP. Please go ahead. Good morning, everyone.

It's not listed on the page 11 on the five rated loans as of year end.

Hey, Steve Good morning, Thanks for joining our call. This morning.

That loan was downgraded in the fourth quarter from a three to a four.

Okay, not two five right.

Okay got it and that leads me to my next question was kind of like what's left and four rated loans given the transition that you had a two a couple of fabs in the fourth quarter.

Steve DeLaney: Thanks for taking the question. Steve Alpert, you mentioned in your comments a Boston loan. I believe you indicated it was downgraded to a five. Was that an event that took place here in the first quarter of 2024? It's not listed on page 11 on the five rated loans as of year end. Hey Steve, good morning.

I believe it was seven you said the fours were 7% of the portfolio, which sounds like it'd be a couple a couple $200 million. How many loans are in that four bucket currently.

Steven Cole DeLaney: Thanks for joining our call this morning. That loan was downgraded in the fourth quarter from a 3 to a 4. My bad, okay, three to four.

Yeah.

Sure there is.

Ah Theres four loans, Steven the four bucket.

As of December.

Okay, Great. That's helpful. Thank you very much.

Steven Cole DeLaney: Okay, got it. And that leads me to my next question, which is kind of like what's left in the four-rated loans given the transition that you had to a couple of fives in the fourth quarter? I believe it was seven. You said the fours were 7% of the portfolio, which sounds like it'd be about $200 million.

Okay and I guess this is just kind of a general comment, but hearing you talk about your liquidity and retaining cash and Martin's comments about near term earnings coming in below the dividend and we model that as well simply because of some assumed losses impacting distributor.

P S. Jack I guess I'll direct this to you you have been using your buyback.

Steven Cole DeLaney: How many loans are in that four bucket currently? Sure, there are four loans, Steve, in the four bucket. Okay, great. That's helpful. Thank you very much.

Looking at where things stand now would it not make sense for the board to consider trimming the dividend the yield now is mid teens or higher today trim, the dividend and allocate more more of that cash capital into buying back the shares down.

John A. Taylor: Okay, and I guess this is just kind of a general comment, but hearing you talk about your liquidity and retaining cash and Marcin's comments about near-term earnings coming in below the dividend, and we model that as well simply because of some assumed losses impacting distributable EPS. Jack, I guess I'll direct this to you. You have been using your buyback. Looking at where things stand now, would it not make sense for the board to consider trimming the dividend? The yield is now mid-teens or higher today. Trim the dividend and allocate more of that cash capital to buying back the shares down here, less than 50% of the book. Just curious about your thoughts on that suggestion. Hi Steve.

Here you know.

Less than 50% of book just curious your thoughts.

On that that suggestion.

Hi, Steve This is Jack and Oh, it's good to speak with you and thank you for joining us.

Sure.

Answer that and Chris.

I'll start out by saying, it's our policy and our goal to provide an attractive income stream through the dividend to our stockholders and <unk>.

Dividend sustainability.

And.

Desire for it to be supported by our expectations for the run rate operating profitability is a key in our mind, but and that's also with a view of the long term profitability.

John A. Taylor: This is Jack, and it's good to speak with you, and thank you for joining us. Sure, I'll answer that. First, I'll start out by saying it's our policy and our goal to provide an attractive income stream through the dividend to our stockholders. If you have any questions, please feel free to contact me.

Profitability.

Excuse me I'd be a little bit of laryngitis.

Given the.

Really uncertain environment, making projections is really pretty difficult and the estimates is very challenging and we recognize that during this period and other periods of credit challenges, we and others in the industry may under earn the dividend for a period of time, especially as we work on and resolve.

John A. Taylor: Thank you. ß 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23, The desire for it to be supported by our expectations for the run rate operating profitability is key in our minds, and that's also with a view to the long-term. Profit. Excuse me, I've been a little bit of a player in China.

The non accrual loans as you pointed out.

And so as we mentioned in our prepared remarks, we anticipate that our earnings will be below the current dividend in the near term.

