Ready Capital Corp

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our 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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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to

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The following discussion should be read in conjunction with our consolidated financial statements and accompanying Notes included in Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K. The discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2023 compared with the year ended December 31, 2022. Discussions of our financial condition and results of operations for the year ended December 31, 2022 compared with the year ended December 31, 2021 that have been omitted under this item can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 28, 2023.

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The following discussion should be read in conjunction with our consolidated financial statements and accompanying

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In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. See “Forward-Looking Statements” and “Critical Accounting Estimates” in this annual report on 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 annual report on Form 10-K. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part, 1. Item 1A, “Risk Factors” in this annual report on Form 10-K.

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In addition to historical data, this discussion contains forward-looking statements about our business, operations 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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During 2023, our Residential Mortgage Banking segment met 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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strategies. We typically acquire non-performing loans at a discount to their unpaid principal balance 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 when we believe

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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 regular U.S. federal corporate income tax on the undistributed amount. 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 Ready Capital (“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 Company. 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 II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K, 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, a Maryland corporation, and RCC Merger Sub, LLC, a

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For additional information on our business, refer to Part I, Item 1, “Business” in this Annual Report on Form 10-K.

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For additional information on our business, refer to Part I, Item 1, “Business” in this Form 10-K.

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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 value of our assets and the supply of, and demand for, LMM loans, SBA 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 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 our MBS. Difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, such as the outbreak of COVID-19 and the emergence and severity of variants, unemployment and the availability and cost of credit are factors which could also impact our operating results.

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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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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 December 31, 2023, 72% of 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 December 31, 2023, approximately 81% of the loans in our portfolio were floating rate mortgages, and 19% 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 fourth quarter was generally characterized by persisting macroeconomic concerns including continued market volatility, inflationary pressures, slowed economic growth, elevated interest rates, and increased geopolitical tensions. In addition, the ongoing impact of COVID-19 on us and our borrowers will largely depend on future developments beyond our control. 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. See “—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 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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We operate in a competitive market for investment opportunities and competition may limit our ability to originate or

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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 (based on fully committed amounts).

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The table below presents information on our acquisition and origination pipeline opportunities (based on fully committed amounts).

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The table below presents information on our origination pipeline opportunities (based on fully committed amounts).

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As of December 31, 2023, total assets in our consolidated balance sheet were $12.4 billion, an increase of $820 million from December 31, 2022, primarily reflecting an increase in Loans, net and Assets of consolidated VIEs, partially offset by a decrease in PPP loans. Loans, net increased $448 million, primarily due to the closing of the Broadmark Merger, partially offset by the closing of RCMF 2023-FL11, RCMF 2023-FL12 and RCLT 2023-3, paydowns and sales. Assets of consolidated VIEs increased $344 million, due to the closing of RCMF 2023-FL11, RCMF 2023-FL12 and RCLT 2023-3, partially offset by paydowns including the collapse of RCMF 2019-FL3 and RCMF 2019-FL4. PPP loans decreased $152 million due to principal forgiveness. The Broadmark Merger added $845 million of assets.

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As of December 31, 2024, total assets in our consolidated balance sheet were$10.1 billion, a decrease of$2.3 billion

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As of December 31, 2023, total liabilities in our consolidated balance sheet were $9.8 billion, an increase of $72 million from December 31, 2022, primarily reflecting an increase in Guaranteed loan financing and Securitized debt obligations of consolidated VIEs, net, partially offset by a decrease in Secured borrowings and PPPLF borrowings. Guaranteed loan financing increased $580 million, primarily due to the closing of RCLT 2023-3. Securitized debt obligations of consolidated VIEs, net increased $165 million due to the closing of RCMF 2023-FL11, RCMF 2023-FL12 and RCLT 2023-3, partially offset by paydowns including the collapse of RCMF 2019-FL3 and RCMF 2019-FL4. Secured borrowings decreased $562 million due to the closing of RCMF 2023-FL11 and RCMF 2023-FL12. PPPLF borrowings decreased $165 million due to PPP principal forgiveness.

