Lindsey Crabbe: Thank you. Good morning, everyone, and welcome to FBRT's Q3 2026 earnings call. Thanks for joining us today. As the operator mentioned, I am Lindsey Crabbe. With me on the call today are Richard Byrne, Chief Executive Officer of FBRT, Jerry Baglien, Co-President, Chief Financial Officer, and Chief Operating Officer of FBRT, and Brian Buffone, Co-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, 29 October 2026.
Lindsey Crabbe: 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.
Richard Byrne: Great. Thanks, Lindsey, and good morning, everyone. Before Jerry and Brian take you through the quarter in some good detail, I want to spend a few minutes on where we are today and maybe most importantly, on what we are focused on going forward. First, as you know, we have announced a leadership transition. We did that in September. I want to emphasize that FBRT has a very deep and experienced team. Jerry, Brian, and I, just for example, have worked together for more than a decade, and we have been certainly through a lot of different market environments together. FBRT is a giant and very important part of Benefit Street Partners, our firm's approximately $17 billion real estate credit platform.
Richard Byrne: We are supported by 90 real estate professionals across Benefit Street Partners as well as, in total, 300 people, including NewPoint. Having that kind of experience, scale, and resources behind FBRT is really a big advantage, and it certainly is in today's market. Lastly, on the big picture side, I want to also congratulate Jerry. Jerry now has an expanded role overseeing our broader real estate credit platform. Jerry, many of you know him, has been a senior leader in our business since its inception and has been deeply involved in our investments, financing, and operations for many, many years.
Richard Byrne: With that, I really most of all wanted to spend time here on our priorities because they are crystal clear to us, and there are only a few. Let me detail them. First, we want to resolve our watchlist loans and monetize our REO assets. This is a major focus for us. We are actively working on these resolutions. You will hear more about this in detail especially from Brian. Just on the big picture sense of it, sometimes taking control of an asset is a very valuable tool in providing the best path to maximizing recovery.
Richard Byrne: Our goal is to convert these assets back into cash and put that capital to better use. That capital has far better use in either buying back shares or being redeployed into new loans. This will benefit us in so many ways. We have a strong asset management team and right now a renewed sense of urgency around getting this done. We are making progress across our five rated watchlist loans, our foreclosure REO, and we are also focusing on our equity investment portfolio. Many of these assets are currently actively in a sale process right now. Again, you will hear a little bit more about this from Brian. We expect to make good progress in the coming quarters as we work through these resolutions.
Richard Byrne: Second biggest focus is highly accretive share repurchases. At the substantial discount to book value our stock has been trading, buying back our own shares is an extremely compelling use of capital. During the quarter, we repurchased approximately $60 million of common stock. We paid an average price of $8.14 a share. That generated $0.55 per share of book value accretion. Future buyback activity will of course fluctuate. A lot of variables at play here, of course, is the stock price. Also the repayment speed of our existing portfolio, in other words, how much cash we have to spend, and our available liquidity. Importantly, these two priorities, both the share repurchases and the monetization of our underperforming assets, go hand in hand. The accretion from the repurchases gives us greater flexibility to resolve legacy assets.
Richard Byrne: In certain cases, accepting a reasonable discount to accelerate a sale can make good economic sense when we can redeploy that capital into highly accretive share repurchases or new investments, as I said earlier. Third priority, protecting and growing book value. Despite the credit costs recognized this quarter, our fully converted book value remains stable at $14.26 a share, up $0.02 from last quarter. While the mortgage REIT sector has experienced significant share price pressure, FBRT's economic return, thanks to stability of our book value over time, has performed near the top of our peer group over the past year and 2 years. We remain disciplined about where we deploy capital, and we have a focus on best risk-adjusted returns. Finally, last point of our priorities, I want to talk about NewPoint.