And as we resolve these nonperforming assets and they have if we pointed out a meaningful drag on our profitability now we don't anticipate that and we certainly don't anticipate that to be a permanent situation.

John A. Taylor: Given the really uncertain environment in making projections, really pretty difficult, and the estimates are very challenging. And we recognize that during this period and other periods of credit challenges, we and others in the industry may under-earn the dividend for a period of time, especially as we work on resolving the non-accrual loans, as you pointed out. And, as we mentioned in our prepared remarks, we anticipate that our earnings will be below the current dividend in the near term. And, as a result, these are not performing assets. If we pointed out a meaningful drag on our profitability, now we don't anticipate that.

But we don't know how long that.

It's going to take and how long the resolutions will take so management along with our board will continue to evaluate the company's dividend in respect of future quarters and the dividend is of course, a ultimately a decision of the board, but all of these factors we are taking into account, including what you.

You were saying about stock buybacks and a.

Flexible capital strategy allows us as we have in the past.

Have authorization for it to take advantage of what we've considered to be a very deep discount against value and our stock buybacks alright, I appreciate that Jack can you say, what the remaining buyback authorization was as of the end of 'twenty three.

John A. Taylor: We certainly don't anticipate that to be a permanent situation, but we don't know how long that... is going to take and how long the resolution... So management, along with our board, will continue to evaluate the company's dividends with respect to future quarters. And the dividend is, of course, Ultimately, a decision of the board, but all these factors were taken into account, including what you were saying about stock buybacks.

I believe we have.

4 million.

Yes, we have $4 million of buyback authorization remaining I think it's a little bit more but it's a four point something like 4.1, okay. Great. That's helpful. Okay, well thanks for the comments.

Thank you.

Thank you. The next question is coming from Stephen laws with Raymond James. Please go ahead.

John A. Taylor: Our flexible capital strategy allows us, as we have in the past, and we have authorization for it, to take advantage of what we consider to be a very deep discount against value in our stock market. I appreciate that, Jack. Can you say what the remaining buyback authorization was as of the end of 2023? I believe we do. So we have a 4 million buyback. I think it's a little bit more, but it's a 4 point something, like 4.1.

Hi, good morning.

Good morning, you know a couple of questions around.

The Npls I guess.

And Steve Alford I appreciate the color as you kind of ran through them certainly seems like you said that law mixed use and the many office maybe you are going to be longer resolutions, but you know as you try to bucket. The others that you went through you know any any thoughts on you know which ones could be resolved first half 'twenty, four which ones may be second half.

Steve DeLaney: Okay, great. That's helpful. Okay, well, thanks for the comment.

Or is there a way to somewhat kind of force rank you know what what's what can be addressed sooner rather than later or do you think about the.

Operator: Thank you. Thank you. The next question is coming from Steven Laws of Raymond James. Please go ahead. Hi, good morning.

Steven Cole DeLaney: Good morning. You know, I have a couple of questions about the NPLs. I guess, you know, first and foremost, and Steve Alpert, I appreciate the color as you kind of ran through them. Certainly seems like you said LA mixed use and the mini office are probably going to be longer resolutions. But, you know, as you try to bucket the others that you went through, you know, any thoughts on, you know, which ones could be resolved first half of 24, which ones maybe second half, or is there a way to somewhat kind of force rank, you know, what, what's, what can be addressed sooner rather than later, as you think about the loans? Sure. Hey Steve, good morning.

As loans.

Sure Hey, Steve Good morning, Thanks for joining our call. This morning, good to talk to you.

So yes.

As he said earlier the the law mixed use and the Minneapolis office asset just given what's happening in those two markets. We think that those are probably.

Little bit longer than some of the others.

The Baton Rouge mixed use just to kind of do a quick March here.

Borrowers launched a sale process to sell the property and that process is ongoing as speak.

It's difficult in this market to predict timing, but that's what I would say, we hope to resolve in the next couple of quarters.

The Chicago office deal, which has a retail component as well, we're working with that borrower.

