Ready Capital Corp
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
RC$0.85-20.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001558370-24-011768
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001628280-24-047137
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 134 previous paragraphs and 664 current paragraphs.
38 unchanged; 88 reworded; 191 added; 7 removed; 1 previous and 347 current paragraphs rearranged.
Tables are not compared: 68 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (191)
Current report
•our investment objectives and business strategy;
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•our ability to borrow funds or otherwise raise capital on favorable terms;
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•our expected leverage;
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•our expected investments;
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•estimates or statements relating to, and our ability to make, future distributions;
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•projected capital and operating expenditures;
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•availability of qualified personnel;
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•prepayment rates;
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•projected default rates;
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•increased rates of default and/or decreased recovery rates on our investments;
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•changes in interest rates, interest rate spreads, the yield curve or prepayment rates;
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•the impact of inflation on our business;
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•changes in prepayments of our assets;
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•our ability to achieve the expected synergies, cost savings and other benefits from recent acquisitions, including
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the acquisitions of Broadmark Realty Capital Inc. (“Broadmark”), Madison One Capital, M1 CUSO and
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•risks associated with achieving expected synergies, cost savings and other benefits from acquisitions and our
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increased scale;
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•risks related to integrating a construction lending platform into our existing operations and the origination and
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ownership of construction loans, which are subject to additional risks as compared to loans secured by existing
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structures or land, following the Broadmark Merger;
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•risks associated with the divestiture of our Residential Mortgage Banking segment;
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•market, industry and economic trends;
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•our ability to compete in the marketplace;
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•the availability of attractive risk-adjusted investment opportunities in lower-to-middle-market commercial real
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estate loans (“LMM”), loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its
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Section 7(a) loan program (the “SBA Section 7(a) Program”), mortgage backed securities (“MBS”), residential
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mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies;
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•general volatility of the capital markets;
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•changes in our investment objectives and business strategy;
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•the availability, terms and deployment of capital;
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•the availability of suitable investment opportunities;
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•market developments and actions recently taken and which may be taken by the U.S. Government, the U.S.
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Department of the Treasury (“Treasury”) and the Board of Governors of the Federal Reserve System, the
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Federal Deposit Insurance Corporation, the Federal National Mortgage Association (“Fannie Mae”), the Federal
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Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie
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Mae”), Federal Housing Administration (“FHA”) Mortgagee, United States Department of Agriculture
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(“USDA”), U.S. Department of Veterans Affairs (“VA”) and the U.S. Securities and Exchange Commission
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(“SEC”);
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•applicable regulatory changes;
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•changes in our assets, interest rates or the general economy;
Showing the first 40 of 191 passages. Open the source sections for the rest.
Removed paragraphs (7)
Previous report
YTD 2024 versus YTD 2023. Interest income of $63.7 million represented an increase of $27.0 million, primarily due to increases in interest rates and increased loan balances. Interest expense of $49.7 million represented an increase of $30.7 million, driven by increases in interest rates and increased debt balances. Recovery of loan losses of $0.2 million represented an increase of $3.7 million, due to changes in the forecasted macroeconomic inputs for reserve modeling and a decrease in specific loan reserves. Non-interest income of $40.2 million represented a decrease of $2.7 million, primarily due to a decrease in employee tax credit consulting income and servicing income, partially offset by net realized gains on
Previous report
YTD 2024 versus YTD 2023. Non-interest loss of $16.9 million represented a decrease of $247.4 million, primarily due to a gain on bargain purchase recognized from the Broadmark Merger. Non-interest expense of $35.6 million represented a decrease of $8.2 million, primarily due to transaction related expenses for the Broadmark Merger.
Previous report
Six Months Ended June 30, 2023. Cash and cash equivalents as of June 30, 2023, increased by $80.1 million to $353.7 million from December 31, 2022, primarily due to cash provided by investing and operating activities, partially offset by
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cash used for financing activities. The net cash provided by operating activities primarily reflected net income and decreases in loans, held for sale, at fair value, provision for loan losses, and amortization of loan discounts, premiums, and deferred issuance costs, net, as well as decreases in derivative instruments, partially offset by a bargain purchase gain, realized gains on financial instruments, net, increases in other current assets and decreases in other current liabilities. The net cash provided by investing activities primarily reflected net proceeds from loans and REO and net proceeds provided from the Broadmark Merger partially offset by net investments in unconsolidated joint ventures, and payment of liabilities under participation agreements, net of proceeds received. The net cash used for financing activities primarily reflected dividend payments, net payments of secured borrowings including PPPLF, and share repurchases, partially offset by net proceeds received from securitized debt obligations.