Richard Byrne: We continue to be very pleased with this investment and are focused on its continued integration and growth. The acquisition brought really important capabilities to FBRT and added stable recurring stream of income through its servicing business. Also, the MSR portfolio also provided another source of book value stability and growth, for the other point we made about book value stability. Although market-wide volumes have been very slow recently, we believe NewPoint will continue to be an important part of FBRT's long-term value proposition. Let me wrap up with this closing thought. At the significant discount to book value where our shares currently trade, we believe the path to narrowing the gap is clear. One, resolve legacy assets, recycle capital, repurchase shares when the economics are compelling, protect book value, and continue to demonstrate the value of NewPoint.
Richard Byrne: There's still a lot of work to do, but we know what the priorities are, and we have the right team and resources in place to execute that. With that, I'll turn the rest of the call over to Jerry and Brian. Jerry, first to discuss financial results and the current market environment. Over to you, Jerry.
Jerry Baglien: Great. Thanks, Rich. Good morning, everyone. To start, I wanted to talk a little bit about the current market environment. The recent move higher in interest rates has slowed transaction activity and impacted valuations. Higher borrowing costs are causing some borrowers to revisit purchase prices, while borrowers with flexibility are delaying refinancings and waiting for greater stability. This slower transaction activity also means fewer repayments and as a result, a slower pace of capital recycling. We continue to see repayments, but the timing is less predictable, which can limit the capital available for share repurchases despite the compelling opportunity we see at the current discount.
Jerry Baglien: That said, it also means the agency book we service has been stickier than we expected, and overall, our servicing book is growing on a nominal basis. I think it is important to distinguish today's environment from the initial rate shock several years ago. The market has now had several years to adjust to higher borrowing costs. Property values, financing structures, and borrower expectations have all moved considerably from where they were in 2021 and 2022.
Jerry Baglien: Additionally, we are much further along in the multifamily absorption story, and the outlook for future income growth is more constructive than it has been for the past four years. Vintage is the great diversifier in the real estate world today. There is still much stress to digest from the highs of the early 2020s. The double hit of rates and stagnant or declining incomes makes that a challenging vintage, thus our emphasis on trying to put the last of that behind us. In regard to that, approximately 82% of our current loan portfolio was originated following the rate hiking cycle, compared with 77% last quarter and 68% at the end of 2025.
Jerry Baglien: That continued transition is important when looking at our results this quarter. We are generating earnings from predominantly newer vintage, higher quality portfolio, while also recognizing the cost associated with resolving the legacy investments. Now I am going to turn to results for the Q3. FBRT reported a GAAP net loss of $27 million, or -$0.36 per fully converted share. Distributable earnings were $3.3 million, or -$0.02 per fully converted share after adjustments to common, reflecting approximately $22 million of net realized loss adjustments. Before realized losses, distributable earnings were $26 million, or $0.24 per fully converted share. The quarter included a $37.7 million CECL provision on our core portfolio. This is driven by increased specific reserve on a number of legacy multifamily assets to reflect current market conditions and deterioration in underlying property fundamentals.
Jerry Baglien: As Rich discussed, resolving the legacy portfolio and monetizing REO is our highest priority. At quarter end, we had approximately $300 million of equity tied up in non-performing loans, underperforming loans, and REO assets. Our highest priority is the timely resolution and recycling of this capital. At the same time, we are balancing capital deployment with needs of our CLO financing structures and the opportunity to repurchase shares. During the quarter, we redeployed approximately $300 million of CLO proceeds into new investments while repurchasing 7.4 million shares, or approximately 7.7% of our beginning 2026 share count.
Jerry Baglien: Maintaining those CLO structures requires us to reinvest available proceeds rather than simply allowing the debt to amortize. To be able to reinvest, we need loans available, and that requires us to use some capital to originate. An amortizing CLO increases our interest expense and diminishes the power of these long-term liabilities.
Jerry Baglien: We don't want to hamper the long-term benefits they provide. Our balance sheet provides us with flexibility to execute on these priorities. Net leverage ended the quarter at 2.7 times. Approximately 81% of our financing on core book is non-mark-to-market, and we ended the quarter with approximately $407 million of liquidity. Turning to NewPoint, agency and FHA origination volumes increased approximately 68% from Q2 to $670 million. Originations continue to be soft across the market with the rise in rates. Although higher rates have impacted origination volume, they make our MSR portfolio more durable, providing a natural hedge and increasing income on our servicing book via float income.