Steven Cole DeLaney: Thanks for joining our call this morning. It's good to talk to you. As you said earlier, the LA mixed-use and the Minneapolis office asset, just given what's happening in those two markets, we think that those are probably a little bit longer than some of the others. The Baton Rouge mixed-use, just to kind of do a quick march here, that borrower has launched a sale process to sell the property. That process is ongoing as we speak. It's difficult in this market to predict timing, but that's one I would say we hope to resolve in the next couple of quarters. The Chicago office deal, which has a retail component as well, we're working with that borrower. They're in negotiations to potentially sell the property. It's in the early stages.

They are in negotiations to potentially sell the property. It's early stages, we're hopeful for resolution I would probably characterize that one as more intermediate term are again, the timing is hard to predict.

This was in FY <unk>, we have no other office exposure in that market.

The.

Any hapless hotel loan.

Borrowers also conducting a sale process also ongoing.

We will evaluate next steps with them once they have more feedback which hopefully soon.

Again timing is hard to predict but that one is also ongoing.

And then the Phoenix RVO asset we've talked in some prior quarters at.

In that configuration lays out well for a potential conversion to residential so there's some optionality, whether it's you know whether it's multifamily or whether it's office.

Steven Cole DeLaney: We're hopeful for a resolution. I would probably characterize that one as more intermediate term. Again, the timing is hard to predict. This is an FYI. We have no other office exposure in that market.

We're actively managing that one right now we're.

We're evaluating next steps that could include a potential sale process.

And we will we'll share more information on that one as it develops.

Steven Cole DeLaney: The Minneapolis Hotel Loan, that borrower is also conducting a sale process, also ongoing. We'll evaluate next steps with them once they have more feedback, which hopefully is soon. Again, timing's hard to predict, but that one's also ongoing.

Great and I guess as a follow up to those we see you offer any buyers kind of seller financing or financing all the new assets. The way you did with San Diego or there are certain assets that.

We don't want a habit.

Closure to going forward you know how do you think about the willingness to provide financing to to the ultimate buyer in the sales process.

Steven Cole DeLaney: And then the Phoenix RBO asset, we've talked in some prior quarters that that configuration lays out well for potential conversion to residential. Still, there's some optionality, whether it's multifamily, whether it's office. We're actively managing that one right now. We're evaluating next steps, which could include a potential sale process. And we'll share more information on that one as it develops.

Sure. So it's something that we've done in the past it's a it's something in the tool kit, we can do it where it's necessary certainly where it's necessary to facilitate a sale.

In this market.

Particularly for some of these assets.

The office lending market, obviously is difficult so.

We would probably expect for a lot of these office resolutions that were probably going to.

Steven Cole DeLaney: And I guess a follow-up to those, you know, we see you offer any buyers, you know, kind of seller financing or financing on the new assets the way you did with San Diego, or there are certain assets that you don't want to have exposure to going forward. You know, how do you think about the willingness to provide financing to the ultimate buyer in these sales processes? Sure. So it's something that we have done in the past. It's something in the toolkit.

Be providing some type of financing that's not necessarily the case, we didn't provide any.

Financing on the Dallas Office, a note sale.

So it's something we can do it case by case, we've done it we'll evaluate it case by case.

Great and then lastly, maybe for Martin you know when you think about the Npls and financing that may be in place all of them can you talk about what.

The drag on run later run rate earnings or is there some way to quantify that and as far as.

Steven Cole DeLaney: We can do it where it's necessary, certainly where it's necessary to facilitate a sale. In this market, particularly for some of these assets, the office lending market is obviously difficult. So we would probably expect for a lot of these office resolutions that we're probably going to, providing some type of financing. But that's not necessarily the case.

Once you get some resolutions and you were able to pay off the associated financing kind of what the potential benefit to us as you look at those assets.

Sure. Good morning, Stephen Thank you for joining us I would say that the biggest impacts on those assets and like as I said in prepared remarks, it's over 400 million Oh that must be out of the air sort of interest income.

