Rick Shane

Rick Shane questioned the rationale for deploying capital into new loans versus repurchasing shares, given FSK's substantial repayments in prior years and the current lack of compelling dislocation for new loan opportunities. He asked what investment opportunities are more accretive to earnings and NAV than share repurchases at the current discount.

Answer

Dan Pietrzak, Chief Investment Officer and President, described the investing environment as 'interesting,' noting spread compression due to high inflows (especially from wealth channels) and lower M&A volumes. He highlighted the strong quality and size of companies accessing the market, FSK's preference for larger companies, and the focus on portfolio diversification (JV, asset-based finance). Mr. Pietrzak acknowledged the point about repurchases and stated FSK considers all factors, anticipating a more lender-friendly environment in 2026 depending on capital market openness and tempering flows.

Rick Shane questioned FSK's capital allocation strategy, asking why the company isn't prioritizing share repurchases, given significant repayments and the absence of compelling new loan opportunities that would be more accretive to earnings and NAV.

Answer

Dan Pietrzak, Chief Investment Officer and President, described the investing environment as 'interesting,' with tight direct lending spreads driven by high inflows (particularly from the wealth channel) and lower M&A volumes. He highlighted the strong quality and size of companies accessing the market and FSK's focus on diversification through its joint venture and asset-based finance. He anticipates a more lender-friendly environment in 2026, contingent on capital market conditions and tempered flows.

Rick Shane questioned whether the best use of incremental capital is for new investments or share repurchases, given significant repayments and the stock trading at a discount to NAV.

Answer

President and Chief Financial Officer Thomas Hennigan advocated for a balanced approach, citing $14 million in share repurchases in Q4 2025 and Q1 2026 (totaling $186 million since inception) and the board's increased repurchase program to $300 million. He also highlighted the accretive nature of investing in JVs like MMCF and SCP. CEO Alex Chi concurred it's a balance.

Rick Shane from JPMorgan Chase & Co. asked about the significance of interest expense in the overall expense load of Carlyle Secured Lending's borrowers, particularly in the context of potential relief from asset sensitivity due to base rate cuts. He also questioned whether the best incremental use of capital, given significant repayments and the stock trading at a discount to NAV, is for new investments or for repurchasing stock.

Answer

Thomas Hennigan, President and CFO, explained that while lower base rates marginally improve interest coverage ratios, it's not a material benefit that would significantly alter liquidity concerns, as sensitivities showed rates needed to rise substantially before becoming a major issue. Alex Chi, CEO, added that new originations are showing more conservative fixed charge coverage ratios (1.25x to 1.5x), indicating borrowers are taking a more conservative approach to leverage. Hennigan stated that Carlyle Secured Lending employs a balanced approach, having repurchased $14 million in shares in Q4 2025 and another $14 million quarter-to-date in Q1 2026, while also finding new investments in JVs (like MMCF and SCP) to be highly accretive, generating 15%+ returns.

Rick Shane from JPMorgan Chase & Co. asked whether SLR Investment Corp. plans to be opportunistic in the current market by increasing leverage, given its low current leverage and capacity, or if it intends to maintain flat portfolio and leverage levels while awaiting a more severe market dislocation.

Answer

Co-CEO Bruce Spohler explained that SLRC aims to maintain dry powder for potential acquisitions and individual investment opportunities across its multiple strategies. He noted attractive opportunities in specialty finance, particularly ABL, and potential for cash flow dislocation later in 2026. He expressed a desire to see the leverage ratio increase towards the high end of their target range (1.25x) due to attractive opportunities, but acknowledged that elevated repayments could offset deployment.

Rick Shane asked about SLR Investment Corp.'s leverage strategy, questioning whether the company would remain opportunistic in the current environment or maintain flat leverage, waiting for a more severe market dislocation.

Answer

Bruce Spohler, Co-CEO and COO, explained that SLR aims to maintain dry powder for potential acquisitions, which influences their leverage ratio. He highlighted attractive opportunities in specialty finance, particularly ABL, and anticipated potential cash flow dislocation in 2026. Spohler expressed willingness to increase leverage up to the high end of their 1.25x target range through acquisitions or individual investments. He noted that elevated repayments have been intentional due to less attractive terms elsewhere, but expects fewer repayments in 2026 due to less capital in the market and increased discipline.

