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Ready Capital Corporation Reports Second Quarter 2024 Results

/EIN News/ -- -    GAAP LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS OF $(0.21)   -
-    DISTRIBUTABLE EARNINGS PER COMMON SHARE OF $0.07   -
-    DISTRIBUTABLE EARNINGS PER COMMON SHARE BEFORE REALIZED LOSSES OF $0.19 -
-    DISTRIBUTABLE RETURN ON AVERAGE STOCKHOLDERS’ EQUITY OF 2.6%   -

NEW YORK, Aug. 07, 2024 (GLOBE NEWSWIRE) -- Ready Capital Corporation (“Ready Capital” or the “Company”) (NYSE: RC), a multi-strategy real estate finance company that originates, acquires, finances, and services lower-to-middle-market (“LMM”) investor and owner occupied commercial real estate loans, today reported financial results for the quarter ended June 30, 2024.

“The second quarter results are reflective of our cumulative efforts to cycle out of underperforming assets and into market yielding investments,” said Thomas Capasse, Ready Capital’s Chairman and Chief Executive Officer. “These efforts, along with improving credit metrics across the loan portfolio and record growth in our Small Business Lending business, position the Company to improve earnings moving into year end.”

Second Quarter Highlights

  • Total investments of $474 million, including $257 million of LMM originations and a record $217 million of U.S. Small Business Administration 7(a) loans
  • Declared and paid dividend of $0.30 per share in cash
  • Net book value of $12.97 per share of common stock as of June 30, 2024
  • Acquired approximately 2.3 million shares of the Company’s common stock at an average price of $8.61 per share as part of stock repurchase program
  • Sold $4.7 billion of residential mortgage servicing rights for net proceeds of $61.8 million as part of the Company’s disposition of its residential mortgage banking segment
  • Completed sale process of $462 million of under-performing loans with expected settlement in the third quarter
  • Completed the acquisition of Madison One, a leading originator and servicer of USDA and SBA guaranteed loan products

Subsequent Events

  • The Company acquired Funding Circle USA, Inc., an online lending platform that originates and services small business loans

Use of Non-GAAP Financial Information

In addition to the results presented in accordance with U.S. GAAP, this press release includes distributable earnings, formerly referred to as core earnings, which is a non-U.S. GAAP financial measure. The Company defines distributable earnings as net income adjusted for unrealized gains and losses related to certain mortgage backed securities (“MBS”) not retained by us as part of our loan origination business, realized gains and losses on sales of certain MBS, unrealized gains and losses related to residential mortgage servicing rights (“MSR”) from discontinued operations, unrealized changes in our current expected credit loss reserve, unrealized gains or losses on de-designated cash flow hedges, unrealized gains or losses on foreign exchange hedges, unrealized gains or losses on certain unconsolidated joint ventures, non-cash compensation expense related to our stock-based incentive plan, and one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses. 

The Company believes that this non-U.S. GAAP financial information, in addition to the related U.S. GAAP measures, provides investors greater transparency into the information used by management in its financial and operational decision-making, including the determination of dividends. However, because distributable earnings is an incomplete measure of the Company's 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, the Company's net income computed in accordance with U.S. GAAP as a measure of the Company's financial performance. In addition, because not all companies use identical calculations, the Company's presentation of distributable earnings may not be comparable to other similarly-titled measures of other companies.

In calculating distributable earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by the Company in the secondary market but is not adjusted to exclude unrealized gains and losses on MBS retained by Ready Capital as part of its loan origination businesses, where the Company transfers originated loans into an MBS securitization and the Company retains an interest in the securitization. In calculating distributable earnings, the Company does not adjust Net Income (in accordance with U.S. GAAP) to take into account unrealized gains and losses on MBS retained by us as part of the loan origination businesses because the unrealized gains and losses that are generated in the loan origination and securitization process are considered to be a fundamental part of this business and an indicator of the ongoing performance and credit quality of the Company’s historical loan originations. In calculating distributable earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude realized gains and losses on certain MBS securities considered to be non-distributable. Certain MBS positions are considered to be non-distributable due to a variety of reasons which may include collateral type, duration, and size.

