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| PART I |
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| Item 1. Business | 7 |
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| Item 1A. Risk Factors | 19 |
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| Item 1B. Unresolved Staff Comments | 69 |
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| Item 1C. Cybersecurity | 70 |
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| Item 2. Properties | 70 |
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| Item 3. Legal Proceedings | 71 |
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| Item 4. Mine Safety Disclosures | 71 |
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| PART II | 71 |
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| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 71 |
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| Item 6. [Reserved] | 73 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 74 |
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| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 92 |
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| Item 8. Financial Statements and Supplementary Data | 96 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 160 |
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| Item 9A. Controls and Procedures | 160 |
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| Item 9B. Other Information | 161 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 161 |
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| PART III | 161 |
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| Item 10. Directors, Executive Officers and Corporate Governance | 161 |
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| Item 11. Executive Compensation | 161 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 161 |
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| Item 13. Certain Relationships and Related Transactions and Director Independence | 161 |
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| Item 14. Principal Accountant Fees and Services | 161 |
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| PART IV | 162 |
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| Item 15. Exhibits and Financial Statement Schedules | 162 |
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| SIGNATURES | 167 |
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FORWARD-LOOKING STATEMENTS
Except where the context suggests otherwise, the terms “Company,” “we,” “us” and “our” refer to Ready Capital Corporation and its subsidiaries. We make forward-looking statements in this annual report on Form 10-K within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained therein. Forward-looking statements contained in this annual report reflect our current views about future events and are inherently subject to substantial risks and uncertainties, many of which are difficult to predict and beyond our control, that may cause our actual results to materially differ. These forward-looking statements include information about possible or assumed future results of our operations, financial condition, liquidity, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may,” “potential” or other comparable terminology, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words. Statements regarding the following subjects, among others, may be forward-looking, and the occurrence of events impacting these subjects, or otherwise impacting our business, may cause our financial condition, liquidity and consolidated results of operations to vary materially from those expressed in, or implied by, any such forward-looking statements:
| ● | our investment objectives and business strategy; |
| ● | our ability to borrow funds or otherwise raise capital on favorable terms; |
| ● | our expected investments; |
| ● | estimates or statements relating to, and our ability to make, future distributions; |
| ● | projected capital and operating expenditures; |
| ● | availability of qualified personnel; |
| ● | projected default rates; |
| ● | increased rates of default and/or decreased recovery rates on our investments; |
| ● | changes in interest rates, interest rate spreads, the yield curve or prepayment rates; |
| ● | the impact of inflation on our business; |
| ● | changes in prepayments of our assets; |
| ● | our ability to achieve the expected synergies, cost savings and other benefits from the acquisition of a group of privately-held real estate structured finance opportunities funds with a focus on construction lending (collectively, the “Mosaic Funds”); |
| ● | our ability to achieve the expected synergies, cost savings and other benefits from the acquisition of Broadmark Realty Capital Inc. (“Broadmark”), a specialty real estate finance company that specialized in originating and servicing residential and commercial construction loans; |
| ● | risks associated with achieving expected synergies, cost savings and other benefits from acquisitions and our increased scale; |
| ● | risks related to integrating a construction lending platform into our existing operations and the origination and ownership of construction loans, which are subject to additional risks as compared to loans secured by existing structures or land, following the Broadmark Merger and the acquisition of the Mosaic Funds; |
| ● | risks associated with the divestiture of our Residential Mortgage Banking segment, should we undertake such a sale; |
| ● | market, industry and economic trends; |
| ● | our ability to compete in the marketplace; |
| ● | the availability of attractive risk-adjusted investment opportunities in lower-to-middle-market commercial real estate loans (“LMM”), loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its Section 7(a) loan program (the “SBA Section 7(a) Program”), mortgage backed securities (“MBS”), residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies; |
| ● | general volatility of the capital markets; |
| ● | changes in our investment objectives and business strategy; |
| ● | the availability, terms and deployment of capital; |
| ● | the availability of suitable investment opportunities; |
| ● | market developments and actions recently taken and which may be taken by the U.S. Government, the U.S. Department of the Treasury (“Treasury”) and the Board of Governors of the Federal Reserve System, the Federal Depositary Insurance Corporation, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”), Federal Housing Administration (“FHA”) Mortgagee, U.S. Department of Agriculture (“USDA”), U.S. Department of Veterans Affairs (“VA”) and the U.S. Securities and Exchange Commission (“SEC”); |
| ● | applicable regulatory changes; |
| ● | changes in our assets, interest rates or the general economy; |
| ● | mortgage loan modification programs and future legislative actions; |
| ● | our ability to maintain our qualification as a real estate investment trust (“REIT”) and limitations on our business as a result of our qualifications as a REIT; |
| ● | our ability to maintain our exemption from qualification under the Investment Company Act of 1940, as amended (the “1940 Act”); |
| ● | factors described in this annual report on Form 10-K, including those set forth under the captions “Risk Factors” and “Business”; |
| ● | our dependence on our external advisor, Waterfall Asset Management, LLC (“Waterfall” or the “Manager”), and our ability to find a suitable replacement if we or Waterfall were to terminate the management agreement we have entered into with Waterfall (the “management agreement”); |
| ● | the degree and nature of our competition, including competition for LMM loans, MBS, residential mortgage loans, construction loans and other real estate-related investments that satisfy our investment objectives and strategies; |
| ● | geopolitical events such as acts of terrorism, war or other military conflict, and the related impact on macroeconomic conditions; |
| ● | the impact of the coronavirus (“COVID-19”) pandemic and the emergence and severity of COVID-19 variants on our business and operations, financial condition, results of operations, liquidity and capital resources; and |
| ● | the impact of pandemics or epidemics on our borrowers, the real estate industry and global markets. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and we caution readers not to place undue reliance on any forward-looking statements. These forward-looking statements apply only as of the date of this annual report on Form 10-K. We are not obligated, and do not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. See Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report on Form 10-K.