Rick Shane inquired about opportunities to create shareholder value beyond resolving the current portfolio, given the stock's significant discount to book value. He also asked about the expected trajectory of Net Interest Income (NII) for Q1 and Q2 2026 and the anticipated timing of translating CECL reserves into actual losses.

Answer

CEO Richard Mack stated that the immediate goal is to clean up the book for better market evaluation. President and CFO Mike McGillis confirmed NII is likely to be lower in Q1 and Q2 2026 dueo loan resolutions and deleveraging, noting it will be choppy until originations resume. EVP Priyanka Garg explained that reserves are deemed appropriate for accelerating resolutions, emphasizing the focus on quick dispositions, with Mike McGillis adding that balance sheet stability aids this speed.

Rick Shane asked about opportunities to create shareholder value beyond resolving the current portfolio, referencing a peer transaction where a REIT sold assets near NAV, and also inquired about the expected trajectory of Net Interest Income (NII) for Q1 and Q2 2026, given the portfolio's non-accruals and current marking. Additionally, he asked about the expected percentage of the $400+ million CECL reserve that could translate into actual losses over the next 12 months, seeking insight into the timing of resolutions.

Answer

Richard Mack (CEO, Claros Mortgage Trust) stated that the immediate goal is to clean up the book for transparency before evaluating market valuation. Mike McGillis (President and CFO, Claros Mortgage Trust) confirmed that NII is likely to be lower due to loan resolutions and deleveraging, noting NII would be choppy during the portfolio transition. Priyanka Garg (EVP, Claros Mortgage Trust) stated that the reserves are deemed appropriate based on past resolutions and current market dynamics, emphasizing the focus on accelerating dispositions.

Rick Shane asked about the long-term appropriate Return on Equity (ROE) target for the business model as a function of a spread to SOFR, given current returns of approximately SOFR + 5%. He also inquired about the company's strategy to close the stock's 20% discount to book value, especially in light of recent significant transactions in the sector.

Answer

Doug Bouquard, CEO, confirmed that the company has generally achieved ROE in excess of SOFR + 5%, and that 500 basis points is a reasonable target for such lending businesses. He emphasized the relevance of their business model due to the health of the back leverage market and the ongoing evolution of real estate credit. Regarding the stock's discount to book, Mr. Bouquard reiterated the company's clear record on maximizing shareholder value and stated that TPG broadly evaluates opportunities for organic and inorganic growth to scale and drive value.

Rick Shane asked about the appropriate long-term ROE target for TRTX as a spread to SOFR and how the company plans to address its stock trading at a discount to book value, considering recent industry transactions.

Answer

CEO Doug Bouquard indicated that an ROE in excess of SOFR + 5% is generally achievable and relevant for the business model, supported by a healthy back leverage market. Regarding the stock's discount to book, he emphasized the company's clear record of maximizing shareholder value and continuous evaluation of opportunities for organic and inorganic growth.

Rick Shane questioned Essent's cautious outlook in an actuarial business, asking if it stems from an inability to capture adequate pricing given concerns about credit. He further probed if there has been a specific shift in Essent's housing credit outlook, despite pricing remaining relatively stable.

Answer

Mark Casale, Chairman and CEO, clarified that Essent's strategy is driven by incentives focused on book value per share growth, not market share or new insurance written (NIW). He explained that the company optimizes unit economics (yield, loss, capital) for long-term value, a philosophy supported by its founder-run structure and Board. Mr. Casale stated that the cautious outlook is not a credit call but rather a strategic decision on capital allocation. Given current market pricing, he believes returning capital to shareholders through repurchases and dividends is the best investment decision, especially with the strength of Essent's balance sheet. He emphasized that Essent would 'lean in' when market conditions allow for better pricing, but currently, being at the 'bottom of the package' for market share is acceptable. He noted the significant 10% share repurchase in 2025, with expectations for similar levels in 2026, benefiting long-term shareholders.

Rick Shane questioned Essent Group's cautious outlook, asking if it stems from an inability to capture adequate pricing in light of credit concerns, drawing parallels to other founder-run businesses' strategies. He further probed whether there has been a specific shift in Essent's housing credit outlook that contributes to this cautious stance.