Jerry Baglien: It also means we don't need to originate as much to maintain the stability, and thus the yield of our servicing book. We have seen the benefits of this natural interest rate hedge. NewPoint generated approximately $11 million of distributable earnings during the quarter, delivering a double-digit return on our investments. Results benefited from particularly strong HUD activity, which, while welcome, is higher than what we'd expect on an annualized basis. With that, I'll turn it over to Brian to give more detail on our portfolio.
Brian Buffone: Thanks, Jerry. Good morning, everyone. Our core loan portfolio ended the quarter at approximately $4.1 billion across 175 loans, with an average loan size of approximately $23 million. Multifamily represents more than 83% of our portfolio now. That's up from 80% last quarter and 77% at the end of 2025, and office exposure remains at just 1%. As Jerry mentioned, the portfolio continues to migrate toward newer vintage loans, which were underwritten in a substantially different rate and valuation environment than the legacy loans that continue to account for most of our credit issues.
Brian Buffone: During the quarter, we closed 17 new loans totaling $249 million of commitments at a weighted average spread of 266 basis points. Approximately 97% of the quarter's new originations were multifamily. The lending market for high-quality assets remains very competitive, and we continue to see some lenders prioritize higher volume at tighter spreads. We, however, remain disciplined, not just on pricing, but also with the focus on credit and debt yields we are targeting, particularly with the recent volatility that we've seen in the Treasury market.
Brian Buffone: We are focused on experienced sponsors, appropriate leverage, and transactions where we believe we are adequately being compensated for the risk we are taking. Turning to our credit, our average portfolio risk rating remained at 2.4 during the quarter. We ended September with 13 watchlist loans. Four loans were added, consisting of three multifamily loans and one hospitality loan, while three multifamily loans were removed as they transitioned into REO. Despite the increase in loan count on watchlist, the total dollar amount on watchlist declined to $334 million. That's approximately 8% of our total loan portfolio and down from 10% last quarter.
Brian Buffone: Of the watchlist loans, 7 are risk rated a 5 and 6 are risk rated 4. Importantly, we are actively pursuing sales across the majority of our risk rated 5 loans, as well as the majority of our foreclosed REO portfolio. As Jerry mentioned, resolution of these items is a major focus of ours right now. Turning specifically to the foreclosure REO, we ended the quarter with 10 assets totaling $340 million of asset book value. That is up approximately $140 million versus last quarter, primarily reflecting the transition of assets from the watchlist to REO. Several REO assets are currently being marketed for sale. Two are currently under signed PSAs, and our Houston asset, multifamily asset, was sold after quarter end.
Brian Buffone: For the remaining assets, we are completing construction, stabilizing operations, and evaluating the appropriate timing for a sale to maximize recovery. We have a high degree of confidence in our asset management team's ability to execute these plans. Our objective is to convert these under-earning positions back to cash as efficiently as possible and recycle that capital into higher returning opportunities, including share buybacks. We believe the actions underway across the watchlist and REO portfolio represent a measurable progress towards resolving these legacy issues. With that, I'll turn it back to the operator for questions.
Operator: We will now begin the question and answer session. Again, to ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, you may press star, then 2. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Matthew Erdner with JonesTrading. Please go ahead.
Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. Rich, nice to hear from you again. I'd like to touch on the REO a little bit and if you guys could give any sense of timing or expectations there. I guess if there's a better way to frame it just overall about the transaction environment we're in today. It seems like that's slowed down quite a bit. What would it take for, I guess, the transaction market to get a little more velocity behind it, which in turn, I think would lead to more REO sales on your guys' end. Just how are you guys thinking about the overall environment right now?
Brian Buffone: Yeah, I will take that one. Thanks for the question. We have talked about it on multiple earnings calls now, and I think the biggest headwind we are seeing now is what is happening in the Treasury market. Six months ago when we were sitting at a 4.5% 10-year, I would have expected a lot more transactional volume, a lot more acceleration of REOs coming off of the book. To your point, that slowed when we went from 4.5 10-year to 5.25 and now settling in hopefully around a 5 here.