Steven Cole DeLaney: We didn't provide any financing on the Dallas office note sale, so it's something we can do case by case. We've done it. We'll evaluate it case by case. Great And then lastly, maybe for Marcin, you know, when you think about the NPLs and financing that may be in place on them, can you talk about what the drag on run-rate earnings is? Is there some way to quantify that as far as, you know, once you get some resolutions and you're able to pay off the associated financing, kind of what the potential benefit is as you look at those assets? Sure. Good morning, Steven.

They they their finance sort of in a variety of variety of different ways, but.

But I would say most most of the most.

Most of the impact the positive impact from resolutions would come from.

Yeah, potentially turning them into earning assets as Stephen Steve up or just talk to what if we decided to provide financing.

So repaying some of the expensive debt, but it's pretty meaningful.

As you've heard us say, they they sort of accounted for about 90 basis points those yields from an interest income perspective.

So that's it's pretty meaningful.

Marcin: Thank you for joining us. I would say that the biggest impact from those assets, and as I said in my prepared remarks, there are over 400 million of them as of the end of the year, sort of interest income. They are financed sort of in a variety of different ways. But I would say most of the positive impact from resolutions would come from potentially turning them into earning assets, as Steve Alpert just talked about, if we decide to provide financing or repay some of the expensive debt. But it's pretty meaningful.

Hard to quantify depending on which the resolution happens on which loan.

But it's it's it's in double digits in earnings per share per quarter for sure.

Yes, Thats the math I was getting to two I appreciate the color on that thanks for your comments this morning.

Thank you Steve.

Thank you. The next question is coming from Doug Harter of UBS. Please go ahead.

Ah. Thanks can you talk about your upcoming 2024 maturities.

You know just in the context of.

Marcin: I mean, as you heard us say, they sort of accounted for about 90 basis points of yield from an interest income perspective. So, that's pretty meaningful. So, it's sort of hard to quantify depending on which resolution happens on which loan, but it's in double digits in earnings per quarter for sure. Yeah, that's the math I was getting to. I appreciate the color on that.

Helping us get comfortable that you have.

In the current risk ratings have your arms around you know potential new problems.

Hey, Doug Good morning, Steve Thanks for joining the call.

So.

As we look out into 'twenty 'twenty four 2025.

I think we have a pretty good handle some of these loans will pay off in the normal course.

Steven Cole DeLaney: Thanks for your comments this morning. Thank you. Thank you. The next question is coming from Doug Harder of UBS. Please go ahead.

Last year in 2023 2022.

We've had pretty good repayment pace on these loans, though some of these loans will continue to just pay off in the normal course.

Doug Harder: Thanks. Can you talk about your upcoming 2024 maturities, you know, just in the context of helping us get comfortable that you have, you know, in the current risk ratings, your arms around, you know, potential new problems? Hey, Doug, good morning.

Some of them will extend right summer.

Some of them won't qualify for an extension some of them, maybe maybe coming up on our final maturity I think that's the question you were getting at.

We have a playbook for working for resolving those.

Steven Cole DeLaney: Steve, thanks for joining the call. So, as we look out into 2024, 2025, I think it's a pretty good handle.

In general if something is coming up and we've got a good borrower.

Doing all the right things you know and they're financially committed to the asset will come up with a plan to potentially give them more time to get loan pay downs to get.

Steven Cole DeLaney: Some of these loans will pay off in the normal course. Last year in 2023 and 2022, we had a pretty good repayment pace on these loans. So some of these loans will continue to just pay off in the normal course. Some of them will be extended outright. Some of them won't qualify for an extension.

Debt service reserves replenished to try and create some kind of a win win situation and what I. Just described will handle the bulk of it.

And then there'll be a smaller cohort of loans.

Fives for example, when we have to kind of take a different approach and that that may be.

Steven Cole DeLaney: Some of them may be coming up on their final maturity. I think that's a question you're getting at. We have a playbook for working on resolving those. In general, if something's coming up and we've got a good borrower doing all the right things, and they're financially committed to the asset, we'll come up with a plan to potentially give more time to get loan paydowns. Debt service reserves need to be replenished to try and create some kind of a win-win situation, and what I just described will handle the bulk of it.