Answer

Mark Casale, Chairman and CEO, explained that Essent's strategy is driven by incentives focused on growing book value per share, not market share or new insurance written (NIW). He stated that the company optimizes unit economics and prefers to return capital to shareholders when pricing for new business is low, rather than chasing market share. Mr. Casale clarified that the cautious outlook is not a 'credit call' but rather a strategic decision based on optimizing capital allocation, viewing share repurchases as the best investment given current market conditions and the company's strong balance sheet. He expects the level of share repurchases seen in 2025 to continue.

Rick Shane questioned the consistent increase in severity rates, asking about the long-term outlook and whether normalized returns are being approached given the extended period of low losses.

Answer

Mark Casale, Chairman and CEO, clarified that the provision is at 100% and embedded HPA is around 75%, with severity fluctuations tied to vintage timing. He emphasized the low overall loss environment, stating that the current credit quality is the 'business' due to post-GFC guardrails like Dodd-Frank and GSE sophistication. He highlighted the exceptional credit quality and the company's confidence in its well-boxed risk profile.

Rick Shane questioned whether BDCs can issue convertible notes as a strategy to lock in Sixth Street's premium valuation advantage, how the company thinks about leveraging this advantage, and the implications of 2025 being the first year where paydowns exceeded fundings.

Answer

Ian Simmonds, CFO, confirmed that Sixth Street has issued converts in the past and considers them as an alternative financing tool, assessing them quantitatively against the cost of debt in the unsecured market. He and Bo Stanley, CEO, emphasized that maintaining a durable business model, focusing on shareholder experience, and disciplined underwriting have historically allowed them to trade at a premium, providing the ability to take advantage of markets when needed, rather than actively 'locking in' the advantage. Bo Stanley added that the portfolio size is always aligned with market opportunities, and while payoffs are not controlled, call protection and fees help manage income during heightened repayment activity.

Rick Shane asked about the shift in Sequoia's volume mix between purchase and refinance in 2021 versus 2025, and whether increased partnerships lead to mirroring the market mix. He also questioned if there are profitability differences between incremental purchase and refi originations.

Answer

CEO Chris Abate clarified that Sequoia's 2025 volume growth, which exceeded 2021 levels, occurred largely without significant refi business, implying that future refi volume would be additive and further leverage the platform. He noted that refis are generally quicker, potentially offering efficiencies, but Redwood is largely indifferent between the two, focusing on leveraging its originator network. Chris also mentioned the potential for $200 billion of jumbo mortgages to become refinanceable if rates dip meaningfully below 6%.

Rick Shane asked about the comparison of Sequoia's volume in 2021 versus 2025, specifically regarding the mix of purchase versus refinance business and the impact of increased partners. He also questioned how margins and expenses might be affected as the market shifts to a more balanced purchase and refi environment.

Answer

CEO Chris Abate explained that Sequoia's 2025 volume exceeded 2021 levels largely without significant refinance business, and any future refi growth would be incremental to purchase volume, further leveraging the platform. He emphasized that Redwood Trust's focus is on capital turnover and growing revenue without proportionally increasing expenses. Chris Abate noted that jumbo refi rates haven't snapped in as quickly as conforming, with an estimated $200 billion of jumbo mortgages becoming refinanceable if rates dip meaningfully below 6%. He added that refis are generally quicker, offering some efficiencies, and Redwood Trust aims to leverage its originator network, which has driven non-QM growth.

Rick Shane asked about the timeline for releasing capital from Redwood Trust's legacy investment portfolio, how that capital would be allocated across the three core businesses, and the drivers behind the ROE expansion in the Sequoia Mortgage Banking segment.

Answer

CEO Chris Abate stated that freed-up capital would be quickly deployed into mortgage banking across all three platforms, citing record growth in Sequoia and Aspire. President Dash Robinson explained that Sequoia's ROE expansion was driven by capital efficiency (quick balance sheet turnover, frequent securitizations), improved operating efficiency (expenses to revenues), and synergies with the Aspire platform, along with growing market share in both Sequoia and Aspire.

Rick Shane inquired about investor feedback regarding the recent transaction, the reasons behind the current stock trading discount compared to the implied transaction value, and the company's progress in evaluating strategic alternatives for the future of ARI.

Answer

CEO Stuart Rothstein stated that investor feedback has been overwhelmingly positive, with appreciation for value-unlocking efforts, though questions remain about capital allocation and future strategies. He attributed the stock's trading discount to a lack of clarity on the go-forward strategy versus potential dissolution, expecting the gap to narrow as more information is provided. Regarding alternatives, Mr. Rothstein confirmed the evaluation of internal ideas and engagement with external proposals, noting it's too early to conclude on a specific path.