RISK FACTOR SUMMARY
We are subject to a variety of risks that are inherent to our business, including risks that may prevent us from achieving our business objectives or may adversely affect our financial condition, results of operations and liquidity. The following list of risks and uncertainties is only a summary of some of the most important factors and is not intended to be exhaustive. The risk factor summary should be read together with the more detailed discussion of risks and uncertainties set forth in Item 1A. “Risk Factors” of this annual report on Form 10-K.
| ● | We depend on Waterfall and its key personnel for our success and we may not find a suitable replacement for Waterfall if the management agreement with Waterfall is terminated, or if key personnel leave the employment of Waterfall or otherwise become unavailable to us; |
| ● | There are various conflicts of interest in our relationship with Waterfall which could result in decisions that are not in the best interests of our stockholders; |
| ● | The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, including in the case of termination for unsatisfactory performance, which may adversely affect our inclination to end our relationship with Waterfall; |
| ● | The COVID-19 pandemic caused severe disruptions in the U.S. and global economy and a resurgence of COVID-19, or outbreaks of other highly infectious diseases, may have an adverse impact on our performance, financial condition and results of operations; |
| ● | The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets; |
| ● | We anticipate a significant portion of our investments will be in the form of LMM loans that are subject to risks, such as credit risk; |
| ● | Some of the mortgage loans we will originate or acquire are loans made to self-employed borrowers who have a higher risk of delinquency and default, which could have a material and adverse effect on our business, results of operations and financial condition; |
| ● | New entrants in the market for LMM loans could adversely impact our ability to acquire such loans at attractive prices and originate such loans at attractive risk-adjusted returns; |
| ● | We cannot predict the unintended consequences and market distortions that may stem from far-ranging interventions in the financial system and oversight of financial markets; |
| ● | Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock; |
| ● | Inflation in the U.S. is expected to continue at an elevated level in the near- to medium-term, which may have an adverse impact on the valuation of our investments; |
| ● | Maintenance of our 1940 Act exception imposes limits on our operations; |
| ● | Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions and changes in such rules, accounting interpretations or our assumptions could adversely impact our ability to timely and accurately prepare our consolidated financial statements; |
| ● | Provisions for credit losses under the Current Expected Credit Loss (“CECL”) model are difficult to estimate; |
| ● | Cybersecurity risk and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of the security, confidentiality, or integrity of our Company, employee, customer, or third-party confidential information and/or damage to our reputation or business relationships, any of which could negatively impact our financial results; |
| ● | We may seek to sell one of our business segments in an effort to maximize shareholder value, which may adversely affect our Company, our reputation, our results of operations and financial position or our stock price; |
| ● | Our board of directors (“Board”) will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines; |
| ● | We use leverage as part of our investment strategy, but we do not have a formal policy limiting the amount of debt we may incur, and our Board may change our leverage policy without stockholder consent; |
| ● | We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition; |
| ● | Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, which could reduce returns on our assets and adversely affect returns to our stockholders; |
| ● | The percentage of our assets represented by taxable REIT subsidiaries (“TRSs”) and the amount of our income that we can receive in the form of TRS dividends and interest are subject to statutory limitations that could jeopardize our REIT qualification and could limit our ability to acquire or force us to liquidate otherwise attractive investments; and |
| ● | Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow. |