A note sale could be a can be a property sale can be working with our borrowers to sell the property.

You know going to the earlier question case by case, we can provide seller financing. So it's kind of a range of outcomes.

Outcomes a range of tools that we have we're obviously very focused on this deal does the tone with our borrowers for the majority of our assets is very positive people are still putting money in to.

These deals but look it's we recognize the environment is challenging for a lot of these loans, particularly office loans and that's why you've seen us.

Increase our seasonal reserve, which I think are about doubled since Q.

Steven Cole DeLaney: And then there'll be a smaller cohort of loans, you know, the fives, for example, where we have to kind of take a different approach. And that may be a note sale, could be a property sale, or working with our borrower to sell the property. You know, going from the earlier question, case by case, we can provide seller financing. So we have a range of outcomes, a range of tools that we have.

Q4, 2022, something we're very focused on.

Great and then yeah.

In Oh, how are you thinking about your current liquidity.

How much of that you know with no corporate debt maturities.

Of that liquidity could be used for buyback versus.

You know how much you need to save for potential defense of our ports.

Steven Cole DeLaney: We're obviously very focused on this. You know, the tone with our borrowers for the majority of our assets is very positive. People are still putting money into these deals. But look, it's, you know, we recognize the environment is challenging for a lot of these loans, particularly office loans. And that's why you've seen us, you know, increase our CECL reserves, which I think have about doubled since May. For more information, call 1-800-422-7113.

Portfolio actions.

I think this is Jack could you speak with you.

Thank you for joining us.

Well, we've been maintaining our focus on keeping an elevated level of liquidity.

And even during that period of time, we have deployed some into purchasing our shares.

And so we don't predict when we might and when but we.

We have the ability to do so and we will remain opportunistic with respect to that.

We've had a.

Tremendous success, so far with the providing of yourselves more financial liquidity and our asset management of our loan portfolio.

John A. Taylor: It's something we're very focused on. Great. And then, you know, kind of in the back of your mind, how are you thinking about your current liquidity? You know, how much of that, you know, with no corporate debt maturities, how much of that liquidity could be used for buyback versus, you know, how much do you need to save for potential defensive portfolio actions? Hi, this is Jack.

Dressing potential credit events.

And we're going to as we said in our prepared remarks, we're kind of maintain that position.

We are you know in prior calls we stated that our general goal is to maintain about 10% to 15% of our capital base and cash.

That obviously varies quarter to quarter.

And we're currently north of that.

But given market dynamics, we believe it's prudent to keep it elevated.

John A. Taylor: Good to speak with you. Thank you all for joining us. Well, we've been maintaining an elevated level of liquidity, and even during that period of time, we have deployed some into purchasing our shares. And so we don't predict when we might.

But we will remain opportunistic with respect to managing our balance sheet and if there are opportunities to further improve our capitalization, we will consider them like we've done in the past and if there's opportunities to deploy the capital in a accretive ways, we'll do that as well.

John A. Taylor: We have the ability to do so. Thank you for joining us. We appreciate it. Tremendous success so far, www.benjamin.com, Loan Portfolio, addressing potential credit events, and we're going to, as we've said, maintain that position. In prior calls, we've stated that our general goal is to maintain about 10 to 15 percent of our capital base in cash. Now, that obviously varies quarter to quarter, and we're currently north of that.

Great. Thank you Jack.

Okay.

Yeah.

Thank you. The next question is coming from Jade Rahmani of K BW. Please go ahead.

Thank you very much.

So we won't have the 10-K for some time could you. Please provide the balance of nonperforming loans and <unk>.

Non accrual loans.

I guess, the 10-Q had total.

Loans past due.

John A. Taylor: But given market dynamics, we believe it's prudent to keep it elevated, but we'll remain opportunistic with respect to managing our balance sheet. And if there are opportunities to further improve our capitalization, we'll consider them like we've done in the past. And if there are opportunities to deploy the capital... Creative Ways. Great. Thank you, Jack.

September 30th $231 8 million and non accrual loans of $1 $65 9 million. So just looking for an update on those two numbers.