Rick Shane asked about investor feedback regarding the Athene loan portfolio sale and the current disconnect between the implied transaction value and ARI's stock price, as well as the clarity of alternative strategic options being evaluated.

Answer

CEO Stuart Rothstein indicated overwhelmingly positive investor feedback, with common questions about future capital use and strategies. He attributed the stock price disconnect to a lack of clarity on future strategy versus dissolution, expecting it to narrow with more information. Rothstein confirmed the evaluation of both internally germinated ideas and numerous external proposals received post-announcement.

Rick Shane asked for a disaggregation of persistency trends by loan vintage, specifically comparing 2023/2024 cohorts to older ones, and the implications for future credit performance. He also questioned the company's NIW performance in the fourth quarter and the likelihood of achieving market share parity in 2026.

Answer

Adam Pollitzer, President and CEO, explained that older vintages (pre-pandemic/pandemic) with low note rates are less likely to run off due to refinancing, while newer vintages (late 2022, 2023, 2024, 2025) will drive credit normalization as they age. He noted that accelerated turnover of post-COVID vintages could potentially delay this normalization. Regarding NIW, Mr. Pollitzer expressed satisfaction with Q4 performance, attributing success to execution and customer growth. He highlighted that declining rates spurred activity, particularly in refinancing, which typically involves borrowers with stronger credit profiles. He projected 2026 industry NIW volume to be similar to 2025's $310 billion, with potential upside if rates remain stable.

Rick Shane delved into the disaggregation of persistency, noting sharper declines in 2023-2024 vintages compared to older cohorts, and asked about the implications for credit given this "tale of two portfolios." He also inquired if 2026 would be the year NMI achieves parity market share in NIW, acknowledging the strong Q4 performance.

Answer

Adam Pollitzer, President and CEO, explained that while older vintages (pre-pandemic/pandemic) have low note rates and won't see refi-driven runoff, newer vintages (late 2022, 2023, 2024, 2025) are expected to drive credit normalization as they age. He noted that accelerated turnover of these post-COVID vintages due to refinancing could push off some credit normalization. Regarding NIW and market share, Mr. Pollitzer expressed delight with Q4 performance, attributing success to execution and customer engagement. He noted that declining rates spurred incremental activity, particularly in refinancing, which benefits NMI due to stronger credit characteristics in those cohorts. He projected a similarly attractive industry NIW volume for 2026, contingent on stable rates.

Rich Shane asked about PennantPark's strategy to close the gap in its cost of capital compared to peers who can raise capital at par, and how it plans to compete effectively. He also inquired about the next steps for managing upcoming debt maturities, following the recent $75 million debt deal.

Answer

Art Penn, Chairman and CEO, stated that the $75 million debt deal was the first step in addressing debt maturities, with further actions planned over the next 3-9 months using various debt capital sources. Regarding the cost of capital, Mr. Penn acknowledged PNNT's ongoing process to reduce equity exposure, highlighting the JF Holdings sale as a significant milestone. He emphasized the strong track record in core middle-market, senior-secured debt, which is efficiently financed through the JV format using credit and securitization facilities, generating strong risk-adjusted returns without management fees on the JV.

Rick Shane asked how PennantPark Investment Corporation plans to compete with peers who have a lower cost of capital, given PNNT's stock trading at a significant discount, and inquired about the strategy for addressing remaining debt maturities after the recent $75 million issuance.

Answer

Art Penn, Chairman and Chief Executive Officer, acknowledged PNNT as a 'work in process' focused on reducing equity exposure and cleaning up the portfolio. He highlighted PNNT's strong track record in first-lien, core middle-market senior-secured debt, which is efficiently financed through its JV format using credit and securitization facilities to generate robust risk-adjusted returns, noting no management fees are charged on the JV. Regarding debt maturities, Art Penn stated the $75 million issuance was the first step, and they plan to address remaining maturities judiciously over the next 3-9 months using various debt capital sources.

Rick Shane (via AJ) asked about Ares Commercial Real Estate's target for reducing office exposure by the end of 2026, given the significant progress made since 2023.