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(1) Represents the total number of facility lenders.
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(2) Current maturity does not reflect extension options available beyond original commitment terms.
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(3) Asset class pricing is determined using an index rate plus a weighted average spread.
Reworded paragraphs (88)
Previous wording
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 Quarterly Report on Form 10-Q (the “Form 10-Q”) 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 Form 10-Q 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:
Current wording
Except where the context suggests otherwise, the terms “Company,” “we,” “us” and “our” refer to Ready Capital
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Madison One. On June 5, 2024, the Company acquired Madison One Capital, M1 CUSO and Madison One Lender Services (together, “Madison One”), a leading originator and servicer of USDA and SBA guaranteed loan products, for an initial purchase price of approximately $32.9 million paid in cash (the “Madison One Acquisition”). Approximately $3.6 million of the initial purchase price was paid as bonuses to certain key Madison One personnel in cash. Additional purchase price payments, including cash payments and the issuance of shares of common stock of the Company, may be made over the four years following the acquisition date contingent upon the Madison One business achieving certain performance metrics. Part of the Company’s strategy in acquiring Madison One included the value of the anticipated synergies arising from the acquisition and the value of the acquired assembled workforce, neither of which qualify for recognition as an intangible asset. Refer to Notes 1 and 5, included in Part I, Item 1, “Financial Statements,” of this Form 10-Q, for more information about the Madison One Acquisition and the assets acquired and liabilities assumed as a result of the Madison One Acquisition.
Current wording
Madison One Lender Services (together, “Madison One”), and Funding Circle USA, Inc ("Funding Circle");
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our interim consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections:
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operations, financial condition, results of operations, liquidity and capital resources; and
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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 Form 10-Q. 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. Refer to Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (our “Form 10-K”).
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot
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The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and accompanying Notes included in Part I, Item 1, “Financial Statements,” of this Form 10-Q and with Items 6, 7, 8, and 9A of our Form 10-K. Refer to “Forward-Looking Statements” in this Form 10-Q and in our Form 10-K and “Critical Accounting Estimates” in our Form 10-K for certain other factors that may cause actual results to differ, materially, from those anticipated in the forward-looking statements included in this Form 10-Q.
Current wording
The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and
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We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA loans, construction loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related investments. Our loans generally range in original principal amounts up to $40 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders primarily through dividends, as well as through capital appreciation. In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns.
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We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA
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Our Residential Mortgage Banking segment meet the criteria to be classified as held for sale and presented as a discontinued operation. For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two operating segments:
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Our Residential Mortgage Banking segment meets the criteria to be classified as held for sale and presented as a
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acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns.
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We typically acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) when we
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We are organized and conduct our operations to qualify as a REIT under the Code. To qualify as a REIT, we are required to annually distribute substantially all of our net taxable income, excluding capital gain, to stockholders. To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay U.S. federal corporate income tax on the undistributed income. We are organized in a traditional UpREIT format pursuant to which we serve as the general partner of, and conduct substantially all of our business through, our operating partnership. We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act.
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We are organized and conduct our operations to qualify as a REIT under the Code. To qualify as a REIT, we are required
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Broadmark. On May 31, 2023, the Company, Broadmark Realty Capital Inc., a Maryland corporation (“Broadmark”), and RCC Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), completed a merger (such transaction, the “Broadmark Merger”) in which Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of the operating partnership. As a result of the Broadmark Merger, the number of directors on the Company's board of directors (the “Board”) increased by three members, from nine to twelve, with the three additional directors each having served on the board of directors of Broadmark immediately prior to the effective time of the Broadmark Merger. The Broadmark Merger further diversified our business by expanding on our residential and commercial construction lending platforms. Refer to Notes 1 and 5, included in Part I, Item 1, “Financial Statements,” of this Form 10-Q, for more information about the Broadmark Merger and the assets acquired and liabilities assumed as a result of the Broadmark Merger.