Sure Good morning Jade.

Thank you for joining us. Thank you for the question as I mentioned in my prepared remarks, given sort of the downgrades that we had at the end of the year, we had about $450 million of loans on nonaccrual status.

Operator: Thank you. The next question is coming from Jade Romani of KBW. Please go ahead.

Jade Romani: Thank you very much. Since we won't have the 10k for some time, could you please provide the balance of non-performing loans and non-accrual loans? I guess the 10Q had total loans past due as of September 30th of $231.8 million and non-accrual loans of $165.9 million, so just looking for an update on those two numbers. Sure. Good morning, Jade.

And do you have the nonperforming loans to total past due.

Yeah, that's that's pretty much pretty much the same number.

Okay.

Has there been any change so far this year in terms of credit.

Oh.

Hey, Chad let me ask you if you could clarify are you saying.

Over the past 12 months or since the beginning of Jan one.

Marcin: Thank you for joining us. Thank you for the question. As I mentioned in my prepared remarks, you know, given sort of the downgrades that we had at the end of the year, we had about $450 million of loans that are in non-accrual status. And do you have the non-performing loans, the total past due? That's pretty much the same number.

Since Jan one.

Yeah, well, we've we've had there's no update to the.

Risk rankings report that we just gave them I would say that we are.

We are observing a couple of things in the market and from our borrowers. There. There is some increase so theres nothing official report.

Marcin: Okay. Has there been any change so far this year in terms of credit? Hey, Jay, let me ask you something. To clarify, are you saying... Since Dan month?

The post.

Gen one.

Pat.

But what I would say is is that we have.

That's a subset of the borrowers are well.

Watching the fed even more closely in terms of the calibration of how much more money to put it for how long is this just general fatigue throughout the market, we believe including some of our borrowers.

Jade Romani: Yeah, well, we. There's no update, wrist right. I would say that we are. We're observing a couple of... There is some. So there's nothing official. But what I would say is that we have.

We're continuing.

The continued steep oh pardon can.

Marcin: A subset of the borrowers are... You're watching the Fed even more closely. Calibration of how much more money to put in for how long, and there's just general fatigue throughout. Thank you. Have a good one.

Talk to this on the multifamily sector, where we know that there is increasing concern in general about the multifamily sector in the market, we're still seeing a pretty good.

Response from our borrowers and performance of our properties and given R. R.

Jade Romani: Bye. Talked to this on the multifamily, know that they're in general about the multifamily sector in the market, from our borrowers and performance of our property. Locations and our spot. Okay, that's good to hear. Steve, did you want to provide any additional color on that question or perhaps multifamily? Sure.

Locations and our sponsors were about troubled by that portfolio.

But that's that's what I would answer your question.

Okay. That's good to hear Steve did you want to provide any additional color.

That question or perhaps multifamily.

Steven Cole DeLaney: No, I guess on the multifamily Jay, we talked about this on our call last quarter. I'm commenting now specifically on the multifamily. We're still generally stable and healthy in the markets that we're in, including in the Sun Belt, which is, I think, where there's a lot of concern about heightened new supply, which we obviously are. We have assets in places like the Carolinas. They're doing fine. Savannah is doing well.

Sure.

On the multifamily can we talked about this.

On our call last quarter.

Now I'm on I'm, commenting specifically on the multifamily I mean, it's still generally stable and healthy in the markets that we're in.

Putting in the Sun belt, which says I think where theres a lot of concern about heightened new supply, which we obviously see.

We have assets in places like the Carolinas.

They're doing fine Savannah.

Well, Birmingham very little new supply.

Steven Cole DeLaney: Birmingham, very little new supply. So the supply even in the Sunbelt is not uniform. We are watching some of the markets in Texas. We've seen, and you've heard on some of the other calls about overbuilding in Austin. We're not in Austin.

So the supply even in the sunbelt, it's not uniform we are watching some of the markets in Texas.

We've seen and you've heard on some of the other calls about overbuilding in Austin, we're not in Austin.