Answer

CEO Bryan Donohoe reiterated the company's focus on resolving risk-rated 4 and 5 loans, particularly the material Chicago office asset. He noted that while the timeline for resolutions is partially outside their control as a creditor, they hope for a more natural cadence of repayments, typically a third per annum, for the market as a whole.

Rick Shane questioned the credit performance of Enact's post-2022 book compared to expectations, specifically asking if any cohorts (DTI, LTV, geography) showed elevated risks, and what areas the company is being more cautious about going forward.

Answer

CFO Dean Mitchell stated that all recent book years (2022-2024) are performing in line with or better than pricing expectations, despite being originated in a purchase market with higher risk attributes and modest home price appreciation. He highlighted monitoring housing markets in the Sun Belt (Florida, Texas, California, Arizona) where home prices have moderated, contrasting with the Northeast. CEO Rohit Gupta emphasized the company's deep analytics and ability to make frequent, granular pricing adjustments based on risk views and geographic differences.

Rick Shane inquired about Two Harbors' tactical portfolio construction strategy during the merger period, specifically if the acquisition is influencing capital allocation and the static return outlook, and also requested an update on the current book value.

Answer

Bill Greenberg, CEO, clarified that Two Harbors is operating as an independent company, managing its portfolio in the ordinary course, with investment decisions aligning with historical practices. Nick Letica, CIO, provided an update, stating that the book value was up approximately 1.5%-2% as of Friday, January 30th.

Rick Shane asked about the tactical portfolio construction and capital allocation strategy during the merger period, and if it impacts the static return outlook. He also requested an update on the most recent book value.

Answer

CEO Bill Greenberg clarified that the company operates as an independent entity, managing its portfolio in the ordinary course based on market assessments of risk and reward. CIO Nick Letica provided an update, stating that the book value was up approximately 1.5%-2% as of January 30th.

Rich Shane observed a tactical net short position in the coupon 50 basis points below the highest concentration coupon for the third consecutive quarter, seeking clarification on the strategy driving this exposure.

Answer

Nick Letica (Chief Investment Officer) explained that the coupon exposure is influenced by rate movements and the current coupon's position relative to the portfolio's risk exposures and MSR. He noted that as rates rally, the negative exposure migrates down in coupon to offset current coupon risk in the MSR portfolio. He emphasized that the company views these risks on a 'bucketed basis' and does not 'fuss' over specific 50 basis point coupon swaps, managing overall risk rather than a strong strategic reason for that precise exposure.

Rich Shane sought clarification on the strategy behind Two Harbors' tactical net short position in the coupon 50 basis points below their highest concentration coupon, as observed on slide 17.

Answer

Nick Letica, Chief Investment Officer, explained that this coupon exposure is primarily driven by interest rate movements and the current coupon's position relative to their MSR and other portfolio risk exposures. He noted that as rates rally, the negative offset migrates down in coupon, and they manage this dynamically. He clarified that this specific 50 basis point exposure isn't a strong strategic commitment but rather a result of managing overall risk in the context of spreads and specified pools across nearby coupons.

Rick Shane of JPMorgan Chase & Co. questioned whether continued low credit expenses, as seen in 2025, would lead to incremental investment opportunities or if those excess returns would flow to the bottom line, given American Express's historical tendency to reinvest.

Answer

CFO Christophe Le Caillec stated that credit expense is already very low, nearing its limit. He highlighted that the model generates efficiencies in operating expenses and marketing acquisition due to the increasing share of premium products. He affirmed the company's commitment to mid-teen EPS growth, noting that while there might be movements between expense lines, the overall EPS target remains firm.

Rick Shane followed up on credit expense, noting that low credit expense in 2025 allowed for aggressive marketing and rewards. He asked if the 2026 guidance, which implies more normalized credit expense, means any continued low credit expense would be reinvested or fall to the bottom line, given American Express's historical reinvestment approach.

Answer

Christophe Le Caillec, CFO, stated that credit expense is very low, near its limit. He explained that the business model generates efficiencies from operating expenses, not by constraining technology growth (which has an 11% CAGR). He emphasized that the company is committed to mid-teen EPS growth, and while there may be movements between lines, the focus is on sustained growth through strategic investments and efficiencies.

Rick Shane inquired about the role of retention offers as the new, higher Platinum Card fees roll out, asking about the typical percentage of customers who request or take these offers and if that response rate is expected to be higher or lower this time.