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As of December 31, 2024, total liabilities in our consolidated balance sheet were$8.2 billion, a decrease of$1.6 billion

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As of December 31, 2023, total stockholders’ equity was $2.6 billion, an increase of $748 million from December 31, 2022, primarily due to equity raised in connection with the Broadmark Merger, partially offset by common stock repurchased through the Company’s share repurchase program.

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2023, primarily due to net losses, dividends paid and common stock repurchased through the Company’s share

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Selected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data by each of our three 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 income 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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Interest income of $847.3 million for 2023 represented an increase of $282.1 million from the prior year, primarily due to increased loan balances and increases in interest rates. Interest expense of $650.6 million for 2023 represented an increase of $286.3 million from the prior year, driven by increases in interest rates. Provision for loan losses of $1.4 million for 2023 represented a decrease of $30.1 million from the prior year, due to changes in the forecasted macroeconomic inputs for reserve modeling. Non-interest income of $86.0 million for 2023 represented a decrease of $5.0 million from the prior year, primarily driven by ­­­ decreases in net unrealized gains on financial instruments and losses from unconsolidated joint ventures, partially offset by increases in net realized gains on financial instruments. Non-interest expense of $103.8 million for 2023 represented an increase of $12.5 million from the prior year, primarily due to an increase in loan servicing expense and employee compensation and benefits.

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representedan increase of$3.1 million, due to changes in the forecasted macroeconomic inputs for reserve modeling,

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Interest income of $98.6 million for 2023 represented an increase of $0.5 million from the prior year, due to the closing of RCLT 2023-3, partially offset by a decrease in PPP interest income. Interest expense of $65.8 million for 2023 represented an increase of $38.5 million from the prior year, driven by an increase in interest rates and the closing of RCLT 2023-3. Provision for loan losses of $5.8 million for 2023 represented an increase of $2.9 million from the prior year, primarily due to an increase in specific loan reserves. Non-interest income of $112.1 million for 2023 represented an increase of $48.9 million from the prior year, primarily due to increases in other income driven by employee tax credit consulting and servicing income due to recoveries of impairment, partially offset by decreases in income on purchased future receivables. Non-interest expense of $88.3 million for 2023 represented an increase of $23.9 million from the prior year, primarily due to an increase in professional fees and other operating expenses related to employee tax credit consulting income.

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partially offset by a decrease in specific loan reserves. Non-interest income of$118.6 million representedan increase of

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Non-interest income of $210.4 million for 2023 represented an increase of $209.6 million from the prior year, due to a bargain purchase gain recognized from the Broadmark Merger. Non-interest expense of $80.1 million for 2023 represented an increase of $19.4 million from the prior year, primarily due to transaction related expenses for the Broadmark Merger.

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of$77.4 million representeda decrease of$2.7 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. Distributable earnings is a non-U.S. GAAP financial measure and because distributable earnings is an incomplete measure of our financial performance and involves differences from net income computed in accordance with U.S. GAAP, it should be considered along with, but not as an alternative to, our net income as a measure of our financial performance. In addition, because not all companies use identical calculations, our presentation of distributable earnings may not be comparable to other similarly-titled measures of other companies.

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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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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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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 than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) distributable

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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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earnings (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 and our 2023 Equity Incentive 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 distributable earnings is greater than zero for the most recently completed 12 calendar quarters.

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described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the

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The incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall promptly be delivered to our Company. We are obligated to pay the incentive distribution 50% in cash and 50% in either common stock or OP units, as determined in our discretion, within five business days after delivery to our Company of the written statement from the holder of the Class A special unit setting forth the computation of the incentive distribution for such quarter. Subject to certain exceptions, our Manager may not sell or otherwise dispose of any portion of the incentive distribution issued to it in common stock or OP units until after the three year anniversary of the date that such shares of common stock or OP units were issued to our Manager. The price of shares of our common stock for purposes of determining the number of shares payable as part of the incentive distribution is the closing price of such shares on the last trading day prior to the approval by our Board of the incentive distribution.