Steven Cole DeLaney: We definitely have seen rent growth slow, but our business plans aren't primarily based on rent growth; our business plans are usually based on doing a value-add renovation, looking to get rent bumps. We still are seeing that borrowers are getting rent bumps. It may not be exactly what was underwritten, but we think that if you turn the rent roll one or two times, you know, they're likely to get there. I would not be surprised to see some multifamily assets fall a little bit behind plan, but what we're seeing so far is that we just think it'll just maybe take an extra year or two. And, you know, we didn't do a ton of loans at the peak. We did some, but we didn't do a ton.

We definitely have seen rent growth slow, but our business plans aren't primarily.

Based on rent growth our business plans are usually based on doing a value add renovation I'm looking to get rent bumps are we still are seeing that borrowers are getting rent bumps. It may not be exactly what was underwritten, but we think that you could turn the rent roll.

One or two times theyre likely to get there.

Would not be surprised to see some multifamily assets fall a little bit behind plan.

But what we're seeing so far is that we just think it'll just maybe take an extra year or two.

And we didn't do a ton of loans at the peak we did some we didn't do a ton in the loans that we were doing call. It second half of 'twenty one early 2022.

Steven Cole DeLaney: And the loans that we were doing, you know, call it the second half of 21, early 2022; we were increasing our kind of exit debt yield. So, the leverage was probably down 5 or 10 points. The borrowers have, you know, a good amount of equity to protect. So, I think the general trend on multifamily was stable and positive. But we are seeing the headlines, and we are watching it very carefully. Thanks very much.

We were increasing our kind of exit that yield. So the leverage is probably down five or 10 points on the borrowers have you know a good amount of equity to protect so I think the general trend on multifamily.

Stable and positive.

But we are seeing the headlines and we were all watching it very carefully.

Thanks very much.

Jade Romani: Since they're older originations, could you give an update on the Illinois multi-family? The origination date is 12-19. And also New York mixed use, since it's quite a large loan, 96 million. The origination date is 12-18.

Since they are older originations can you give an update on the Illinois in multifamily.

Origination date is 12 19, and also New York mixed use since it's quite a large loan $96 million origination is 12 to 18.

Steven Cole DeLaney: You know, those risk-rated three loans. Is there any reserve against those? And what's going on with those plans? Should we expect any potential loss on those two? They're both risk-ranked three. The first thing you mentioned was the Illinois multifamily. There are actually two.

You know those risk rated three loans is there any reserve against those and what's going on with those plans should we expect any potential loss on those two.

Yeah, they're both they're both risk ranked three.

Well. The first thing you mentioned was the Illinois multifamily was actually two was it one in particular, we're looking at.

Steven Cole DeLaney: Was it one in particular you were looking at? Yeah, last quarter, it was about $109 million in carrying value. Got it. Okay, right. Got that one.

Yes last quarter, it was about 109 million carrying value.

Got it Okay, alright got that one.

No no real specific update on on that one that one is doing fine its kind of I would say directionally on plan.

Steven Cole DeLaney: No real specific update on that one. That one is doing fine. It's kind of, I would say, you know, directionally on plan. The New York mixed-use one is office with ground floor retail.

The New York mixed use one that one is is office with ground floor retail are the retail is.

Steven Cole DeLaney: The retail is, largely least, the business plan really revolves around leasing up the office space. The sponsor has put in more capital to support the asset. It's currently ranked four.

Larger leased the business plan really revolves around.

Our leasing up the office space.

The sponsors putting more capital to.

To support the asset.

It's currently ranked four leasing.

Steven Cole DeLaney: It's really at this point about leasing out the office. Is there a reserve against that? Because this is a really old origination. So, I mean, if the office is still trying to lease it out, what are the risks that there's going to be an impairment on?

Leasing it's really about at this point about leasing up the office space.

Is there a reserve against that because this is a really old origination.

So I mean, if the office is still trying.

Trying to lease up.

What are the risks that this is going to be an impairment on this and what is the reserve held against it at this point.