In addition, in calculating distributable earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value from discontinued operations. Servicing rights relating to the Company’s small business commercial business are accounted for under ASC 860, Transfer and Servicing. In calculating distributable earnings, the Company does not exclude realized gains or losses on commercial MSRs, as servicing income is a fundamental part of Ready Capital’s business and is an indicator of the ongoing performance.

To qualify as a REIT, the Company must distribute to its stockholders each calendar year at least 90% of its 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.

The table below reconciles Net Income computed in accordance with U.S. GAAP to Distributable Earnings.

(in thousands) Three Months Ended
June 30, 2024
Net Loss $ (34,201 )
Reconciling items:    
Unrealized loss on MSR - discontinued operations   7,219  
Unrealized gain on joint ventures   (626 )
Decrease in CECL reserve   (24,574 )
Increase in valuation allowance   80,987  
Non-recurring REO impairment   8,474  
Non-cash compensation   1,891  
Merger transaction costs and other non-recurring expenses   4,852  
Loss on bargain purchase   18,306  
Realized losses on sale of investments   22,355  
Total reconciling items $ 118,884  
Income tax adjustments   (47,799 )
Distributable earnings before realized losses $ 36,884  
Realized losses on sale of investments, net of tax   (20,253 )
Distributable earnings   16,631  
Less: Distributable earnings attributable to non-controlling interests   2,206  
Less: Income attributable to participating shares   2,301  
Distributable earnings attributable to common stockholders $ 12,124  
Distributable earnings before realized losses on investments, net of tax per common share - basic and diluted $ 0.19  
Distributable earnings per common share – basic and diluted $ 0.07  


U.S. GAAP return on equity is based on U.S. GAAP net income, while distributable return on equity is based on distributable earnings, which adjusts U.S. GAAP net income for the items in the distributable earnings reconciliation above.

Webcast and Earnings Conference Call

Management will host a webcast and conference call on Thursday, August 8, 2024 at 8:30am ET to provide a general business update and discuss the financial results for the quarter ended June 30, 2024.

The Company encourages use of the webcast due to potential extended wait times to access the conference call via dial-in. The webcast of the conference call will be available in the Investor Relations section of the Company’s website at www.readycapital.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software.

To Participate in the Telephone Conference Call:

Dial in at least five minutes prior to start time.

Domestic: 1-877-407-0792
International: 1-201-689-8263

Conference Call Playback:

Domestic: 1-844-512-2921
International: 1-412-317-6671
Replay Pin #: 13746991

The playback can be accessed through August 22, 2024.

Safe Harbor Statement

This press release contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, applicable regulatory changes; general volatility of the capital markets; changes in the Company’s investment objectives and business strategy; the availability of financing on acceptable terms or at all; the availability, terms and deployment of capital; the availability of suitable investment opportunities; changes in the interest rates or the general economy; increased rates of default and/or decreased recovery rates on investments; changes in interest rates, interest rate spreads, the yield curve or prepayment rates; changes in prepayments of Company’s assets; the degree and nature of competition, including competition for the Company's target assets; and other factors, including those set forth in the Risk Factors section of the Company's most recent Annual Report on Form 10-K filed with the SEC, and other reports filed by the Company with the SEC, copies of which are available on the SEC's website, www.sec.gov. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

About Ready Capital Corporation

Ready Capital Corporation (NYSE: RC) is a multi-strategy real estate finance company that originates, acquires, finances and services lower-to-middle-market investor and owner occupied commercial real estate loans. The Company specializes in loans backed by commercial real estate, including agency multifamily, investor, construction, and bridge as well as U.S. Small Business Administration loans under its Section 7(a) program. Headquartered in New York, New York, the Company employs approximately 350 professionals nationwide.