Brian Buffone: I think that is the biggest unknown on a going forward basis. If we finally settle in and get some stability in the 10-year, even if it is at 5, I think that that will give borrowers and buyers a more clear outlook on what is happening in the borrowing environment. They will be able to value their properties a little bit more accurately, and then we will be able to have additional transactional volume to then clear out the REO book. It is really a function of where we end up in the 10-year. If we drop back down to the 4.5% range where we were six months ago, I would expect transactional volume to increase pretty significantly at that level.
Brian Buffone: If we continue to go higher to 5.5% or 6%, again, you could see that rotation from watchlist into REO. While we resolve the REO positions and start to clean that up, you could still see some properties coming in on the back end. It is really a function of the 10-year, but we are cautiously optimistic that we have got these in the right spot, and again, actively marketing the majority of our REO and being proactive on the watchlist to have that cleared up before it becomes REO.
Richard Byrne: Yeah. Hey, Matt, it is Rich. I just wanted to add, I think it kind of came across in the earlier remarks, but I just really want to underscore it. Share buybacks are so accretive that it sort of changes your religion around defending book value marks and what you truly think assets are worth, and sort of seeing through the stabilization to sort of the price it to perfection. For us, if that means taking a little loss or something on where our basis is, that gets completely offset and then some by using any of those proceeds to go buy back shares at where they trade.
Richard Byrne: It has given us a little bit of new religion around how we think about sales, and I think that will accelerate the pace. Brian Buffone's point is it is hard to do when the market is, there is nothing going on. But if you have a little bit of price flexibility beyond what you have had in the past, it could help speed things up materially. So that is one way where we plan to keep our foot on the gas pedal.
Matthew Erdner: Right. That is helpful. Appreciate the color there, Rich and Brian. Then as a follow-up to that, you mentioned the investments on the REO side. Are you willing to maybe move on from those? I know it was kind of a hold period there previously.
Brian Buffone: The-
Jerry Baglien: Yeah, maybe I will.
Brian Buffone: Yeah, the specific. Go ahead, Jerry. Go ahead.
Jerry Baglien: Yeah. I will start. I will let you chime in on the market there a little bit. But I would say it is an evaluation of what you can do with the capital today. Again, the same calculus applies in terms of the held for investment REO as the REO by less choice, if you will. And that is what can you do from a return perspective with that capital. So would we evaluate it? 100%, we are evaluating it. But you have got to weigh that with the same backdrop that Brian just mentioned, right? With valuation changes in the market, it is getting to a level there that makes more sense to repurpose that capital. With the stuff we have through foreclosure, I think that is less impactful from a return perspective, the yield it gives today.
Jerry Baglien: One is potentially a drag, the other is just under-deployed, if you will, versus maybe a stock repurchase or a new investment today. So if you are thinking about prioritization, that is probably secondary to moving on the other stuff. But in terms of the high-level calculus, yes, you are correct. I think in an opportune exit, would it make sense to recycle out of some of that? 100%.
Matthew Erdner: Got it. That makes sense. And then one last one from me, then I will hop out. Yeah, interest income kind of declined quite a bit quarter-over-quarter. Was that just due largely to timing of when you guys pulled some of these assets through?
Jerry Baglien: Yes, partially. I think there is a couple things going on. You had some loans go to non-accrual. That is sort of the watchlist transition there. But we are also shrinking the book. Part of buying back shares is that the overall size of that portfolio is going to go down a little bit. So on a gross nominal basis, you should expect the loan portfolio has to decline because you have got to get the cash from somewhere, and some of it comes from loans, some of it comes from the repurposing of REO. So the total nominal basis of our net interest margin or our gross interest, if you are looking at that will go down.
Jerry Baglien: I think what we are trying to preserve is what is it on a per share basis, because that functional amount is actually the focus. As you take down your equity, you are obviously going to take down your loan book too. The focus is not really on that larger number, but what is the effective allocation of that number on a per share basis? That is really the better way to look at it on a go forward.