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The incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall

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For purposes of determining the incentive distribution payable to our Manager, distributable earnings (which is referred to as core earnings in the partnership agreement of our operating partnership) is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of distributable earnings described above under "Non-GAAP Financial Measures" but with the following additional adjustments which (i) further exclude: (a) the incentive distribution, (b) unrealized gains or losses on LMM loans (not just MBS and MSRs), (c) depreciation and amortization (to the extent we foreclose on any property), and (d) one-time events pursuant to changes in U.S. GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of the independent directors and (ii) do not exclude any realized gains or losses on the sales of MBS and on discontinued operations which were excluded from the definition of distributable earnings described above under "Non-GAAP Financial Measures".

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For purposes of determining the incentive distribution payable to our Manager, incentive fee core earnings (“IFCE”) is

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Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements. We use significant cash to purchase LMM loans and other target assets, originate new LMM loans, pay dividends, repay principal and interest on our borrowings, fund our operations and meet other general business needs. Our primary sources of liquidity will include our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and revolving facilities), the net proceeds of offerings of equity and debt securities, including our senior secured notes, corporate debt, and net cash provided by operating activities.

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Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements. We use

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We are continuing to monitor the impact of rising interest rates, credit spreads and inflation on the Company, the borrowers underlying our real estate-related assets, the tenants in the properties we own, our financing sources, and the economy as a whole. Because the severity, magnitude and duration of these economic events remain uncertain, rapidly changing and difficult to predict, the impact on our operations and liquidity also remains uncertain and difficult to predict.

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We are continuing to monitor the impact of shifts in interest rates, credit spreads and inflation on the Company, the

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Year Ended December 31, 2023. Cash and cash equivalents decreased by $11.1 million to $262.5 million at the end of 2023, primarily due to net cash used for financing activities, partially offset by net cash provided by investing and operating activities. The net cash used for financing activities primarily reflected the repayments of secured borrowings, PPPLF borrowings and the convertible note and dividend payments, partially offset by proceeds from secured borrowings and net proceeds from the issuance of securitized debt obligations of consolidated VIEs. The net cash provided by investing activities primarily reflected proceeds from dispositions and paydowns, partially offset by loan originations. The net cash provided by operating activities primarily reflected net income, partially offset by a bargain purchase gain in connection with the Broadmark Merger.

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cash provided by investing and operating activities. The net cash used for financing activities primarily reflected

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Consolidated net income of $10.9 million for the three months ended December 31, 2023 represented a decrease of $2.8 million from the prior year respective period, primarily due to losses from discontinued operations, partially offset by an increase in net interest income. Consolidated distributable earnings of $48.5 million for the three months ended December 31, 2023 represented a decrease of $3.1 million from the prior year respective period, primarily due to a decrease in the provision for loan losses, partially offset by an increase in unrealized losses on the MSR and a measurement period adjustment on the bargain purchase gain.

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reflected sales on loans, held for sale and an increase in the provision for loan losses, partially offset by an increase in

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In addition to raising capital through offerings of our public equity and debt securities, we finance our investment portfolio through securitization and secured borrowings. We generally seek to match-fund our investments to minimize the differences in the terms of our investments and our liabilities. Our secured borrowings have various recourse levels including full recourse, partial recourse and non-recourse, as well as varied mark-to-market provisions including full mark-to-market, credit mark only and non-mark-to-market. Securitizations allow us to match fund loans pledged as collateral on a long-term, non-recourse basis. Securitization structures typically consist of trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches, and provide debt equal to 50% to 90% of the cost basis of the assets.

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In addition to raising capital through offerings of our public equity and debt securities, we finance our investment

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We also finance originated Freddie Mac SBL with secured borrowings until the loans are sold, generally within 30 days.

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We also finance originated SBL with secured borrowings until the loans are sold, generally within 30 days.

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As of December 31, 2023, we had a total leverage ratio of 3.3x and recourse leverage ratio of 0.8x. Our operating segments have different levels of recourse debt according to the differentiated nature of each segment. Our LMM Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.3x and 0.6x, respectively. The remaining recourse leverage ratio is from our corporate debt offerings.

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As of December 31, 2024, we had a total leverage ratio of 3.8 x and recourse leverage ratio of 1.3 x. Our operating