Contact
Investor Relations
Ready Capital Corporation
212-257-4666
InvestorRelations@readycapital.com

Additional information can be found on the Company’s website at www.readycapital.com

           
           
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS

           
(in thousands) June 30, 2024      December 31, 2023
Assets          
Cash and cash equivalents $ 226,286     $ 138,532  
Restricted cash   29,971       30,063  
Loans, net (including $0 and $9,348 held at fair value)   3,444,879       4,020,160  
Loans, held for sale (including $89,380 and $81,599 held at fair value and net of valuation allowance of $217,719 and $0)   532,511       81,599  
Mortgage-backed securities   30,174       27,436  
Investment in unconsolidated joint ventures (including $6,974 and $7,360 held at fair value)   134,602       133,321  
Derivative instruments   14,382       2,404  
Servicing rights   119,768       102,837  
Real estate owned, held for sale   187,883       252,949  
Other assets   379,413       300,175  
Assets of consolidated VIEs (net of valuation allowance of $9,448 and $0)   6,250,570       6,897,145  
Assets held for sale   423,894       454,596  
Total Assets $ 11,774,333     $ 12,441,217  
Liabilities          
Secured borrowings   2,311,969       2,102,075  
Securitized debt obligations of consolidated VIEs, net   4,407,241       5,068,453  
Senior secured notes, net   417,040       345,127  
Corporate debt, net   767,271       764,908  
Guaranteed loan financing   782,345       844,540  
Contingent consideration   3,926       7,628  
Derivative instruments   2,638       212  
Dividends payable   53,119       54,289  
Loan participations sold   89,532       62,944  
Due to third parties   1,995       3,641  
Accounts payable and other accrued liabilities   204,766       207,481  
Liabilities held for sale   332,265       333,157  
Total Liabilities $ 9,374,107     $ 9,794,455  
Preferred stock Series C, liquidation preference $25.00 per share   8,361       8,361  
           
Commitments & contingencies          
           
Stockholders’ Equity          
Preferred stock Series E, liquidation preference $25.00 per share   111,378       111,378  
Common stock, $0.0001 par value, 500,000,000 shares authorized, 168,167,272 and 172,276,105 shares issued and outstanding, respectively   17       17  
Additional paid-in capital   2,287,684       2,321,989  
Retained earnings (deficit)   (92,319 )     124,413  
Accumulated other comprehensive loss   (13,880 )     (17,860 )
Total Ready Capital Corporation equity   2,292,880       2,539,937  
Non-controlling interests   98,985       98,464  
Total Stockholders’ Equity $ 2,391,865     $ 2,638,401  
Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity $ 11,774,333     $ 12,441,217  