Answer

Chairman and CEO Stephen Squeri explained that retention offers play a very small role in retaining the card base, with most retention driven by explaining the product's value. He believes the Platinum Card's enhanced value proposition makes it easy for customers to see its worth, and he anticipates retention offers may play an even smaller role than in the past due to the product's inherent strength and ease of benefit engagement.

Rick Shane asked if, given the attractive opportunities in low-coupon MSRs (viewed as attractive IOs), it would also make sense to buy lower-coupon MBS as a hedge and for discount accretion if prepayment speeds increase. He also inquired about the liquidity of lower-coupon MBS for deploying capital.

Answer

David Finkelstein, CEO and Co-Chief Investment Officer, explained that valuations on low-coupon MBS are quite tight, suggesting better ways to manage risk. He noted that while there's some policy risk in low-note rate MSR, the borrower reluctance to give up low-rate loans makes it a safe, durable asset. He confirmed liquidity in low coupons, though not as good as production, and mentioned adding DUS (agency CMBS) last quarter as a cheaper alternative for good convexity and longer duration.

Rick Shane asked if, given the attractive opportunities in low-coupon MSRs, it also makes sense to buy lower-coupon MBS, especially with increasing prepayment questions. He also inquired about the liquidity available in lower coupons for capital deployment.

Answer

David Finkelstein, CEO and Co-Chief Investment Officer, explained that valuations on low-coupon MBS are quite tight, suggesting better ways to manage that risk. He noted policy risk in low-note rate MSR but emphasized its safety and durability, with uncertainty hedged through duration. Finkelstein confirmed that there is liquidity in low coupons, though not as robust as in production coupons, and mentioned that adding DUS (agency CMBS) to the portfolio was a more attractive option for convexity and longer duration in the last quarter.

Rick Shane inquired about the confidence in maintaining stable Net Interest Income (NII) adjusted for PAA over the next couple of quarters, given current market uncertainties.

Answer

David Finkelstein, CEO and Co-Chief Investment Officer, and Serena Wolfe, CFO, expressed confidence in the portfolio's stability and expected EAD consistent with the prior quarter, citing stable swap portfolio runoff and benefits from future Fed cuts on funding costs.

Rick Shane asked about Annaly's confidence in maintaining stable Net Interest Income (NII) adjusted for PAA over the next couple of quarters, given its recent stability and current market uncertainties.

Answer

David Finkelstein, CEO and Co-Chief Investment Officer, expressed confidence in stable NII and EAD consistent with the past quarter, citing low leverage and stable swap portfolio runoff. Serena Wolfe, CFO, added that increasing yields from capital deployment and expected Fed cuts on funding costs should support good NII levels.

Rick Shane from JPMorgan Chase & Co. inquired about Navient's capital allocation strategy for 2026, particularly how share repurchases would be managed given the expected growth in the private book and the company's current significant discount to tangible book value.

Answer

President and CEO Dave Yowan stated that Navient is not signaling any change in its approach to share repurchases, which remain opportunistic and based on valuation, including the discount to tangible book value. He noted that the amount of share repurchases has declined over the years due to a reduced share count, and the strategy is scaled to the size of the share repurchase authorization.

Rick Shane inquired about Navient's capital allocation strategy for 2026, specifically how the company plans to balance growing the private book and managing debt maturities with its historical discipline of returning capital to shareholders, especially regarding opportunistic share repurchases given the current discount to tangible book.

Answer

President and CEO Dave Yowan stated they are not signaling any change in their approach to share repurchases. He reiterated that 'opportunistic' is based on share valuation and the discount to tangible book value, confirming the strategy remains consistent, scaled to the size of the share repurchase authorization received in Q4.

Rick Shane sought clarification on whether the lack of quarter-to-date equity issuance was a strategic choice to slow issuance or due to a blackout period, to understand the extent of AGNC's pullback.

Answer

Peter Federico, President, CEO, and CIO, clarified that future issuance would be opportunistic, not driven by a desire for greater scale. He confirmed that the absence of quarter-to-date issuance was due to a typical blackout period for companies from the end of the previous period until around their earnings call.

Rick Shane sought clarification on whether AGNC's lack of ATM issuance quarter-to-date was by choice or due to a blackout period.