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Broadmark. On May 31, 2023, the Company, Broadmark Realty Capital Inc., a Maryland corporation (“Broadmark”),
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We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of interest income from our assets, the market and fair value of our assets and the supply of, and demand for, LMM loans, SBA loans, USDA loans, construction loans, MBS and other assets we may acquire in the future, demand for housing, population trends, construction costs, the availability of alternative real estate financing from other lenders, changes in credit spreads, and the financing and other costs associated with our business. These factors may have an impact on our ability to originate new loans or the performance of our existing loan portfolio. Our net investment income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates, the rate at which our distressed assets are liquidated and the prepayment speed of our performing assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by our available borrowing capacity, conditions in the financial markets, credit losses in excess of initial estimates or unanticipated credit events experienced by borrowers whose loans are held directly by us or are included in
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We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of
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our MBS. Difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, unemployment and the availability and cost of credit are factors which could also impact our operating results. For additional information about certain risks we face, including market risk, credit risk, interest rate risk, liquidity risk, off-balance sheet risk and prepayment risk, refer to Note 23, included in Part I, Item 1, “Financial Statements,” and Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-Q, as well as Part I, Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2023.
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are included in our MBS. Difficult market conditions as well as inflation, energy costs, geopolitical issues, health
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Changes in Market Interest Rates.* *We own and expect to acquire or originate fixed rate mortgages and floating rate mortgages with maturities ranging from two to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon payments due in two to 10 years. Fixed rate mortgage loans bear interest that is fixed for the term of the loan and we typically utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with such fixed rate mortgages. As of June 30, 2024, all fixed rate loans are match funded in securitization. Floating rate mortgage loans generally have an adjustable interest rate equal to the sum of a fixed spread plus an index rate, such as the Secured Overnight Financing Rate (“SOFR”), which typically resets monthly. As of June 30, 2024, approximately 82% of the loans in our portfolio were floating rate mortgages, and 18% were fixed rate mortgages, based on UPB.
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Changes in Market Interest Rates. We own and expect to acquire or originate fixed rate mortgages and floating rate
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Current market conditions. The second quarter was generally characterized by persisting macroeconomic concerns including uncertainty about the commercial real estate sector, inflation, interest rates, and geopolitical tensions. Although the full impact of these changes remains uncertain and difficult to predict, concerns and uncertainties about the economic outlook may adversely impact our financial condition, results of operations and cash flows.
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Federal Reserve. Although the full impact of these changes remains uncertain and difficult to predict, concerns and
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As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared per share, distributable earnings, return on equity, and net book value per share. As further described below, distributable earnings is a measure that is not prepared in accordance with GAAP. We use distributable earnings to evaluate our performance and determine dividends, excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations. Refer to “—Non-GAAP Financial Measures” below for a reconciliation of net income to distributable earnings.
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As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per
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We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our investment process. We refer to assets as being part of our acquisition or origination pipeline if (i) an asset or portfolio opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our investment strategy and exhibit the appropriate risk/reward characteristics (ii) in the case of acquired loans, we have executed a non-disclosure agreement (“NDA”) or an exclusivity agreement and commenced the due diligence process or we have executed more definitive documentation, such as a letter of intent (“LOI”); and (iii) in the case of originated loans, we have issued an LOI, and the borrower has paid a deposit.
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We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our
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We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire the potential investments in the pipeline. The consummation of any of the potential loans in the pipeline depends upon, among other things, one or more of the following: available capital and liquidity, our Manager’s allocation policy, satisfactory completion of our due diligence investigation and investment process, approval of our Manager’s Investment
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We operate in a competitive market for investment opportunities and competition may limit our ability to originate or
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Committee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the execution and delivery of satisfactory transaction documentation. Historically, we have acquired less than a majority of the assets in our pipeline at any one time and there can be no assurance the assets currently in our pipeline will be acquired or originated by us in the future.
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Committee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the
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The table below presents information on our investment portfolio originations and acquisitions (based on fully committed amounts).