Jade Romani: And what's the reserve held against it? Hey, Jed. Yeah, this loan obviously has a reserve on it. It's part of our general pool, you know, being risk rated for. I think it's safe to assume that it has a higher reserve than some of the other assets that are in the pool. It is a loan that we are obviously watching closely, given the state of New York and what's going on here. And it's hard to predict what may or may not happen here, but it is definitely given that it's a four-rated loan. It's obviously on our quote unquote watch list, and we're watching closely, and we'll see what happens there.

Hey, Jade Yeah. There's this long obviously as a reserve on it it's part of our general pool being.

Being being risk rated four I think it's safe to assume that it has higher reserve than than some of the other assets that are in the pool and it is alone that we are obviously watching closely given given sort of the New York and what's going on here and it's hard to predict about what may or may not happen here, but it is definitely you're giving it to.

Right four rated loan.

It's obviously on our quote unquote watch lists and we're watching it closely and we'll see what happens there.

Marcin: Okay, thanks. And then the general reserve, you know, I can't think of any others. I may be wrong, though, but I can't think of any others that have taken the general reserve down by the magnitude that you all have. And I know there's, you know, management discretion; the macroeconomic variables are unemployment and interest rates. Clearly, those improved in the fourth quarter. Interest rates are up this year, but management has discretion there. So why take down the general reserve when you see, you know, headwinds still in the market? Thanks for the question. And it's a function of, you know, movement in the portfolio, obviously, as there are some downgrades from four to fives, and some of the, you know, four-rated loans may have some higher reserves, like I said earlier, than the rest of the pool as they sort of migrate, right? That reserve sort of migrates from the general to specific.

Okay. Thanks, and then the general reserves.

I can't think of any others, maybe wrong, though but I can't think of any others that have taken the general reserves down by the magnitude that you all have and I know there is a management discretion, the macroeconomic variables or unemployment and interest rates clearly those include in the fourth quarter.

Interest rates are up.

Yeah.

But management has discretion there so why why take down let.

Let me see headwinds still in the market.

Thanks for the question and it's a it's a function of you know movement in the portfolio. Obviously is there are some downgrades from four to five and some of the four rated loans may have some higher reserves like I said earlier than the rest of the pool as they sort of migrate right out of reserves sort of migrate some bids.

And then also specific so that's part of it.

Marcin: So that's part of it. Repayments are another part and sort of the general movement within the portfolio. So we remain cautious, right; our general pool is still close to 2%. But as the portfolio sort of shifts and and continues to sort of run off a little bit, and you have some of these downgrades, I think you will, you will, we have seen, you know, to varying degrees sort of across the peer group, where you have that migration between the general and the specific pool, in general, and that's what you would expect as sort Okay, that's a good color. That makes sense because the specific reserves did increase, and then there were repayments. So probably movement out of the general into the specific, and then movement decline in the general due to loans that have been paid off.

Repayments is another part and so does the zelle movement within the portfolio. So we remain cautious right. Our general pool is still close to 2%, but as the portfolio sort of shifts in and continues to run off a little bit and you have some of these downgrades I think you will you will you have we have seen them you know to varying.

Degree sort of across the peer group, where sort of you have that migration between the general and the specific pool.

General and that's what you would expect us sort of the cyclical changes.

Okay. That's good color that makes sense because.

The specific reserves did increase and then there were repayments so probably movement out of the general into the specific and then movement declining in general due to loans that paid off.

Jade Romani: Brea. All right, thanks for taking the question. Thank you. Thank you. At this time, I'd like to turn the floor back over to Mr. Taylor for closing comments. Thank you, operator, and thank you, everybody, for joining our call. I always want to make sure I do. I want to thank our investors for their support and for their hard work. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day. BF-WATCH TV 2021

Right.

Alright, thanks for taking the questions.

Thank you.

Thank you at this time I'd like to turn the floor back over to Mr. Taylor for closing comments.

Thank you operator, and thank you everybody for joining our call and.

As always.

I always would want to make sure I do I want to thank our investors for their support and our team for their hard work and we look forward to speaking with you again next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines of Augusta webcast at this time and enjoy the rest of your day.

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