Answer

Peter Federico clarified that AGNC, like most companies, is typically in a blackout period for ATM issuance from the end of the previous period until around their earnings call. He also reiterated that future issuance would be opportunistic and driven by economics, not a desire for greater scale.

Rick Shane from JPMorgan Chase & Co. questioned the flat midpoint EPS guidance for 2026 despite mid-single-digit loan growth and NII growth, noting the significant increase in RSAs to pre-pandemic levels and a higher efficiency ratio. He asked if the RSA increase was due to a pull-forward effect from new programs and if efficiency ratios would normalize in 2027, seeking clarity on the long-term outlook. He also asked if the timing differential of CECL reserving for loan growth was the primary driver.

Answer

CFO Brian Wenzel attributed the current EPS profile and efficiency ratio to significant growth investments, including heavy reserve rates for new programs and early-stage assets with lower yields, which impact various lines. He stated that RSAs would normalize and the goal is double-digit EPS growth beyond 2026, with current investments setting up for the medium to long term. He confirmed that the timing differential associated with CECL reserving for loan growth "dwarfs the true reality a little bit."

Rick Shane questioned why Synchrony's midpoint EPS for 2026 is flat despite mid-single-digit loan growth, NII growth, and expected buybacks, given the significant increase in RSA and higher efficiency ratio. He asked if RSA is a pull-forward for new programs and if efficiency ratios will normalize in 2027. He also sought clarification on whether the flat EPS and higher efficiency ratio are primarily due to the timing differential associated with CECL reserving of loan growth.

Answer

CFO Brian Wenzel explained that the flat EPS is due to significant investments in growth, particularly heavy reserve rates for new programs (Walmart, Lowe's) and assets in early stages of the J-curve, which impact various P&L lines. He expects normalization beyond 2026, aiming for double-digit EPS growth. CFO Brian Wenzel confirmed that CECL reserving, which requires booking losses upfront before earning off the asset, does "dwarf the true reality a little bit" and impacts the reported financial metrics.

Rick Shane asked about Blackstone Mortgage Trust's strategy to cover its dividend, given the implied dividend yield, and the levers available such as higher yields, reducing non-performing assets, and resolving REO. He also inquired about the company's confidence in achieving hurdle rates in a lower short-term rate environment.

Answer

Tim Johnson, Chair of the Expertise Board and Global Head of BREDS, highlighted that distributable earnings prior to charge-offs covered the dividend this quarter and emphasized unlocking earnings from the REO and impaired loan portfolios as the primary lever for long-term dividend sustainability. He confirmed confidence in achieving hurdle rates in a lower rate environment due to the strong offset from redeploying capital from REO and impaired loans. Austin Peña, EVP of Investments, added that the company only loses about 150 basis points from rate moves.

Rick Shane with JPMorgan Chase & Co. asked about Blackstone Mortgage Trust's strategy to cover its dividend, given the implied dividend yield as a function of book value, and requested a ranking of levers such as higher yields, reducing non-performing assets, and reducing REO, along with their expected contributions. He also inquired about the funding loss rate outlook and the company's confidence in achieving hurdle rates in a sharply lower short-term rate environment, considering capital recycling opportunities.

Answer

Tim Johnson, Chairman and Incoming CEO, highlighted that distributable earnings prior to charge-offs of $0.48 per share covered the $0.47 dividend this quarter. He emphasized that the dividend is set with a long-term view, and significant earnings potential remains to be unlocked by converting REO and impaired loans into higher-returning investments. He confirmed that redeploying capital from REO and impaired loans serves as a strong offset to a lower rate environment. Austin Peña, EVP of Investments, added that the company's sensitivity to a rate move is limited to about 150 basis points.

Rick Shane questioned if the decision to sell loans in the fourth quarter represented a strategic shift from the company's prior outline of growing the book faster and reducing or flattening the dollar volume of loans sold. He also sought confirmation that the updated guidance contemplates the reserve release from held-for-sale designation but does not embed any gain on sale, implying potential upside if the deal closes in Q4.

Answer

CEO Jon Witter affirmed that there has been no strategic change, reiterating commitment to modest balance sheet growth, using loan sales to moderate, and aggressive capital return. He explained that the emergence of Plus Reform and the growth of private credit have created a new 'third funding leg' opportunity, offering more stable long-term earnings and attractive capital characteristics. Jon Witter confirmed that the guidance includes the reserve release from held-for-sale designation, but not any gain on sale, indicating potential upside if the deal closes in Q4.

Rick Shane questioned if the decision to sell loans in the fourth quarter represented a strategic shift from the company's prior outlined strategy of faster book growth and stable loan sale volumes. He also sought clarification on whether the updated guidance included the reserve release from 'held for sale' designation but excluded any potential gain on sale.

Answer

CEO Jon Witter clarified that the core strategy remains unchanged, but the emergence of Plus Reform and the growth of private credit have created a new 'third funding leg' opportunity for more stable, capital-efficient earnings. He confirmed that the guidance incorporates the reserve release from 'held for sale' designation, but not any gain on sale, which would be upside if the deal closes in Q4.

Rick Shane sought clarification on the expected redeployment of $1 billion in second-half repayments, questioning if a one-quarter lag should be anticipated for originations and why the Q4 pipeline wasn't larger given the Q3 lag. He also pressed for a realistic timeline to double the current ROE to adequately cover the dividend, emphasizing the importance of resolving challenged properties.

Answer

Patrick Mattson, President and COO, stated the goal is to match repayments with originations, minimizing timing drag, and that ample capital exists for deployment. He noted that Q4 originations would be front-ended and pipelines remain active, expecting continued build into year-end and Q1. Matthew Salem, CEO, categorized REO resolution into near-term (12-18 months), medium-term (24-36 months), and longer-term buckets, estimating about half of the earnings impact could be recovered in the near term from assets like Portland, West Hollywood, Raleigh, and Philadelphia.

Rick Shane noted that the current ROE is about half of what's needed to support the dividend and asked realistically how long it would take to double the ROE by resolving challenged properties and loans.

Answer

CEO Matthew Salem categorized the REO portfolio into three timelines: near-term (12-18 months), medium-term (24-36 months), and longer-term. He estimated about half of the embedded earnings power could be recovered in the near term from assets like Portland, West Hollywood, Raleigh, and Philadelphia, with Mountain View in the medium term and Seattle life science potentially longer.

Rick Shane of JPMorgan Chase & Co. asked about KREF's strategy for managing its significant 2026 and 2027 loan maturity walls and sought clarification on the distinction between a loan refinance and an extension. In a follow-up, he requested a detailed timeline for repatriating capital from the company's REO portfolio.

Answer

CEO Matt Salem addressed the maturity walls, explaining that many loans are being refinanced ahead of schedule as sponsors seek to extend duration in a favorable market, and he does not see maturities as a major catalyst for new defaults. He clarified that most refinancings in KREF's pipeline are for new credits, not existing loans. Regarding the REO portfolio, Salem provided an asset-by-asset breakdown, indicating West Hollywood and Portland would see capital returns starting within the next year, while assets like Mountain View and Seattle require more patience to maximize value.

Rick Shane from JPMorgan Chase & Co. asked for insight into KREF's large maturity walls in 2026 and 2027, seeking a potential breakdown of expected payoffs, extensions, and problematic loans. He also requested clarification on whether pipeline 'refinancings' represent new credits or existing KREF loans, and how the company internally distinguishes a 'refinance' from an 'extension'.

Answer

CEO Matthew Salem explained that it's difficult to provide a precise breakdown of future maturities, but noted many are being resolved ahead of schedule. He believes most credit issues have already surfaced and are not primarily tied to maturity dates anymore. Salem clarified that the vast majority of refinancings in the pipeline are for new credits, not existing KREF loans. An extension modifies a current loan, whereas a full refinance of an existing asset is rare and would be treated as an entirely new loan with new terms.

Rick Shane of JPMorgan Chase & Co. requested details on the $10.5 million in REO-related losses, the accounting and balance of payment-in-kind (PIK) interest, the strategy for holding versus selling REO based on property absorption, and the expected capital expenditure for the REO portfolio.

Answer

CFO Paul Elenio clarified that a ~$9.5 million REO loss was a strategic decision to quickly flip a deteriorating asset, while a smaller loss was on another property. He stated the PIK receivable balance was $95 million at quarter-end, which is added to the loan's carrying value and assessed quarterly via CECL. CEO Ivan Kaufman explained their REO strategy focuses on workforce housing, not oversupplied Class A assets. Both executives estimated future CapEx on the REO portfolio would be in the $25-$50 million range over time.