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The table below presents information on our investment portfolio originations and acquisitions (based on fully
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As of June 30, 2024, total assets in our consolidated balance sheet were $11.8 billion, a decrease of $667 million from December 31, 2023, primarily reflecting a decrease in Assets of consolidated VIEs and Loans, net, partially offset by an increase in Loans, held for sale. Assets of consolidated VIEs decreased $647 million, due to paydowns on securitized loans. Loans, net decreased $575 million, primarily due to loans transferred to Loans, held for sale. Loans, held for sale increased $451 million, primarily due to loans transferred from Loans, net.
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As of September 30, 2024, total assets in our consolidated balance sheet were$11.3 billion, a decrease of$1.2 billion
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As of June 30, 2024, total liabilities in our consolidated balance sheet were $9.4 billion, a decrease of $420 million from December 31, 2023, primarily reflecting a decrease in Securitized debt obligations of consolidated VIEs, net, partially offset by an increase in Secured borrowings. Securitized debt obligations of consolidated VIEs, net decreased $661 million due to paydowns on securitized loans. Secured borrowings increased $210 million due to increased borrowings on originations of loans, partially offset by payments.
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As of September 30, 2024, total liabilities in our consolidated balance sheet were$8.9 billion, a decrease of$880 million
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As of June 30, 2024, total stockholders’ equity was $2.4 billion, a decrease of $247 million from December 31, 2023, primarily due to common stock repurchased through the Company’s share repurchase program.
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As of September 30, 2024, total stockholders’ equity was$2.3 billion, a decrease of$308 million from December 31,
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Selected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data by each of our two business segments, with the remaining amounts reflected inCorporate –Other.
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Selected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data
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Results of Operations – Supplemental Information. Realized and unrealized gains (losses) on financial instruments are recorded in the consolidated statements of operations and classified based on the nature of the underlying asset or liability.
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recorded in the consolidated statements of operations and classified based on the nature of the underlying asset or
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LMM Commercial Real Estate Segment Results.
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LMMCommercial Real Estate Segment Results.
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Q2 2024 versus Q2 2023. Interest income of $202.0 million represented a decrease of $10.2 million, primarily due to decreased loan balances, partially offset by increases in interest rates. Interest expense of $158.3 million represented a decrease of $2.2 million, driven by decreased debt balances, partially offset by increases in interest rates. Recovery of loan losses of $14.4 million represented an increase of $31.8 million, primarily due to loans transferred to Loans, held for sale. Non-interest loss of $85.4 million represented an increase of $110.2 million, primarily due to the valuation allowance related to the transfer of Loans, net to Loans, held for sale. Non-interest expense of $31.3 million represented an increase of $6.8 million, due to an increase in charge-offs of real estate acquired in settlement of loans, partially offset by a decrease in employee compensation and benefits.
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decreased loan balances, partially offset by increases in interest rates. Interest expense of$150.5 million representeda
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YTD 2024 versus YTD 2023. Interest income of $402.8 million represented a decrease of $7.5 million, primarily due to decreased loan balances, partially offset by increases in interest rates. Interest expense of $317.2 million represented an increase of $7.2 million, driven by increases in interest rates. Recovery of loan losses of $45.2 million represented an increase of $54.5 million, primarily due to loans transferred to Loans, held for sale. Non-interest loss of $208.3 million represented an increase of $242.7 million, primarily due to the valuation allowance related to the transfer of Loans, net to Loans, held for sale. Non-interest expense of $74.7 million represented an increase of $28.1 million, due to increases in charge-offs of real estate acquired in settlement of loans and loan servicing expenses.
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estate acquired in settlement of loans and loan servicing expenses, partially offset by a decrease in employee
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Q2 2024 versus Q2 2023. Interest income of $32.1 million represented an increase of $13.3 million, primarily due to increases in interest rates and increased loan balances. Interest expense of $24.8 million represented an increase of $15.1 million, driven by increases in interest rates and increased debt balances. Recovery of loan losses of $4.5 million represented an increase of $6.5 million, due to changes in the forecasted macroeconomic inputs for reserve modeling and a decrease in specific loan reserves. Non-interest income of $19.9 million represented a decrease of $1.3 million, primarily due to a decrease in employee tax credit consulting income and servicing income, partially offset by net realized gains on financial instruments. Non-interest expense of $17.3 million represented a decrease of $1.9 million, due to decreases in employee compensation and benefits.