 
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

                       
  Three Months Ended June 30,    Six Months Ended June 30, 
(in thousands, except share data) 2024      2023      2024      2023
Interest income $ 234,119     $ 231,004     $ 466,473     $ 446,972  
Interest expense   (183,167 )     (170,221 )     (366,972 )     (329,089 )
Net interest income before recovery of (provision for) loan losses $ 50,952     $ 60,783     $ 99,501     $ 117,883  
Recovery of (provision for) loan losses   18,871       (19,427 )     45,415       (12,693 )
Net interest income after recovery of (provision for) loan losses $ 69,823     $ 41,356     $ 144,916     $ 105,190  
Non-interest income                      
Net realized gain (loss) on financial instruments and real estate owned   7,250       23,878       26,118       35,453  
Net unrealized gain (loss) on financial instruments   (1,357 )     (1,411 )     3,275       (7,046 )
Valuation allowance, loans held for sale   (80,987 )           (227,167 )      
Servicing income, net of amortization and impairment of $4,678 and $8,375 for the three and six months ended June 30, 2024, and $2,412 and $4,171 for the three and six months ended June 30, 2023, respectively   3,271       5,039       7,029       9,681  
Gain (loss) on bargain purchase   (18,306 )     229,894       (18,306 )     229,894  
Income on unconsolidated joint ventures   1,139       33       1,607       689  
Other income   6,597       18,632       22,423       39,024  
Total non-interest income (expense) $ (82,393 )   $ 276,065     $ (185,021 )   $ 307,695  
Non-interest expense                      
Employee compensation and benefits   (17,799 )     (22,414 )     (36,213 )     (42,141 )
Allocated employee compensation and benefits from related party   (3,000 )     (2,500 )     (5,500 )     (4,826 )
Professional fees   (6,033 )     (5,533 )     (13,098 )     (11,076 )
Management fees – related party   (6,198 )     (5,760 )     (12,846 )     (10,841 )
Incentive fees – related party         (71 )           (1,791 )
Loan servicing expense   (11,012 )     (10,894 )     (23,806 )     (19,049 )
Transaction related expenses   (1,592 )     (13,966 )     (2,242 )     (14,859 )
Other operating expenses   (21,802 )     (9,557 )     (51,989 )     (22,166 )
Total non-interest expense $ (67,436 )   $ (70,695 )   $ (145,694 )   $ (126,749 )
Income (loss) from continuing operations before benefit (provision) for income taxes   (80,006 )     246,726       (185,799 )     286,136  
Income tax benefit (provision)   48,579       (2,194 )     78,790       (3,095 )
Net income (loss) from continuing operations $ (31,427 )   $ 244,532     $ (107,009 )   $ 283,041  
Discontinued operations                      
Income (loss) from discontinued operations before benefit (provision) for income taxes   (3,699 )     11,788       (1,812 )     9,747  
Income tax benefit (provision)   925       (2,947 )     453       (2,437 )
Net income (loss) from discontinued operations   (2,774 )     8,841       (1,359 )     7,310  
Net income (loss)   (34,201 )     253,373       (108,368 )     290,351  
Less: Dividends on preferred stock   1,999       2,000       3,998       3,999  
Less: Net income attributable to non-controlling interest   1,820       4,490       1,937       6,325  
Net income (loss) attributable to Ready Capital Corporation $ (38,020 )   $ 246,883     $ (114,303 )   $ 280,027  
                       
Earnings per common share from continuing operations - basic $ (0.21 )   $ 1.80     $ (0.67 )   $ 2.24  
Earnings per common share from discontinued operations - basic $ (0.02 )   $ 0.07     $ (0.01 )   $ 0.06  
Total earnings per common share - basic $ (0.23 )   $ 1.87     $ (0.68 )   $ 2.30  
                       
Earnings per common share from continuing operations - diluted $ (0.21 )   $ 1.70     $ (0.67 )   $ 2.11  
Earnings per common share from discontinued operations - diluted $ (0.02 )   $ 0.06     $ (0.01 )   $ 0.06  
Total earnings per common share - diluted $ (0.23 )   $ 1.76     $ (0.68 )   $ 2.17  
                       
Weighted-average shares outstanding                      
Basic   168,653,741       131,651,125       170,343,303       121,219,982  
Diluted   169,863,975       141,583,837       171,513,556       131,096,368  
                       
Dividends declared per share of common stock $ 0.30     $ 0.40     $ 0.60     $ 0.80  