Matthew Erdner: Got it. That is helpful. Thank you, guys.
Operator: Our next question will come from Chris Muller with Citizens Capital Markets. Please go ahead. Chris, your line is a bit muffled.
Chris Muller: Is that better?
Operator: Yes, we can hear you now.
Chris Muller: All right.
Jerry Baglien: There you are.
Chris Muller: So on the specific reserves, can you guys just talk me through the drivers here, how many loans the new reserve is against? The outlook for rates is higher now, but we have only had one rate hike materialize. So what is driving the stress at this time?
Jerry Baglien: I can start with the stress and specifics. Maybe Brian, you can jump in on some of these. There is clear valuation moves in terms of how assets are valued from the end of Q2 to the end of Q3. You had a pretty decent move in the 10-year, like Brian mentioned. That flows through to the cap rate that you are going to apply to the asset. So even all things being equal from a performance side, you should have a theoretical decline in asset valuations. I think you also have a practical decline in market participation, and we have seen that through retrades on either stuff that we are financing or stuff that we have been selling or actively pursuing on other parts of our real estate business.
Jerry Baglien: The market is in flux. When that is happening, it has a direct flow through to valuation. So in terms of how you are getting to specifics, those things are going to have specific impacts to the things that were in the process of working out. So you are applying those market dynamics, which have moved over the course of the quarter to the assets that are in the distressed position where you are taking specific reserves. Brian, I do not know if there is any one you want to point to specifically that maybe exemplify that, but that is kind of the broader reason we are seeing those changes.
Brian Buffone: I would not say anything specifically. We are trying to be proactive on the risk-graded 5s on our watchlist. So instead of waiting for a resolution and then taking a write-down at that time, we are trying to be open about it and upfront about it and show that in the quarters where we think that even prior to it becoming an REO, that there is a new valuation on that asset. So I do not think any asset specifically. We have taken, obviously, it on individual assets because it is a specific allowance. But again, we are trying to be proactive and message to the market that here is where we are, and hopefully we do not have additional surprises when and if it becomes an REO position.
Chris Muller: Got it. That makes a lot of sense. Looking at your watchlist, majority of the watchlist loans are Texas and Arizona. Can you guys just give an update on what you are seeing in those markets? Are you still making new loans in those markets?
Brian Buffone: We are selectively. There are pockets of each of those markets, different MSAs in each of those markets that are actually fine, and we are starting to see some rent growth. We will have strategic discussions internally on when and what markets to get back into. A lot of these MSAs have been on headlines for being oversupplied and rent declines, and that is entirely true. Even in pockets of oversupplied markets, we are starting to see some fundamentals actually hit a turning point and an inflection point and come back to a little bit of market rent growth. We are constantly reviewing and strategizing about those markets.
Brian Buffone: Even in the markets that were generally oversupplied, and we do not need to go through the list, I think we are probably all familiar with them, there is still a fundamental population growth happening, and in the foreseeable future, a lack of new supply coming online. We are getting close to a level where the absorption is starting to become a little bit more predictable, and then you get to a point in the next 12, 24, 36 months for sure, that you do not have any new supply coming on the market.
Brian Buffone: We are really driven by and focused on underlying fundamentals in each market, focused on markets that are showing still strong population growth that will eventually move into these oversupplied properties. Then you have got a potential tailwind because of no new construction coming online. Those are the markets that we are focused on. Even in some of the oversupplied markets, the larger MSA within that market, you can still find pockets that make sense.
Chris Muller: Got it. That is very helpful. Appreciate you guys taking the question this morning.
Brian Buffone: Thanks, Chris.
Operator: Again, if you have a question or follow-up, you may press star, then one. Our next question will come from Timothy D'Agostino with B. Riley Securities. Please go ahead.
Timothy D'Agostino: Yeah. Hi. Thanks for taking the questions this morning. Just kind of thinking about different vintages. I noticed that there are two 2025s added to the watchlist, and I believe there was one last quarter that was removed. I guess those two that were added, are those loan specific, or are you starting to see anything in that 2025 vintage? Thank you.
Brian Buffone: No, those were unique situations. Those were previous REO positions that we sold and then rewrote a loan to a borrower. So those were REOs in 2025, sold in 2025, new loan put on, and then we are looking at that distress again. So I would still qualify them as peak market loans from the original origination being in 2021, but then recycled and unfortunately now coming back.
Timothy D'Agostino: Okay. That's helpful color. Just looking at the remaining core portfolio, especially within that risk rating 3, could you just provide maybe a general temperature check of that $750 million of principal balance? What would you need to see happen in order for maybe the needle to move and you see some of those downgraded to 4? Just trying to get an understanding of that category of risk ratings. Thank you.
Brian Buffone: I'll start, Jerry, if you want to add in. We run through our risk ratings in a very detailed meeting on a quarterly basis and have implemented weekly watchlist discussions with senior management. The risk ratings that we're showing and putting out in these decks, we're very comfortable with those as we stand today. We're focused on continuing to monitor, and as a risk rating increases, that obviously demands an increased focus.
Brian Buffone: What you're seeing there today is a very true snapshot of where we view the portfolio as a whole. We're not expecting, unless there's a change in the market overall or in the underlying business plans as we continue to monitor these assets and these loans. Again, very true snapshot, and we're extremely focused on it, again, with monitoring on a larger basis quarterly and specifically as the loans increase into a 4 or 5 on a weekly basis.
Jerry Baglien: Yeah.
Timothy D'Agostino: Okay.
Jerry Baglien: I think that's generally right. I would say, just to add a couple things, we've been very active in the market clearly with, we mentioned we have a number of stuff in the sales process today. I think we have a sense of liquidity in the market and sort of valuations where they are. Based on that information, we kind of run that through the risk rating process. I think, in the current market state, we're pretty comfortable with that. Just to be clear, borrower behavior is still idiosyncratic at times, maybe the nicest way to put it.
Jerry Baglien: Predicting all of that perfectly is just impossible. So threes are the ones where we see headwinds. If you have complete failure of borrower behavior or a move in a particular market, I mean, that stuff can still change, and that's the stuff that we're keeping a close eye on. That's how I would categorize threes, is stuff that you're still actively monitoring. Like Brian said, for us, that's a weekly occurrence to make sure we're ahead of all this stuff.
Jerry Baglien: I mean, the other key part of this is you have to be extremely proactive, not just on your fours and fives, but everything that's a three, and things that are maturing in the next year or 2, and trying to get ahead of all the potential issues that might be coming down the road. It's point in time for risk rating, but it's very active from sort of the process that we manage that stuff day to day.
Timothy D'Agostino: Okay. I appreciate the additional color. Thanks for taking the questions.
Operator: Again, if you have a question, you may press star then 1 to join the queue. Our next question will come from Gabe Poggi with Raymond James. Please go ahead.
David Berman: Hey, guys. It's David Barnum on for Gabe. Wanted to touch on the NewPoint business, which had pretty healthy origination activity in the quarter. Can you talk to the cadence of how those volumes progressed, and is that momentum sustainable in the current higher interest rate environment? How much did that contribute?
Jerry Baglien: Happy to dive in there. If you mean cadence in terms of when things were originated throughout the quarter, I think the last month of the quarter was actually our busiest month. I think some of that was people finally just deciding to transact with rates where they were at and just make a decision with the potential for things maybe running higher. There's always a little end-of-quarter rush regardless. That's kind of how the origination shook out within the quarter. In terms of volumes, yeah, like I mentioned in the script, HUD was outsized for the quarter. I think it's a little bit larger than we would typically expect. Hard to predict how things will fall throughout the course of the year for any given product. That one had a particularly good one.
Jerry Baglien: I would say it was a pretty significant driver, particularly in the gain on sale portion of the business. HUD, just as a quick refresher, generally has a greater margin on sales, so having a bigger volume is going to drive a greater portion of our gain on sale income. Yeah, that really helps kind of as a tailwind on our overall DE for that segment.
David Berman: Great. Thank you.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.
Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. Thanks and have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