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increases in interest rates and increased loan balances. Interest expense of$25.1 million representedan increase of$4.3
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financial instruments. Non-interest expense of $35.4 million was essentially unchanged from the respective prior year period.
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was essentially unchanged from the prior year period.
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Q2 2024 versus Q2 2023. Non-interest loss of $16.9 million represented a decrease of $247.1 million, primarily due to a gain on bargain purchase recognized from the Broadmark Merger. Non-interest expense of $18.9 million represented a decrease of $8.1 million, primarily due to transaction related expenses for the Broadmark Merger.
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of$54.1 million representeda decrease of$8.0 million, primarily due to transaction related expenses for the Broadmark
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We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors greater transparency into the information used by management in our financial and operational decision-making, including the determination of dividends.
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We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors
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In addition, in calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value from discontinued operations. Servicing rights relating to our small business commercial business are accounted for under ASC 860,Transfer and Servicing. In calculating distributable earnings, we do not exclude realized gains or losses on commercial MSRs, as servicing income is a fundamental part of our business and an indicator of the ongoing performance.
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iii)any unrealized gains or losses on Residential MSRs from discontinued operations
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In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by us in the secondary market but is not adjusted to exclude unrealized gains and losses on MBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS securitization and retain an interest in the securitization. In calculating distributable earnings, we do not adjust net income (in accordance with GAAP) to take into account unrealized gains and losses on MBS retained by us as part of our loan origination businesses because we consider the unrealized gains and losses that are generated in the loan origination and securitization process to be a fundamental part of this business and an indicator of the ongoing performance and credit quality of our historical loan originations. In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of reasons which may include collateral type, duration, and size.
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In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and
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Furthermore, we believe it is useful to present distributable earnings before realized losses on certain investments, such as charge-offs and losses realized on sales of real estate owned assets and LMM loans, to reflect our direct operating results. We utilize distributable earnings before realized losses as an additional performance metric to consider when assessing our ability to declare and pay dividends. Distributable earnings and distributable earnings before realized losses are non-U.S. GAAP financial measures and because these non-U.S. GAAP measures are incomplete measures of our financial performance and involve differences from net income computed in accordance with U.S. GAAP, they should be considered along with, but not as alternatives to, our net income as measures of our financial performance. In addition, because not all companies use identical calculations, our presentations of distributable earnings and distributable earnings before realized losses may not be comparable to other similarly-titled measures of other companies.
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Furthermore, we believe it is useful to present distributable earnings before realized losses on certain investments, such
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To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain. There are certain items, including net income generated from the creation of MSRs, that are included in distributable earnings but are not included in the calculation of the current year’s taxable income. These differences may result in certain items that are recognized in the current period’s calculation of distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution requirement, until future years.
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To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our
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The table below presents a reconciliation of net income to distributable earnings before realized losses and distributable earnings.
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The table below presents areconciliation of net income to distributable earnings before realized losses and distributable
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Q2 2024 versus Q2 2023. Consolidated net loss of $34.2 million for the second quarter of 2024 represented a decrease of $287.6 million from the second quarter of 2023, primarily due to a gain on bargain purchase recognized from the Broadmark Merger and a valuation allowance related to the transfer of Loans, net to Loans, held for sale. Consolidated distributable earnings before realized losses of $36.9 million for the second quarter of 2024 represented a decrease of $14.4 million from the second quarter of 2023. The increase in the distributable earnings reconciling items is primarily due to a gain on bargain purchase recognized from the Broadmark Merger and a valuation allowance related to the transfer of Loans, net to Loans, held for sale. Consolidated distributable earnings of $16.6 million for the second quarter of 2024 represented a decrease of $34.7 million from the second quarter of 2023 due to certain charge-offs and losses realized on sales of real estate owned assets and LMM loans.