                               
READY CAPITAL CORPORATION
UNAUDITED SEGMENT REPORTING
FOR THE THREE MONTHS ENDED JUNE 30, 2024

                               
      Small
       
  LMM Commercial
  Business
  Corporate-
   
(in thousands)
Real Estate
  Lending
  Other
  Consolidated
Interest income $ 202,047     $ 32,072     $     $ 234,119  
Interest expense   (158,344 )     (24,823 )           (183,167 )
Net interest income before recovery of loan losses $ 43,703     $ 7,249     $     $ 50,952  
Recovery of loan losses   14,414       4,457             18,871  
Net interest income after recovery of loan losses $ 58,117     $ 11,706     $     $ 69,823  
Non-interest income                    
Net realized gain (loss) on financial instruments and real estate owned   (10,089 )     17,339             7,250  
Net unrealized gain (loss) on financial instruments   (1,497 )     140             (1,357 )
Valuation allowance, loans held for sale   (80,987 )                 (80,987 )
Servicing income, net   1,255       2,016             3,271  
Loss on bargain purchase               (18,306 )     (18,306 )
Income on unconsolidated joint ventures   1,139                   1,139  
Other income   4,796       376       1,425       6,597  
Total non-interest income (loss) $ (85,383 )   $ 19,871     $ (16,881 )   $ (82,393 )
Non-interest expense                    
Employee compensation and benefits   (7,142 )     (8,328 )     (2,329 )     (17,799 )
Allocated employee compensation and benefits from related party   (300 )           (2,700 )     (3,000 )
Professional fees   (874 )     (2,930 )     (2,229 )     (6,033 )
Management fees – related party               (6,198 )     (6,198 )
Loan servicing expense   (10,896 )     (116 )           (11,012 )
Transaction related expenses               (1,592 )     (1,592 )
Other operating expenses   (12,054 )     (5,918 )     (3,830 )     (21,802 )
Total non-interest expense $ (31,266 )   $ (17,292 )   $ (18,878 )   $ (67,436 )
Income (loss) before provision for income taxes $ (58,532 )   $ 14,285     $ (35,759 )   $ (80,006 )
Total assets $ 9,527,088     $ 1,367,463     $ 455,888     $ 11,350,439  


               
READY CAPITAL CORPORATION
UNAUDITED SEGMENT REPORTING
FOR THE SIX MONTHS ENDED JUNE 30, 2024

               
      Small
       
  LMM Commercial
  Business
  Corporate-
   
(in thousands)
Real Estate
  Lending
  Other
  Consolidated
Interest income $ 402,810     $ 63,663     $     $ 466,473  
Interest expense   (317,229 )     (49,743 )           (366,972 )
Net interest income before recovery of loan losses $ 85,581     $ 13,920     $     $ 99,501  
Recovery of loan losses   45,169       246             45,415  
Net interest income after recovery of loan losses $ 130,750     $ 14,166     $     $ 144,916  
Non-interest income                      
Net realized gain (loss) on financial instruments and real estate owned   (4,334 )     30,452             26,118  
Net unrealized gain (loss) on financial instruments   1,489       1,786             3,275  
Valuation allowance, loans held for sale   (227,167 )                 (227,167 )
Servicing income, net   2,553       4,476             7,029  
Loss on bargain purchase               (18,306 )     (18,306 )
Income on unconsolidated joint ventures   1,607                   1,607  
Other income   17,523       3,475       1,425       22,423  
Total non-interest income (loss) $ (208,329 )   $ 40,189     $ (16,881 )   $ (185,021 )
Non-interest expense                      
Employee compensation and benefits   (14,618 )     (17,620 )     (3,975 )     (36,213 )
Allocated employee compensation and benefits from related party   (550 )           (4,950 )     (5,500 )
Professional fees   (2,515 )     (6,145 )     (4,438 )     (13,098 )
Management fees – related party               (12,846 )     (12,846 )
Loan servicing expense   (23,443 )     (363 )           (23,806 )
Transaction related expenses               (2,242 )     (2,242 )
Other operating expenses   (33,588 )     (11,271 )     (7,130 )     (51,989 )
Total non-interest expense $ (74,714 )   $ (35,399 )   $ (35,581 )   $ (145,694 )
Income (loss) before provision for income taxes $ (152,293 )   $ 18,956     $ (52,462 )   $ (185,799 )
Total assets $ 9,527,088     $ 1,367,463     $ 455,888     $ 11,350,439  



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