Franklin Bsp's Q3 2025 Earnings Call: Contradictions Emerge in Portfolio Growth, Reo Strategy, Dividend Policy, and Sd-Wan Shifts

Date of Call: October 30, 2025

Financials Results

• EPS: $0.13 GAAP net income per fully converted common share; Distributable earnings $0.22 per fully converted share (excluding $1.7M REO realized loss, distributable would be $0.23)

Guidance:

• Core whole-loan portfolio expected to return to a target size of at least $5.0B over the next few quarters.
• New CLO (FL12) plus ~$500M bank financing adds ~ $1B origination capacity and lowers financing cost; expected to add ~$0.05–$0.07 per share quarterly once deployed beginning early 2026.
• NewPoint expected to be accretive to GAAP earnings and book value in H1 2026 and accretive to distributable earnings in H2 2026.
• Servicing migration expected to generate $0.04–$0.06 per fully converted share annually when complete.
• Ongoing REO sales and redeployments could contribute ~$0.08–$0.12 per share per quarter over time.

Business Commentary:

* NewPoint Integration and Impact: - NewPoint contributed $9.3 million to distributable earnings in its first full quarter at FBRT, accounting for $0.09 per fully converted share. - The integration is proceeding well, with NewPoint achieving record volume with $2.2 billion of originations, leading to a $1.8 billion increase in the agency servicing portfolio.

• Core Portfolio and Origination Trends:
• FBRT originated approximately $304 million in new loan commitments and funded $196 million, primarily in multifamily.

• The decrease in core portfolio size was attributed to maintaining liquidity for the NewPoint acquisition, but the company expects to return to its target size of at least $5 billion over the next few quarters.

• Dividend and Capital Allocation:

• FBRT resumed share repurchases in Q4, buying back 540,000 shares for $6 million, with $25.6 million remaining in the buyback authorization.

• This decision was based on the company's view of its stock as significantly discounted and an important activity supported at current levels.

• CRE CLO and Financing Cost Reduction:

• FBRT closed its 12th CRE CLO, which refinanced several older CLOs and lowered interest expense, adding $1 billion of origination capacity.
• The transaction is expected to add an incremental $0.05 to $0.07 per share of quarterly earnings once the cash is deployed into new assets.

Sentiment Analysis:

Overall Tone: Positive

• Management described the NewPoint integration as "going exceptionally well" with a record $2.2B origination quarter; NewPoint contributed $9.3M to distributable earnings; company resumed buybacks (540k shares, ~$6M) and expects CLO/bank financings to reduce cost and add accretion beginning early 2026.

Q&A:

• Question from Matthew Erdner (JonesTrading Institutional Services, LLC): I'd like to touch on the origination volumes and what led to the higher end of your range? And then also what's going to lead to the higher end of the range in 4Q? Is it just a matter of you guys kind of winning the deals and being more competitive there? Or is the market really starting to open up?
  Response: Higher volumes were driven by converting balance-sheet loans into CMBS executions where competition is lower; if markets hold, CMBS group expects a very strong Q4.

• Question from Matthew Erdner (JonesTrading Institutional Services, LLC): That kind of plays into what you were saying about alternative investments and not necessarily going away from the core portfolio, but while spreads are tight, exploring other options?
  Response: We remain actively originating whole loans for the balance sheet but will pursue alternative capital-stack opportunities when they offer better risk-adjusted returns.

• Question from Matthew Erdner (JonesTrading Institutional Services, LLC): As it relates to the comp and benefits expense line item, what should we expect going forward? How should we think about that overall?
  Response: Comp is variable and tied to origination volume and profit-share; it will scale with volume and may concentrate in later quarters, so multiple quarters are needed to establish a run-rate.

• Question from Timothy D'Agostino (B. Riley Securities, Inc.): On repayments, $275M in the quarter — are you still seeing elevated repayments as of October end?
  Response: Repayments through October are roughly in line with year-to-date levels; Q4 can be variable and is hard to predict until year-end activity completes.

• Question from Timothy D'Agostino (B. Riley Securities, Inc.): On the core portfolio, is there a target size you are aiming for? The portfolio is about $4.4B now — any target for '26 or later?
  Response: Target stabilized whole-loan portfolio is $5.0–$5.5 billion.

• Question from Christopher Muller (Citizens JMP Securities, LLC): NewPoint had a record quarter — do you view this as a sustainable run rate or is there further upside to volumes with the NewPoint acquisition?
  Response: Q3 was an outsized quarter with a large transaction and is not expected to be repeatable each quarter; view it as an outlier and rely on broader annual guidance.

• Question from Christopher Muller (Citizens JMP Securities, LLC): Given the large transaction included, those usually have lower margins — was that the case here, and should we expect margin improvement going forward?
  Response: Yes, the large transaction tightened margins slightly.

• Question from Christopher Muller (Citizens JMP Securities, LLC): With talk of GSEs coming out of conservatorship, what are your thoughts and potential market impact if it happens?
  Response: Management is skeptical of a near-term exit; if pursued, likely an explicit guarantee to avoid market disruption, but the process is complex and unlikely to be quick.

Contradiction Point 1

Core Portfolio Size Target

It involves differing target sizes for the core portfolio, which can impact strategic planning and investor expectations.

Is there a target size for the core portfolio that you're aiming to reach by 2026 or later? - Timothy D'Agostino (B. Riley Securities, Inc., Research Division)

2025Q3: Yes. I think overall, we're targeting a stabilized portfolio size on a whole loan basis of between $5 billion and $5.5 billion. - Michael Comparato(President)

Have you resumed originations since closing NewPoint? What's the ideal portfolio size for dividend coverage? What are current spreads vs. a year ago? - Matthew Erdner (JonesTrading Institutional Services, LLC)

2025Q2: A core portfolio size of about $5 billion with a range would align with the goal of maximizing dividend coverage. - Jerome S. Baglien(CFO, COO & Treasurer)

Contradiction Point 2

Loan Portfolio Growth and REO Sales

It involves the strategic direction for loan portfolio growth and the use of capital derived from REO sales, which directly impacts financial planning and investor expectations.

How have originations paced so far in Q2? Have you seen changes in your pipeline since tariffs were announced? - Christopher Muller(Citizens JMP Securities)

2025Q3: We've always targeted a portfolio larger than where we're currently operating today. We're in a unique moment where we're hoarding a little bit of cash to close on the NewPoint acquisition, but we're positioned really well for that at this point. Any new capital that came in through REO sales, we would be very proactively looking to put that back to work as soon as possible in new origination. - Michael Comparato(CEO)

Given current REO levels, where do you see loan originations in the near term? Will you remain neutral and allocate REO sale proceeds to new loan originations, or hold REO proceeds in cash in the near term? - Matthew Erdner(JonesTrading Institutional Services)

2025Q1: We've been able to cultivate the balance sheet and convert a handful of loans from a floating rate basis into our CMBS product, which has incrementally less competition than a widely marketed deal. If we can execute where we stand today, Q4 will be a monster quarter for us in the CMBS group. - Michael Comparato(CEO)

Contradiction Point 3

Dividend Policy and Financial Flexibility

It involves the strategic approach to dividend policy and financial flexibility, which directly impacts shareholder returns and investor confidence.

Can you clarify the conditions under which the dividend might be reconsidered, particularly if markets remain volatile and REO processing lags expectations? What specific criteria would trigger such a review? - Randy Binner(B. Riley Securities)

2025Q3: We're monitoring how quickly we can turn over the REO assets. Volatility is its own category. The REO is the bigger bogey in all this in that you're holding $300 million or so of assets that are under earning relative to the equity we have deployed in our loan portfolio. We want to be conscious of how much drag and erosion of book value you have by under covering that dividend. - Jerome Baglien(CFO)

Were Q1 expenses largely due to NewPoint acquisition costs? And should we expect similar expenses in future quarters? - Randy Binner(B. Riley Securities)

2025Q1: There's a bit of NewPoint in there, so there's a few million dollars of transaction costs flowing through in OpEx this quarter. But you've also got similar to what we talked about in fourth quarter, we're also carrying the REO expenses through there, which is elevating our expenses versus kind of what I would expect on a run rate basis. - Jerome Baglien(CFO)

Contradiction Point 4

SD-WAN Strategy and Product Offering

It reflects a shift in the company's strategic focus and product offering, which could impact its competitive position and market response.

What drove the origination volumes to the high end of your range this quarter? Will 4Q’s high-end guidance be driven by improved competitiveness or market expansion? - Matthew Erdner(JonesTrading Institutional Services, LLC)

2025Q3: We've been able to cultivate the balance sheet and convert a handful of loans from a floating rate basis into our CMBS product, which has incrementally less competition than a widely marketed deal. - Michael Comparato(President)

Are you adjusting your approach or underwriting to maintain multifamily origination levels amid increased competition? - Thomas Catherwood(BTIG)

2024Q4: There is no need to shift our approach or underwriting on the multifamily front. We were able to originate $2 billion last year at strong spreads with no competition. Our product offerings are wide, allowing us flexibility in competitive markets. We are not chasing tight spreads. - Michael Comparato(President)

Contradiction Point 5

Portfolio Growth and Origination Strategy

It involves the company's strategy for portfolio growth and origination, which directly impacts its financial performance and market positioning.

Do you have a target portfolio size you're aiming for by 2026 or beyond? - Timothy D'Agostino(B. Riley Securities, Inc.)

2025Q3: I think overall, we're targeting a stabilized portfolio size on a whole loan basis of between $5 billion and $5.5 billion. - Michael Comparato(President)

Is the $400M to $500M quarterly originations a sustainable run rate and what volatility do you expect in originations? - Stephen Laws(Raymond James)

2024Q4: There is significant demand for credit, but forecasting is challenging due to uncertain repayments, REO sales, and borrower behavior. We aim to manage the legacy book effectively while capturing origination opportunities. - Michael Comparato(President)