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of 2023. Theincrease in the distributable earnings reconciling items is primarily due torea lized losses on sale of
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YTD 2024 versus YTD 2023. Consolidated net loss of $108.4 million for the six months ended June 30, 2024 represented a decrease of $398.7 million from the six months ended June 30, 2023, primarily due to a gain on bargain purchase recognized from the Broadmark Merger and a valuation allowance related to the transfer of Loans, net to Loans, held for sale. Consolidated distributable earnings before realized losses of $90.9 million for the six months ended June 30, 2024 represented an increase of $1.4 million from the six months ended June 30, 2023. The increase in the distributable earnings reconciling items is primarily due to a gain on bargain purchase recognized from the Broadmark Merger and a valuation allowance related to the transfer of Loans, net to Loans, held for sale. Consolidated distributable earnings of $70.6 million for the six months ended June 30, 2024 represented a decrease of $18.8 million from the six months ended June 30, 2023 due to certain charge-offs and losses realized on sales of real estate owned assets and LMM loans.
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representeda decrease of$113.5 million from thenine months ended September 30, 2023 due to certain charge-offs and
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Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our operating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not less
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Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our
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than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) IFCE (as described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the current quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating partnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number of shares of common stock outstanding (including any restricted shares of common stock and any other shares of common stock underlying awards granted under our 2013 Equity Incentive Plan, our 2023 Equity Incentive Plan and the Broadmark Equity Plan) and OP units (without double counting) in such quarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three quarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any calendar quarter unless cumulative IFCE is greater than zero for the most recently completed 12 calendar quarters.
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less than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) IFCE (as
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Corporation and its subsidiaries. Wemake forward-looking statements in this Quarterly Report on Form 10-Q (the
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“Form 10-Q”)within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 27A of the
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Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
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amended (the “Exchange Act”). We intend such statements to be covered by the safe harbor provisions for forward-
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looking statements contained therein. Forward-looking statements contained in this Form 10-Qreflect our current views
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about future events and are inherently subject to substantial risks and uncertainties, many of which are difficult to predict
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and beyond our control, that may cause our actual results to materially differ. These forward-looking statements include
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information about possible or assumed future results of our operations, financial condition, liquidity, plans and
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objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,”
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“could,” “would,” “may,” “potential” or other comparable terminology, we intend to identify forward-looking
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statements, although not all forward-looking statements may contain such words. Statements regarding the following
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subjects, among others, may be forward-looking, and the occurrence of events impacting these subjects, or otherwise
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impacting our business, may cause our financial condition, liquidity and consolidated results of operations to vary
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materially from those expressed in, or implied by, any such forward-looking statements:
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guarantee future results, levels of activity, performance or achievements, and we caution readers not to place undue
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reliance on any forward-looking statements. These forward-looking statements apply only as of the date of this Form 10-
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Q. We are not obligated, and do not intend, to update or revise any forward-looking statements, whether as a result of
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new information, future events or otherwise, except to the extent required by law. Refer to Item 1A. “Risk Factors” and
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Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual
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Report on Form 10-K for the fiscal year ended December 31, 2023 (our “Form 10-K”).
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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to
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provide a reader of ourinterim consolidated financial statements with a narrative from the perspective of our
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management on our financial condition, results of operations, liquidity and certain other factors that may affect our
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future results. Our MD&A is presented in five main sections:
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accompanying Notes included in Part I, Item 1, “Financial Statements,” of this Form 10-Q and with Items 6, 7, 8, and 9A
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of our Form 10-K. Refer to “Forward-Looking Statements” in this Form 10-Q and in our Form 10-K and “Critical
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Accounting Estimates” in our Form 10-K for certain other factors that may cause actual results to differ, materially, from
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those anticipated in the forward-looking statements included in this Form 10-Q.
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loans, construction loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related
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investments. Our loans generally range in original principal amounts up to $40 million and are used by businesses to
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purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or
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warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders primarily through
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dividends, as well as through capital appreciation. In order to achieve this objective, we continue to grow our investment
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portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market
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conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns.
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discontinued operation. For all periods presented, the operating results for these operations have been removed from
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continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted. We
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report our activities in the following two operating segments:
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believe that resolution of the loans will provide attractive risk-adjusted returns.
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to annually distribute substantially all of our net taxable income, excluding capital gain, to stockholders. To the extent
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations