8-K
Ready Capital Corp (RC)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 2020
READY CAPITAL CORPORATION (Exact name of registrant as specified in its charter)
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|---|---|---|---|
| Maryland | 001-35808 | 90-0729143 | |
| (State or other jurisdiction<br>of incorporation) | (Commission File Number) | (IRS Employer<br>Identification No.) | |
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| | 1251 Avenue of the Americas, 50^th^ Floor<br><br>New York, NY 10020 | | |
| | (Address of principal executive offices)(Zip Code) | | |
| | |
Registrant's telephone number, including area code: (212) 257-4600
n/a (Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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| | ◻ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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| | ◻ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| | ◻ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| | ◻ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))<br><br> |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.0001 par value per share<br><br>7.00% Convertible Senior Notes due 2023<br><br>6.50% Senior Notes due 2021<br><br>6.20% Senior Notes due 2026 | RC<br><br>RCA<br><br>RCP<br><br>RCB | New York Stock Exchange<br><br>New York Stock Exchange<br><br>New York Stock Exchange<br><br>New York Stock Exchange |
| Item 2.02. | Results of Operations and Financial Condition. | |
| --- | --- |
On August 6, 2020, the Company issued an earnings release announcing the financial results for the quarter ended June 30, 2020. A copy of the earnings release is attached as Exhibit 99.1 hereto and incorporated herein by reference.
On August 6, 2020, Ready Capital Corporation (the “Company”) posted supplemental financial information on the Investor Relations section of its website (www.readycapital.com). A copy of the supplemental financial information is furnished as Exhibit 99.2 hereto and incorporated herein by reference.
The information in Item 2.02 of this Current Report, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, unless it is specifically incorporated by reference therein.
Item 9.01 Financial Statements and Exhibits.
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|---|---|---|
| | (d) | Exhibits |
| 1, | | |
|---|---|---|
| Exhibit No. | Description | |
| 99.1<br><br> | Earnings Release, dated August 6, 2020 | |
| 99.2 | | Supplemental Financial Information for the quarter ended June 30, 2020 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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|---|---|---|---|
| READY CAPITAL CORPORATION | |||
| By: | /s/ Andrew Ahlborn | ||
| Name: Andrew Ahlborn | |||
| Title: Chief Financial Officer |
Date: August 6, 2020
Exhibit 99.1
READY CAPITAL CORPORATION ANNOUNCES SECOND QUARTER 2020 RESULTS
New York, New York, August 6, 2020 / PRNewswire / – Ready Capital Corporation (“Ready Capital” or the “Company”) (NYSE: RC), a multi-strategy real estate finance company that originates, acquires, finances, and services small to medium balance commercial loans, today reported financial results for the quarter ended June 30, 2020. Ready Capital reported U.S. GAAP Net income for the three months ended June 30, 2020 of $34.7 million, or $0.62 per share of common stock, and Core Earnings (a non-GAAP financial measure) of $39.2 million, or $0.70 per share of common stock. The Company’s record results benefitted from its gain on sale businesses, including significant participation the U.S Government’s Paycheck Protection Program.
Second Quarter Results:
| ● | U.S. GAAP Net income of $34.7 million, or $0.62 per diluted share of common stock |
|---|---|
| ● | Core Earnings of $39.2 million, or $0.70 per diluted share of common stock |
| --- | --- |
| ● | Adjusted net book value of $14.46 per share of common stock as of June 30, 2020 |
| --- | --- |
| ● | Unrestricted cash position of $257.0 million as of June 30, 2020 |
| --- | --- |
| ● | Originated a record $1.2 billion of residential mortgage loans |
| --- | --- |
| ● | Originated a record $157.9 million of Freddie Mac loans |
| --- | --- |
| ● | Originated $20.8 million of loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its Section 7(a) loan program |
| --- | --- |
| ● | Facilitated the origination of $2.7 billion in Paycheck Protection Program (PPP) loans, representing over 40,000 businesses |
| --- | --- |
| ● | Declared and paid dividend of $0.25 per share in cash |
| --- | --- |
“We are proud of the record results we produced, despite the unprecedented and challenging times due to the COVID-19 pandemic,” commented Thomas Capasse, Ready Capital’s Chairman and Chief Executive Officer. “The Company successfully responded to this new economic environment by effectively reducing risk by increasing liquidity, preserving book value and reducing mark-to-market liabilities, while expanding our government sponsored lending segments. We are pleased we were able to do our small part in helping over 40,000 small businesses across the country through our participation in the PPP program.”
Increase in Size of Existing Stock Repurchase Program
On August 4, 2020, the Board of Directors authorized an increase in the size of the Company’s existing stock repurchase program by an additional $5.0 million, bringing the total amount authorized and available under the program to $25.0 million. The stock repurchase program authorizes, but does not obligate, the repurchase of the Company's common stock from time to time. The Company expects to acquire shares through open market or privately negotiated transactions. The timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. Repurchases are expected to be made from available cash on hand.
Use of Non-GAAP Financial Information
In addition to the results presented in accordance with U.S. GAAP, this press release includes Core Earnings, which is a non-U.S. GAAP financial measure. The Company defines Core Earnings as net income adjusted for unrealized gains and losses related to certain mortgage backed securities (“MBS”), realized gains and losses on sales of certain MBS, unrealized gains and losses related to residential mortgage servicing rights, unrealized gains or losses resulting from a change in CECL impairment reserves on accrual loans, and one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, merger related expenses, or other one-time items.
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. However, because Core 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 Core Earnings may not be comparable to other similarly-titled measures of other companies.
In calculating Core 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 Core 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 Core 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-core. Certain MBS positions are considered to be non-core due to a variety of reasons which may include collateral type, duration, and size.
In addition, in calculating Core Earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value. The Company treats its commercial MSRs and residential MSRs as two separate classes based on the nature of the underlying mortgages and the treatment of these assets as two separate pools for risk management purposes. Servicing rights relating to the Company’s small business commercial business are accounted for under ASC 860, Transfer and Servicing, while the Company’s residential MSRs are accounted for under the fair value option under ASC 825, Financial Instruments. In calculating Core Earnings, the Company does not exclude realized gains or losses on either commercial MSRs or residential MSRs, held at fair value, as servicing income is a fundamental part of Ready Capital’s business and is an indicator of the ongoing performance.
The following table reconciles net income computed in accordance with U.S. GAAP to Core Earnings for the three months ended June 30, 2020:
| | | |
|---|---|---|
| | | Three Months Ended |
| (In Thousands) | | June 30, |
| Net Income | $ | 34,663 |
| Reconciling items: | | |
| Unrealized (gain) loss on mortgage servicing rights | | 12,044 |
| Change in CECL reserves on accrual loans | | (5,076) |
| Non-recurring REO impairment | | 106 |
| Merger transaction costs and other non-recurring expenses | 967 | |
| Unrealized loss on mortgage-backed securities | | (45) |
| Total reconciling items | $ | 7,996 |
| Core earnings before income taxes | $ | 42,659 |
| Income tax adjustments | | (3,436) |
| Core earnings | $ | 39,223 |
| Less: Core earnings attributable to non-controlling interests | | (917) |
| Less: Income attributable to participating shares | | (285) |
| Core earnings attributable to Common Stockholders | $ | 38,021 |
| Core earnings per share | $ | 0.70 |
U.S. GAAP Return on Equity is based on U.S. GAAP Net Income, while Core Return on Equity is based on Core Earnings, which adjusts GAAP Net Income for the items in the Core reconciliation above.
Webcast and Earnings Conference Call
Management will host a webcast and conference call on Friday, August 7, 2020 at 8:30 am ET to provide a general business update and discuss the financial results for the quarter ended June 30, 2020. The webcast will be available on the Company’s website at www.readycapital.com. To listen to a live broadcast, access the site at least 15 minutes prior to the scheduled start time in order to register and download and install any necessary audio software.
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: 1-855-327-6837
International: 1-631-891-4304
Conference ID #: 10010348
Conference Call Playback:
Domestic: 1-844-512-2921
International: 1-412-317-6671
Replay Pin #: 10010348
The playback can be accessed through August 21, 2020.
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 small to medium balance commercial loans. Ready Capital specializes in loans backed by commercial real estate, including agency multi-family, investor and bridge as well as SBA 7(a) business loans. Headquartered in New York, New York, Ready Capital employs over 500 lending professionals nationwide. The company is externally managed and advised by Waterfall Asset Management, LLC.
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 CONS OLIDATED BALANCE SHEETS
| | | | | | | |
|---|---|---|---|---|---|---|
| (In Thousands) | June 30, 2020 | December 31, 2019 | ||||
| Assets | | | | | | |
| Cash and cash equivalents | | $ | 257,017 | | $ | 67,928 |
| Restricted cash | | 91,539 | | 51,728 | ||
| Loans, net (including $124,298 and $20,212 held at fair value) | | 1,432,807 | | 1,727,984 | ||
| Loans, held for sale, at fair value | | 297,669 | | 188,077 | ||
| Mortgage backed securities, at fair value | | 75,411 | | 92,466 | ||
| Loans eligible for repurchase from Ginnie Mae | | | 186,197 | | | 77,953 |
| Investment in unconsolidated joint ventures | | | 53,939 | | | 58,850 |
| Purchased future receivables, net | | | 27,190 | | | 43,265 |
| Derivative instruments | | 19,037 | | 2,814 | ||
| Servicing rights (including $73,645 and $91,174 held at fair value) | | 107,761 | | 121,969 | ||
| Real estate, held for sale | | | 47,009 | | | 58,573 |
| Other assets | | 103,701 | | 106,925 | ||
| Assets of consolidated VIEs | | | 2,761,655 | | | 2,378,486 |
| Total Assets | | $ | 5,460,932 | | $ | 4,977,018 |
| Liabilities | | | | | | |
| Secured borrowings | | 1,253,895 | | 1,189,392 | ||
| Securitized debt obligations of consolidated VIEs, net | | 2,140,009 | | 1,815,154 | ||
| Convertible notes, net | | | 111,581 | | | 111,040 |
| Senior secured notes, net | | 179,481 | | 179,289 | ||
| Corporate debt, net | | | 150,387 | | | 149,986 |
| Guaranteed loan financing | | 436,532 | | 485,461 | ||
| Liabilities for loans eligible for repurchase from Ginnie Mae | | | 186,197 | | | 77,953 |
| Derivative instruments | | 9,106 | | 5,250 | ||
| Dividends payable | | 14,524 | | 21,302 | ||
| Accounts payable and other accrued liabilities | | 166,174 | | 97,407 | ||
| Total Liabilities | | $ | 4,647,886 | | $ | 4,132,234 |
| Stockholders’ Equity | | | | | | |
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 54,872,789 and 51,127,326 shares issued and outstanding, respectively | | 5 | | 5 | ||
| Additional paid-in capital | | 854,222 | | 822,837 | ||
| Retained earnings | | | (49,755) | | | 8,746 |
| Accumulated other comprehensive loss | | (9,876) | | (6,176) | ||
| Total Ready Capital Corporation equity | | 794,596 | | 825,412 | ||
| Non-controlling interests | | 18,450 | | 19,372 | ||
| Total Stockholders’ Equity | | $ | 813,046 | | $ | 844,784 |
| Total Liabilities and Stockholders’ Equity | | $ | 5,460,932 | | $ | 4,977,018 |
READY CAPITAL CORPORATION
UNAUDITED CONSO LIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| (In Thousands, except share data) | **** | 2020 | **** | 2019 | **** | 2020 | **** | 2019 | ||||
| Interest income | | $ | 63,211 | | $ | 57,034 | | $ | 132,762 | | $ | 105,787 |
| Interest expense | | (43,408) | | (35,753) | | (90,338) | | (71,529) | ||||
| Net interest income before provision for loan losses | | $ | 19,803 | | $ | 21,281 | | $ | 42,424 | | $ | 34,258 |
| Provision for loan losses | | 591 | | (1,348) | | (39,214) | | | (1,866) | |||
| Net interest income after provision for loan losses | | $ | 20,394 | | $ | 19,933 | | $ | 3,210 | | $ | 32,392 |
| Non-interest income | | | | | | | | | | | | |
| Residential mortgage banking activities | | | 80,564 | | | 21,021 | | | 117,233 | | | 35,608 |
| Net realized gains on financial instruments and real estate owned | | | 7,438 | | | 6,255 | | | 14,610 | | | 13,537 |
| Net unrealized losses on financial instruments | | | (13,744) | | | (7,006) | | | (47,178) | | | (13,918) |
| Servicing income, net of amortization and impairment of $1,277 and $3,001 for the three and six months ended June 30, 2020, and $853 and $2,616 for the three and six months ended June 30, 2019, respectively | | 8,982 | | 7,811 | | 17,079 | | | 14,563 | |||
| Income on purchased future receivables, net of allowance for doubtful accounts of $1,771 and $8,688 for the three and six months ended June 30, 2020, and $0 and $0 for the three and six months ended June 30, 2019, respectively | | | 5,586 | | | — | | | 9,069 | | | — |
| Income (loss) on unconsolidated joint ventures | | | 507 | | | 2,083 | | | (3,030) | | | 5,012 |
| Other income | | 31,594 | | 2,792 | | 35,667 | | | 3,692 | |||
| Gain on bargain purchase | | — | | — | | — | | | 30,728 | |||
| Total non-interest income | | $ | 120,927 | | $ | 32,956 | | $ | 143,450 | | $ | 89,222 |
| Non-interest expense | | | | | | | | | | | | |
| Employee compensation and benefits | | (27,288) | | (12,509) | | (46,224) | | | (23,957) | |||
| Allocated employee compensation and benefits from related party | | (1,250) | | (1,250) | | (2,500) | | | (2,103) | |||
| Variable expenses on residential mortgage banking activities | | (36,446) | | (13,501) | | (56,575) | | | (22,677) | |||
| Professional fees | | (1,919) | | (1,586) | | (4,475) | | | (3,415) | |||
| Management fees – related party | | (2,666) | | (2,495) | | (5,227) | | | (4,492) | |||
| Incentive fees – related party | | (3,506) | | — | | (3,506) | | | — | |||
| Loan servicing expense | | (10,327) | | (4,571) | | (15,898) | | | (8,219) | |||
| Merger related expenses | | | (11) | | | (603) | | | (58) | | | (6,070) |
| Other operating expenses | | (17,745) | | (8,085) | | (31,487) | | | (14,947) | |||
| Total non-interest expense | | $ | (101,158) | | $ | (44,600) | | $ | (165,950) | | $ | (85,880) |
| Income (loss) before provision for income taxes | | $ | 40,163 | | $ | 8,289 | | $ | (19,290) | | $ | 35,734 |
| Income tax (provision) benefit | | (5,500) | | | 2,956 | | 2,437 | | | 5,959 | ||
| Net income (loss) | | $ | 34,663 | | $ | 11,245 | | $ | (16,853) | | $ | 41,693 |
| Less: Net income (loss) attributable to non-controlling interest | | 810 | | | 276 | | (254) | | | 1,257 | ||
| Net income (loss) attributable to Ready Capital Corporation | | $ | 33,853 | | $ | 10,969 | | $ | (16,599) | | $ | 40,436 |
| | | | | | | | | | | | | |
| Earnings (loss) per common share - basic | | $ | 0.62 | | $ | 0.25 | | $ | (0.33) | | $ | 1.05 |
| Earnings (loss) per common share - diluted | | $ | 0.62 | | $ | 0.25 | | $ | (0.33) | | $ | 1.05 |
| | | | | | | | | | | | | |
| Weighted-average shares outstanding | | | | | | | | | ||||
| Basic | | | 53,980,451 | | | 44,425,598 | | | 52,982,246 | | | 38,524,023 |
| Diluted | | | 54,013,958 | | | 44,431,263 | | | 53,015,753 | | | 38,527,317 |
| | | | | | | | | | | | | |
| Dividends declared per share of common stock | | $ | 0.25 | | $ | 0.40 | | $ | 0.65 | | $ | 0.80 |
READY CAPITAL CORPORATION
UNAUDITED SEGMENT REPORTING
fOR THE three months ENDED June 30, 2020
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | **** | | **** | SBA Originations, | **** | Residential | **** | | **** | | |||||||
| | | Loan | | SBC | | Acquisitions, | | Mortgage | | Corporate- | | | ||||||
| (In Thousands) | | Acquisitions | | Originations | | and Servicing | | Banking | | Other | | Consolidated | ||||||
| Interest income | | $ | 14,977 | | $ | 37,497 | | $ | 8,808 | | $ | 1,929 | | $ | — | | $ | 63,211 |
| Interest expense | | | (10,654) | | | (23,507) | | | (6,839) | | | (2,036) | | | (372) | | | (43,408) |
| Net interest income before provision for loan losses | | $ | 4,323 | | $ | 13,990 | | $ | 1,969 | | $ | (107) | | $ | (372) | | $ | 19,803 |
| Provision for loan losses | | (1,965) | | | 5,821 | | | (2,765) | | | (500) | | | — | | 591 | ||
| Net interest income after provision for loan losses | | $ | 2,358 | | $ | 19,811 | | $ | (796) | | $ | (607) | | $ | (372) | | $ | 20,394 |
| Non-interest income | | | | | | | | | | | | | | | | | | |
| Residential mortgage banking activities | | $ | — | | $ | — | | $ | — | | $ | 80,564 | | $ | — | | $ | 80,564 |
| Net realized gain on financial instruments | | | (396) | | | 6,232 | | | 1,602 | | | — | | | — | | | 7,438 |
| Net unrealized gain on financial instruments | | | (1,016) | | | (716) | | | 31 | | | (12,043) | | | — | | | (13,744) |
| Other income | | | 1,419 | | | 1,439 | | | 28,674 | | | 46 | | | 16 | | | 31,594 |
| Servicing income | | | 172 | | | 399 | | | 2,393 | | | 6,018 | | | — | | | 8,982 |
| Income on purchased future receivables, net of allowance for doubtful accounts | | | 5,586 | | | — | | | — | | | — | | | — | | | 5,586 |
| Income from unconsolidated joint ventures | | | 507 | | | — | | | — | | | — | | | — | | | 507 |
| Total non-interest income | | $ | 6,272 | | $ | 7,354 | | $ | 32,700 | | $ | 74,585 | | $ | 16 | | $ | 120,927 |
| Non-interest expense | | | | | | | | | | | | | | | | | | |
| Employee compensation and benefits | | (2,638) | | | (4,689) | | | (3,485) | | | (15,843) | | | (633) | | (27,288) | ||
| Allocated employee compensation and benefits from related party | | (125) | | | — | | | — | | | — | | | (1,125) | | (1,250) | ||
| Variable expenses on residential mortgage banking activities | | | — | | | — | | | — | | | (36,446) | | | — | | | (36,446) |
| Professional fees | | (251) | | | (104) | | | (138) | | | (271) | | | (1,155) | | (1,919) | ||
| Management fees – related party | | — | | | — | | | — | | | — | | | (2,666) | | (2,666) | ||
| Incentive fees – related party | | — | | | — | | | — | | | — | | | (3,506) | | (3,506) | ||
| Loan servicing expense | | (1,500) | | | (1,711) | | | (247) | | | (6,861) | | | (8) | | (10,327) | ||
| Merger related expenses | | | — | | | — | | | — | | | — | | | (11) | | | (11) |
| Other operating expenses | | (4,072) | | | (4,429) | | | (6,530) | | | (1,973) | | | (741) | | (17,745) | ||
| Total non-interest expense | | $ | (8,586) | | $ | (10,933) | | $ | (10,400) | | $ | (61,394) | | $ | (9,845) | | $ | (101,158) |
| Net income (loss) before provision for income taxes | | $ | 44 | | $ | 16,232 | | $ | 21,504 | | $ | 12,584 | | $ | (10,201) | | $ | 40,163 |
| Total assets | | $ | 1,125,035 | | $ | 2,620,406 | | $ | 804,355 | | $ | 568,353 | | $ | 342,783 | | $ | 5,460,932 |
READY CAPITAL CORPORATION
UNAUDITED SEGMENT REPORTING
fOR THE SIX months ENDED June 30, 2020
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | **** | | **** | SBA Originations, | **** | Residential | **** | | **** | | |||||||
| | | | | SBC | | Acquisitions, | | Mortgage | | Corporate- | | | ||||||
| (In Thousands) | | Acquisitions | | Originations | | and Servicing | | Banking | | Other | | Consolidated | ||||||
| Interest income | | $ | 31,470 | | $ | 76,766 | | $ | 21,279 | | $ | 3,247 | | $ | — | | $ | 132,762 |
| Interest expense | | | (21,859) | | | (49,134) | | | (15,352) | | | (3,621) | | | (372) | | | (90,338) |
| Net interest income before provision for loan losses | | $ | 9,611 | | $ | 27,632 | | $ | 5,927 | | $ | (374) | | $ | (372) | | $ | 42,424 |
| Provision for loan losses | | (7,688) | | | (24,007) | | | (7,019) | | | (500) | | | — | | (39,214) | ||
| Net interest income after provision for loan losses | | $ | 1,923 | | $ | 3,625 | | $ | (1,092) | | $ | (874) | | $ | (372) | | $ | 3,210 |
| Non-interest income | | | | | | | | | | | | | | | | | | |
| Residential mortgage banking activities | | $ | — | | $ | — | | $ | — | | $ | 117,233 | | $ | — | | $ | 117,233 |
| Net realized gain (loss) on financial instruments | | | (1,135) | | | 9,881 | | | 5,864 | | | — | | | — | | | 14,610 |
| Net unrealized gain (loss) on financial instruments | | | (10,439) | | | (7,207) | | | (1,051) | | | (28,481) | | | — | | | (47,178) |
| Servicing income | | 527 | | | 931 | | | 3,467 | | | 12,154 | | | — | | 17,079 | ||
| Income on purchased future receivables, net of allowance for doubtful accounts | | | 9,069 | | | — | | | — | | | — | | | — | | | 9,069 |
| Loss from unconsolidated joint ventures | | | (3,030) | | | — | | | — | | | — | | | — | | | (3,030) |
| Other income | | | 3,755 | | | 2,722 | | | 28,969 | | | 106 | | | 115 | | | 35,667 |
| Total non-interest income (loss) | | $ | (1,253) | | $ | 6,327 | | $ | 37,249 | | $ | 101,012 | | $ | 115 | | $ | 143,450 |
| Non-interest expense | | | | | | | | | | | | | | | | | | |
| Employee compensation and benefits | | $ | (5,471) | | $ | (7,399) | | $ | (7,395) | | $ | (24,584) | | $ | (1,375) | | $ | (46,224) |
| Allocated employee compensation and benefits from related party | | (250) | | | — | | | — | | | — | | | (2,250) | | (2,500) | ||
| Variable expenses on residential mortgage banking activities | | — | | | — | | | — | | | (56,575) | | | — | | (56,575) | ||
| Professional fees | | (486) | | | (442) | | | (427) | | | (558) | | | (2,562) | | (4,475) | ||
| Management fees – related party | | — | | | — | | | — | | | — | | | (5,227) | | (5,227) | ||
| Incentive fees – related party | | — | | | — | | | — | | | — | | | (3,506) | | (3,506) | ||
| Loan servicing expense | | (2,866) | | | (3,291) | | | (582) | | | (9,119) | | | (40) | | (15,898) | ||
| Merger related expenses | | | — | | | — | | | — | | | — | | | (58) | | | (58) |
| Other operating expenses | | (10,317) | | | (7,886) | | | (8,089) | | | (3,758) | | | (1,437) | | (31,487) | ||
| Total non-interest expense | | $ | (19,390) | | $ | (19,018) | | $ | (16,493) | | $ | (94,594) | | $ | (16,455) | | $ | (165,950) |
| Net loss before provision for income taxes | | $ | (18,720) | | $ | (9,066) | | $ | 19,664 | | $ | 5,544 | | $ | (16,712) | | $ | (19,290) |
| Total assets | | $ | 1,125,035 | | $ | 2,620,406 | | $ | 804,355 | | $ | 568,353 | | $ | 342,783 | | $ | 5,460,932 |
Exhibit 99.2
| Supplemental Financial Data<br>Second Quarter 2020 | ||
|---|---|---|
| DISCLAIMER<br>2<br>This presentation contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as<br>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<br>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<br>could cause actual results to differ materially from those described in the forward-looking statements; Ready Capital Corporation (the "Company") can give no<br>assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include those set<br>forth in the Risk Factors section of the most recent Annual Report on Form 10-K filed with the SEC and other reports filed by the Company with the SEC,<br>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<br>after the date of this release, except as required by law.<br>This presentation includes certain non-GAAP financial measures, including Core Earnings. These non-GAAP financial measures should be considered only as<br>supplemental to, and not as superior to, financial measures in accordance with GAAP. Please refer to Appendix A for the most recent GAAP information.<br>This presentation also contains market statistics and industry data which are subject to uncertainty and are not necessarily reflective of market conditions.<br>These have been derived from third party sources and have not been independently verified by the Company or its affiliates.<br>All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. All data is as of June 30, 2020 unless<br>otherwise noted. | ||
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| 3<br>COMPANY UPDATE<br>.. Government sponsored lending segments remain active with SBA, Residential<br>Mortgage Banking and Freddie Mac Multifamily originations fully operational<br>.. Core CRE lending activities to resume in Q3 after Q2 pause due to uncertain<br>capital markets and stressed underwriting conditions<br>.. Acquisition efforts focused on identifying accretive investments post COVID-19<br>BUSINESS ACTIVITIES<br>.. Cash of over $250 million<br>.. Recourse mark-to-market liabilities reduced 26% to $1.25 billion including a 30%<br>reduction in short-term repurchase obligations and a 25% reduction in warehouse<br>lines supporting loans, held-for-investment<br>.. Completed two securitizations which reduced recourse liabilities by over $430<br>million and generated approximately $60 million in cash<br>LIQUIDITY<br>.. Current $4.5 billion portfolio of over 4,500 loans remains stable:<br>.. Weighted average LTV of ~ 60%<br>.. 93% current through July 31, 2020<br>.. Low exposure to hospitality and retail<br>.. 8% of loans in the CRE portfolio and 7% of loans in the residential portfolio are in<br>forbearance; 87% of CRE loans in forbearance are paying current<br>BOOK VALUE<br>PRESERVATION<br>PAYCHECK PROTECTION<br>PROGRAM<br>.. Facilitated the funding of ~ $2.7 billion of PPP loans consisting of over 40,000<br>applications with an average loan size of $66k<br>.. Total earnings, net of initial operating expenses of $41.3 million<br>.. $23.1 million, net, recognized in Q2 with remaining amount recognized in<br>future periods | ||
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| SECOND QUARTER 2020 RESULTS<br>4<br>.. Net income of $34.7 million(1), or $0.62 per common share<br>.. Core earnings of $39.2 million(1), or $0.70 per common share<br>.. Declared dividend of $0.25 per share<br>EARNINGS /<br>DIVIDENDS<br>.. Return on Equity(2) of 17.4%<br>.. Core Return on Equity(3) of 19.7%<br>.. Dividend Yield(4) of 11.5%<br>RETURNS<br>.. Freddie Mac loan originations of $157.9 million<br>.. SBA loan originations of $20.8 million; PPP loan originations of ~ $2.7 billion<br>.. Residential mortgage loan originations of $1.2 billion<br>LOAN ORIGINATIONS(5) /<br>ACQUISITIONS<br>.. Adjusted net book value(6) of $14.46 per common share<br>.. Reduced recourse leverage ratio from 2.8x at 3/31/20 to 2.1x at 6/30/20<br>.. 0.5x of leverage supporting government sponsored activity which remains<br>elevated<br>BALANCE SHEET<br>(1) Inclusive of non-controlling interest<br>(2) Return on Equity is an annualized percentage equal to quarterly net income over the average monthly total stockholders’ equity for the period<br>(3) Core Return on Equity is an annualized percentage equal to core earnings over the average monthly total stockholders’ equity for the period. Refer to the “Core Earnings<br>Reconciliation” slide for a reconciliation of GAAP Net Income to Core Earnings<br>(4) Q2 Dividend yield for the period based on the 6/30/2020 closing share price of $8.69<br>(5) Represents fully committed amounts<br>(6) Excludes the equity component of our 2017 convertible note issuance | ||
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| RETURN ON EQUITY<br>5<br>1) Levered yield includes interest income, accretion of discount, MSR<br>creation, income from unconsolidated joint ventures, realized gains<br>(losses) on loans held for sale, unrealized gains (losses) on loans held<br>for sale and servicing income net of interest expense and amortization of<br>deferred financing costs on an annualized basis.<br>2) GAAP ROE is based on GAAP Net Income, while Core ROE is based on<br>Core Earnings, which adjusts GAAP Net Income for certain items<br>detailed on the “Core Earnings Reconciliation” slide.<br>3) ROE based on net income before tax of the Residential Mortgage<br>Banking business line divided by the business line’s average monthly<br>equity.<br>Segment<br>Loan Acquisitions 14.6 % 14.6 % 22.9 %<br>SBC Originations 16.7 % 16.7 % 65.4 %<br>SBA Originations, Acquisitions,<br>& Servicing 39.7% 39.7% 5.6%<br>Residential Mortgage Banking (3) 67.8 % 154.3 % 6.1 %<br>(1.5) (1.8) (0.8) (0.3)<br>19.2% 8.7% 25.2% 16.8%<br>(0.1) (5.8) (0.2) (5.7)<br>0.3 (19.3) (2.2) (2.1)<br>11.6 - 11.6 -<br>(0.1) (1.0) - -<br>(9.2) (9.2) (8.7) (7.4)<br>(3.1) (1.2) (3.1) (1.2)<br>(1.2) 2.9 (2.9) 0.2<br>17.4% -24.9% 19.7% 0.6%<br>GAAP ROE (2) Core ROE (2)<br>Levered<br>Yield (1)<br>Core<br>Levered<br>Yield (1)<br>Equity<br>Allocation Q2'20 Q1'20 Q2'20 Q1'20<br>20.7% 10.5% 26.0% 17.1%<br>Corporate leverage, net of non-earning assets<br>Return on equity<br>Gross return on equity<br>Realized & unrealized gains, net<br>Non-recurring gains, losses and expenses<br>Investment advisory fees<br>Provision for income taxes<br>Loan loss provision<br>PPP revenue, net of direct expenses<br>Operating expenses | ||
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| SBC INVESTMENT BY PRODUCT TYPE(1)<br>6<br>(1) Origination volumes are based on fully committed amounts<br>$53.7 $48.2<br>$70.2<br>$45.5<br>$20.8<br>$177.5<br>$165.6<br>$116.0<br>$60.7<br>$0.0<br>$73.0<br>$146.2<br>$104.7<br>$149.4<br>$157.9<br>$169.1<br>$153.5<br>$305.0<br>$259.6<br>$-<br>$362.2<br>$77.9<br>$153.7<br>$51.5<br>$0.0<br> $-<br> $50<br> $100<br> $150<br> $200<br> $250<br> $300<br> $350<br> $400<br> $450<br>Q2'19 Q3'19 Q4'19 Q1'20 Q2'20<br>Investment (UPB in $)<br>SBA Conventional Freddie Mac Transitional Acquired | ||
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| SBC ORIGINATIONS -SEGMENT SNAPSHOT<br>7<br>1) Represents fully committed amounts.<br>2) $ in millions, as of quarter end.<br>3) Represents fixed rate loans that have been securitized.<br>4) Includes interest income, accretion of discount, and servicing<br>income net of interest expense and amortization of deferred<br>financing costs.<br>5) Includes realized and unrealized gains (losses) on loans held for<br>sale and MSR creation.<br>• Freddie Mac loan originations of $157.9<br>million(1)<br>• 93% of portfolio is current as of 6/30/20,<br>only 2% > 60 days past due<br>• Current quarter money up pipeline of<br>$125.9 million, including July 2020<br>fundings of $31.2 million 9.6% 9.4% 10.1% 10.5%<br>12.8%<br>1.7% 2.8% 1.9% 2.0%<br>3.9%<br>0.0%<br>5.0%<br>10.0%<br>15.0%<br>20.0%<br>Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20<br>Gross Levered Yield (ex. Gains) Gains on Loans, held for sale<br>GROSS LEVERED YIELD CURRENT QUARTER HIGHLIGHTS<br>(4) (5)<br>Portfolio Metrics (Balance Sheet)<br>Number of loans 485 501 537 593 568<br>Unpaid Principal Balance (3) $ 1,829 $ 2,064 $ 2,298 $ 2,581 $ 2,479<br>Carrying Value (3) $ 1,835 $ 2,070 $ 2,300 $ 2,580 $ 2,478<br>Weighted Average LTV 63% 65% 61% 64% 64%<br>Weighted Average Coupon 6.1% 5.8% 6.2% 5.4% 5.5%<br>Weighted Average Maturity 5 years 5 years 5 years 5 years 4 years<br>Weighted Average Principal Balance (3) $ 3.7 $ 4.1 $ 4.3 $ 4.4 $ 4.4<br>Percentage of loans fixed / floating 55% / 45% 55% / 45% 53% / 47% 58% / 42% 48% / 52%<br>Percentage of fixed, match funded (4) 69.4% 68.3% 84.9% 80.9% 80.9%<br>Percentage of loans 30+ days delinquent 2.7% 1.4% 1.9% 2.6% 7.0%<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 | ||
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| SBA ORIGINATIONS, ACQUISITIONS, & SERVICING -SEGMENT SNAPSHOT<br>8<br>1) Represents fully committed amounts.<br>2) $ in millions, as of quarter end.<br>3) Includes interest income, accretion of discount, and servicing<br>income net of interest expense and amortization of deferred<br>financing costs.<br>4) Includes realized and unrealized gains (losses) on loans held<br>for sale and MSR creation.<br>5) Reflects an increase in balances as a result of the Q4 2019<br>securitization and effects of the guaranteed loan financing<br>gross up.<br>• $18.6 million of SBA secondary market<br>loans sales, with an average sale<br>premium of 9.9%<br>• SBA loan originations of $20.8 million(1)<br>• PPP loan originations of ~ $2.7 billion<br>• Origination pipeline of $183.2 million<br>SBA loans, including $8.7 million of<br>July 2020 fundings<br>22.1% 22.2% 27.6% 25.1% 26.9%<br>17.8% 16.7%<br>23.0%<br>18.6% 12.8%<br>0.0%<br>10.0%<br>20.0%<br>30.0%<br>40.0%<br>50.0%<br>60.0%<br>Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20<br>Gross Levered Yield (ex. Gains) Gains on Loans, held for sale<br>CURRENT QUARTER HIGHLIGHTS GROSS LEVERED YIELD<br>(3) (4)<br>Portfolio Metrics (Balance Sheet)<br>Number of loans 1,902 1,875 1,880 1,813 1,804<br>Unpaid Principal Balance (2) $ 270 $ 278 $ 804 $ 701 $ 678<br>Carrying Value (2) $ 230 $ 240 $ 770 $ 664 $ 641<br>Weighted Average LTV 87% 88% 83% 84% 83%<br>Weighted Average Coupon 7.4% 7.4% 6.9% 6.7% 5.2%<br>Weighted Average Maturity 16 years 16 years 15 years 17 years 17 years<br>Weighted Average Principal Balance (2) $ 0.1 $ 0.1 $ 0.4 $ 0.4 $ 0.4<br>Percentage of loans fixed / floating 1.0% / 99.0% 0.9% / 99.1% 3.3% / 96.7% 0.3% / 99.7% 0.3% / 99.7%<br>Percentage of loans 30+ days delinquent 6.5% 6.0% 3.1% 5.3% 2.2%<br>Q2 2019 Q3 2019 Q4 2019(5) Q1 2020(5) Q2 2020(5) | ||
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| LOAN ACQUISITIONS -SEGMENT SNAPSHOT<br>9<br>1) Excludes joint venture investments.<br>2) $ in millions, as of quarter end.<br>3) Represents fixed rate loans that have been securitized.<br>• 97% of portfolio is current as of 6/30/20<br>• Acquisition pipeline of $230.1 million<br>SBC loans<br>11.3% 12.5% 12.1%<br>7.3%<br>13.7%<br>3.2% 1.6% 0.5%<br>0.0%<br>0.9%<br>0.0%<br>5.0%<br>10.0%<br>15.0%<br>20.0%<br>25.0%<br>30.0%<br>Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20<br>Income on joint venture investments<br>Gross Levered Yield (ex. Gains)<br>CURRENT QUARTER HIGHLIGHTS GROSS LEVERED YIELD<br>Portfolio Metrics(1) (Balance Sheet)<br>Number of loans 2,385 2,363 2,231 2,212 2,126<br>Unpaid Principal Balance (2) $ 1,075 $ 1,068 $ 1,048 $ 1,073 $ 1,010<br>Carrying Value (2) $ 1,055 $ 1,056 $ 1,039 $ 1,066 $ 1,002<br>Weighted Average LTV 46% 42% 43% 40% 38%<br>Weighted Average Coupon 6.3% 6.3% 6.1% 6.1% 6.0%<br>Weighted Average Maturity 10 years 10 years 9 years 9 years 9 years<br>Weighted Average Principal Balance (2) $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5<br>Percentage of loans fixed / floating 48% / 52% 47% / 53% 45% / 55% 49% / 51% 49% / 51%<br>Percentage of fixed, match funded (3) 61.0% 44.6% 52.3% 43.3% 74.5%<br>Percentage of loans accrual / non-accrual 98% / 2% 98% / 2% 98% / 2% 98% / 2% 97% / 3%<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 | ||
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| RESIDENTIAL MORTGAGE BANKING –SEGMENT SNAPSHOT<br>10 1) $ in millions. Represents activity during the<br>quarter.<br>2) Represents fully committed amounts<br>• MSR portfolio of approximately $8.7 billion<br>in UPB, up 5% compared to Q1<br>• Fair market value of $73.6 million<br>• Originations of $1.2 billion(2)<br>• Loan sales of $1.2 billion<br>• Origination pipeline of $581.5 million<br>• Q2 retention rate of 42% $7.8<br>$8.0 $8.2 $8.3<br>$8.7<br>$7.5<br>$7.8<br>$8.0<br>$8.3<br>$8.5<br>$8.8<br>$9.0<br>MSR PORTFOLIO (UPB IN $ BILLIONS)CURRENT QUARTER HIGHLIGHTS<br>Fair Q2' 19 Q3' 19 Q4' 19 Q1' 20 Q2' 20<br>Value<br>($ mm) $ 85.7 $ 84.6 $ 91.2 $ 78.6 $ 73.6<br>Portfolio Metrics (quarterly activity)<br>Unpaid principal balance (1) $ 518.2 $ 656.8 $ 586.3 $ 691.3 $ 1,192.9<br> % of Originations - Purchased 74.0% 60.5% 54.7% 51.2% 37.4%<br> % of Originations - Refinanced 26.0% 39.5% 45.3% 48.8% 62.6%<br>Channel - % Correspondent 36.4% 33.6% 37.9% 34.4% 32.6%<br>Channel - % Retail 45.7% 50.9% 46.8% 50.3% 49.9%<br>Channel - % Wholesale 17.9% 15.5% 15.3% 15.3% 17.5%<br>Unpaid principal balance (1) $ 492.1 $ 631.9 $ 601.6 $ 643.9 $ 1,150.6<br> % of UPB - Fannie/ Freddie securitizations 69.7% 69.7% 66.6% 72.4% 78.8%<br> % of UPB - Ginnie Mae securitizations 22.4% 25.1% 26.8% 17.3% 20.2%<br> % of UPB - Other investors 7.9% 5.2% 6.6% 10.3% 1.0%<br>Q1 2020 Q2 2020<br>Originations<br>Sales<br>Q2 2019 Q3 2019 Q4 2019 | ||
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| DIVERSIFIED, COMPLEMENTARY, AND SCALABLE PLATFORMS<br>(1) Assets include loans, MBS, servicing assets, JV investments, real estate owned, and purchased future receivables.<br>(2) Based on QTD Core Earnings. Core earnings includes interest income, accretion of discount, MSR creation, income from unconsolidated joint ventures,<br>realized gains (losses) on loans held for sale, unrealized gains (losses) on loans held for sale and servicing income net of interest expense and<br>amortization of deferred financing costs on an annualized basis.<br>(3)<br>11<br>PORTFOLIO BREAKDOWN(1) REVENUE BREAKDOWN(2)<br>Acquisitions<br>24%<br>SBC Originations<br>- Fixed rate<br>25%<br>SBC Originations<br>- Bridge<br>27%<br>SBC Originations<br>- Freddie Mac<br>1%<br>SBA<br>Originations,<br>Acquisitions, &<br>Servicing<br>16%<br>Residential<br>Mortgage<br>Banking<br>7%<br>Acquisitions,<br>$2,686<br>SBC Originations<br>- Fixed rate,<br>$(1,646)<br>SBC Originations<br>- Bridge,<br>$12,152<br>SBC Originations<br>- Freddie Mac,<br>$3,768<br>SBA<br>Originations,<br>Acquisitions, &<br>Servicing,<br>$24,459<br>Residential<br>Mortgage<br>Banking,<br>$18,471<br> $(5,000)<br> $-<br> $5,000<br> $10,000<br> $15,000<br> $20,000<br> $25,000<br> $30,000 | ||
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| LOAN PORTFOLIO COMPOSITION AS OF JUNE 30, 2020(1)(2)<br>Geographic Location Lien Position<br>(1) As a percent of unpaid principal balance<br>(2) Excludes loans held-for-sale, at fair value<br>(3)<br>Collateral Type SBA Collateral Type<br>12<br>California<br>18%<br>Texas<br>15%<br>Florida<br>8%<br>New York<br>9%<br>Illinois<br>5%<br>Other<br>45%<br>First Mortgage<br>98.9%<br>Subordinated<br>Mortgage<br>0.8%<br>Other<br>0.3%<br>Multi-family<br>26%<br>Retail<br>17%<br>SBA<br>18%<br>Office<br>12%<br>Mixed Use<br>12%<br>Other<br>15% Lodging<br>16%<br>Offices of<br>Physicians<br>13%<br>Child Day Care<br>Services<br>7%<br>Eating Places<br>5% Veterinarians<br>3%<br>Other<br>56% | ||
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| 13<br> Total ending Q2 2020 allowance reserves of $57.1 million representing 1.4% of loan balances<br> Net recovery of $0.9 million across our loan portfolios during the quarter:<br> Acquired loans: Incremental net reserves of $2.0 million, consisting of certain specific impairment reserves due<br>to collateral reductions or presence of junior lien positions<br> SBA loans: Incremental net reserves on SBA loans due to higher probability of defaults in certain industries more<br>severely impacted by COVID-19, due to closures or impaired in the ability to operate<br> Originated Fixed Rate loans: Reduction in general reserves due to stabilized assumptions, no new loan<br>originations during the period and a lower weighted average maturity of portfolio<br> Originated Transitional loans: Reduction in general reserves due to stabilized assumptions, no new loan<br>originations during the period, a lower weighted average maturity of portfolio, and lower LTVs within the portfolio<br>(In Thousands)<br>Originated<br>SBC loans<br>Originated<br>Transitional loans<br>Acquired<br> loans<br>Acquired<br> SBA 7(a) loans<br>Originated<br> SBA 7(a) loans<br>Originated Residential<br>Agency loans<br>Total held-for-<br>investment loans<br>Balance as of 3/31/2020 10,362 24,264 10,646 5,622 7,074 - 57,968<br> Provision for loan losses (1,388) (4,433) 1,960 190 2,580 500 (591)<br> Charge-offs - - (42) (97) (204) - (343)<br> Recoveries - - 29 - - 29<br>Ending balance - 6/30/2020 8,974 19,831 12,564 5,744 9,450 500 57,063<br>Loan balance - 6/30/2020 1,177,642 1,268,862 999,266 270,950 366,731 4,295 4,087,746<br>% of Loan balance - 6/30/2020 0.8% 1.6% 1.3% 2.1% 2.6% 11.6% 1.4%<br>CURRENT EXPECTED CREDIT LOSSES | ||
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| LOAN PORTFOLIO –RISK RATINGS AS OF JUNE 30, 2020(1)(2)(3)<br>CREDIT QUALITY INDICATORS<br>(1) Commercial real estate portfolio only<br>(2) As a percent of unpaid principal balance<br>(3) Excludes loans held-for-sale, at fair value<br>14<br>Bucket 1<br>17%<br>Bucket 2<br>48%<br>Bucket 3<br>27%<br>Bucket 4<br>6%<br>Bucket 5<br>2%<br>CRITERIA<br>• Bucket 1 – Very Low Risk of Loss: New<br>origination or current with strong credit metrics<br>(LTV/DSCR/DY). No expected losses.<br>• Bucket 2 – Low Risk of Loss: Current with<br>maturity > 6 months. Lower credit metrics with<br>possibility of inclusion on CREFC watchlist. No<br>expected losses.<br>• Bucket 3 – Medium Risk of Loss: Current with<br>near term maturities or in forbearance. Loss<br>unlikely with no specific reserves booked.<br>• Bucket 4 – Higher Risk: Loan delinquent or in<br>maturity default. Potential issues with sponsor or<br>business plans. Minimal losses possible and<br>adequately reserved in current period.<br>• Bucket 5 – Highest risk: Loan in default or<br>special servicing. Specific losses identified and<br>adequately reserved for in current period. | ||
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| CAPITAL STRUCTURE<br>► Approximate unencumbered cash of over<br>$250 million<br>► Completed $405 million securitization of<br>originated transitional loans in June 2020,<br>with senior bonds pricing at LIBOR + 215<br>basis points<br>► Completed $204 million securitization of<br>acquired SBC loans in June 2020, with<br>senior bonds pricing at a fixed rate of 3.4%<br>► Successfully extended two warehouse<br>lines at nominal increases in cost and<br>decreases in advance rates<br>15<br>Total Debt<br>+ Equity<br>LIQUIDITY UPDATE HISTORICAL CAPITAL STRUCTURE Total<br>Debt +<br>Equity<br>($M)<br>Funding Mix<br>$3,642 $3,915 $4,290 $4,608 $4,648<br>Convertible Notes $ 115.0 7.0% 7.0%<br>Senior Secured Notes $ 180.0 7.5% 7.0%<br>Baby Bonds $ 149.5 6.3% 6.2%<br>Total $ 444.5 7.0% 6.7%<br>Principal<br>Balance Coupon YTM<br>Corporate<br>Financing (in $M)<br>21% 19% 20% 17% 17%<br>3% 3% 3% 2% 2%<br>6% 7% 8%<br>7% 7%<br>27% 34% 28% 37%<br>27%<br>43% 37% 42% 37%<br>46%<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020<br>Stockholders Equity Convertible senior notes<br>Senior secured notes and Corporate debt Credit facilities and repurchase agreements<br>Securitized debt obligations | ||
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| FINANCING AND LEVERAGE<br>16<br>1.8x 2.3x 1.9x 2.8x 2.1x 3.9x 4.3x 4.1x 4.9x 4.7x<br> -<br> 1.0<br> 2.0<br> 3.0<br> 4.0<br> 5.0<br> 6.0<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020<br>Historical Leverage<br>Recourse Total<br>HISTORICAL LEVERAGE<br>Total Debt-to-Equity Ratio<br> Secured borrowings (warehouse credit facilities and borrowings under repo transactions) $ 1,254<br> Securitized debt obligations 2,140<br> Senior secured notes and corporate bonds 330<br> Convertible notes 112<br>Total Debt $ 3,836<br>Total Stockholders' Equity $ 813<br>Total debt-to-equity ratio 4.7<br>Total recourse debt-to-equity ratio<br>Total Debt $ 3,836<br> Less: Securitized debt obligations (2,140)<br>Total recourse debt $ 1,696<br>Total Stockholders' Equity $ 813<br>Total recourse debt-to-equity ratio 2.1<br>6/30/2020<br>(in millions) | ||
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| CREDIT AND REPURCHASE FACILITIES<br>17<br>(1) $ in thousands<br>(2) Commitment size is €200.0 million, but has been converted for purposes of this disclosure.<br>Lender Asset Class Maturity Pricing<br> JPMorgan Acquired loans, SBA loans Jun-2021 1M L + 2.00 to 2.75% $ 250,000 $ 34,525 $ 215,475<br> Keybank Freddie Mac loans Feb-2021 1M L + 1.30% 100,000 15,071 84,929<br> East West Bank SBA loans Oct-2020 Prime - 0.821 to + 0.29% 50,000 33,887 16,113<br> Credit Suisse(2) Acquired loans (non USD) Dec-2021 Euribor + 2.50% 224,680 37,709 186,971<br> GMFS facilities Residential loans Sept-2020 - Mar-2021 Various 360,000 254,143 105,857<br> GMFS - MSR Residential MSRs Sep-2023 1M L + 2.50% 50,000 37,700 12,300<br> Other - various Various Jan-2021 - Jun-2021 Various 164,500 126,698 37,802<br> $ 1,199,180 $ 539,733 $ 659,447<br> Citibank Fixed rate, Transitional, Acquired loans Oct-2020 1M L + 1.875 to 2.125% $ 500,000 $ 132,257 $ 367,743<br> Deutsche Bank Fixed rate, Transitional loans Nov-2021 3M L + 2.00 to 2.40% 350,000 165,604 184,396<br> JPMorgan Transitional loans Dec-2020 1M L + 2.25 to 4.00% 400,000 182,293 217,707<br> Related Party Originated SBC, Originated transitional, Acquired loans Sep-2020 1ML +12.0% 35,000 35,000 -<br> Various MBS Aug-2020 - Jan-2021 Various 199,008 199,008 -<br> $ 1,484,008 $ 714,162 $ 769,846<br>Total Secured Borrowings $ 2,683,188 $ 1,253,895 $ 1,429,293<br>Borrowings under repurchase agreements<br> Total Borrowings under repurchase agreements<br> Total Borrowings under credit facilities<br>Borrowings under credit facilities<br>Available<br>Capacity (1)<br>Facility<br>Size (1)<br>Carrying<br>Value(1) | ||
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| READY CAPITAL SNAPSHOT ($ amounts in thousands, except per share data)<br>18<br>(5) Excludes the equity component of our 2017 convertible note issuance<br>1) Average carrying value includes average quarterly carrying value of loan and servicing<br>asset balances<br>2) Gross yields include interest income, accretion of discount, MSR creation, income from<br>our unconsolidated joint venture, realized gains (losses) on loans held for sale,<br>unrealized gains (losses) on loans held for sale and servicing income net of interest<br>expense and amortization of deferred financing costs on an annualized basis.<br>3) The Company finances the assets included in the Investment Type through<br>securitizations, repurchase agreements, warehouse facilities and bank credit facilities.<br>Interest expense is calculated based on interest expense and deferred financing<br>amortization for the quarter ended 6/30/2020 on an annualized basis.<br>4) Excludes loans, held for sale, at fair value<br>5) Excludes the equity component of our 2017 convertible note issuance.<br>SBA servicing rights - UPB $ 576,416<br>SBA servicing rights- carrying value $ 17,317<br>Freddie Mac servicing rights - UPB $ 1,399,652<br>Freddie Mac servicing rights - carrying value $ 16,799<br>Residential servicing rights - UPB $ 8,705,285<br>Residential servicing rights - carrying value $ 73,645<br>Servicing Portfolio Metrics<br>Average Carrying<br>Value(1) Debt Cost (3) Levered Yield<br>Loan Acquisitions 1,043,171 $ 5.8% 834,287 $ 3.6% 14.6%<br>SBC Originations 2,624,099 $ 6.6% 2,028,672 $ 3.7% 16.7%<br>SBA Originations, Acquisitions, & Servicing 295,304 $ 10.3% 244,273 $ 4.2% 39.7%<br> Total 3,962,574 $ 6.7% 3,107,232 $ 3.7% 17.6%<br>Investment Type Gross<br>Yield(2)<br>Average Debt<br>Balance<br>Common Stockholders' equity $ 794,596<br>Common Stockholders' equity (adjusted)(5) $ 793,341<br>Total Common Shares outstanding 54,872,789<br>Net Book Value per Common Share $ 14.48<br>Adjusted Net Book Value per Common Share $ 14.46<br>Book Equity Value Metrics<br>Net income (loss) | Core earnings $ 34,663 | $ 39,223<br>Earnings per share - Basic and diluted $ 0.62<br>Core Earnings per Common Share $ 0.70<br>Return on Equity per Common Share 17.4%<br>Core Return on Equity per Common Share 19.7%<br>Dividend Yield 11.5%<br>Q2 2020 Earnings Data Metrics<br>% Fixed vs Floating Rate 42.6% / 57.4%<br>% Originated vs Acquired 69.8% / 30.2%<br>Weighted Average LTV - SBC 64%<br>Weighted Average LTV - SBA 83%<br>Weighted Average LTV - Acquired 38%<br>Loan Portfolio Metrics (4) |
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| APPENDIX<br>19 | ||
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| BALANCE SHEET BY QUARTER<br>20<br>(In Thousands)<br>Assets<br>Cash and cash equivalents $ 41,925 $ 52,727 $ 67,928 $ 122,265 $ 257,017<br>Restricted cash 38,019 45,303 51,728 93,164 91,539<br>Loans, net 1,002,676 1,380,359 1,727,984 1,969,052 1,432,807<br>Loans, held for sale, at fair value 177,507 203,110 188,077 306,328 297,669<br>Mortgage backed securities, at fair value 99,407 96,181 92,466 78,540 75,411<br>Loans eligible for repurchase from Ginnie Mae 69,101 71,528 77,953 77,605 186,197<br>Investment in unconsolidated joint venture 47,551 55,663 58,850 53,379 53,939<br>Purchased future receivables, net — — 43,265 49,150 27,190<br>Derivative instruments 3,670 4,181 2,814 17,756 19,037<br>Servicing rights 114,761 114,480 121,969 110,111 107,761<br>Real estate acquired in settlement of loans 65,834 60,807 58,573 48,292 47,009<br>Other assets 71,162 77,553 106,925 114,891 103,701<br>Assets of consolidated VIEs 2,108,710 1,961,127 2,378,486 2,229,517 2,761,655<br>Total Assets $ 3,840,323 $ 4,123,019 $ 4,977,018 $ 5,270,050 $ 5,460,932<br>Liabilities<br>Secured borrowings 988,868 1,315,534 1,189,392 1,698,937 1,253,895<br>Securitized debt obligations of consolidated VIEs, net 1,567,113 1,465,539 1,815,154 1,692,074 2,140,009<br>Convertible notes, net 110,506 110,773 111,040 111,310 111,581<br>Senior secured notes and Corporate notes, net 227,881 283,630 329,275 329,461 329,868<br>Guaranteed loan financing 28,445 25,571 485,461 457,032 436,532<br>Liabilities for loans eligible for repurchase from Ginnie Mae 69,101 71,528 77,953 77,605 186,197<br>Derivative instruments 9,032 11,906 5,250 16,585 9,106<br>Dividends payable 18,292 18,292 21,302 21,747 14,524<br>Accounts payable and other accrued liabilities 73,679 81,235 97,407 89,740 166,174<br>Total Liabilities $ 3,092,917 $ 3,384,008 $ 4,132,234 $ 4,494,491 $ 4,647,886<br>Stockholders’ Equity<br>Common stock 4 4 5 5 5<br>Additional paid-in capital 720,812 720,823 822,837 837,064 854,222<br>Retained earnings 14,914 9,173 8,746 (69,605) (49,755)<br>Accumulated other comprehensive loss (7,703) (10,253) (6,176) (9,536) (9,876)<br>Total Ready Capital Corporation equity 728,027 719,747 825,412 757,928 794,596<br>Non-controlling interests 19,379 19,264 19,372 17,631 18,450<br>Total Stockholders’ Equity $ 747,406 $ 739,011 $ 844,784 $ 775,559 $ 813,046<br>Total Liabilities and Stockholders’ Equity $ 3,840,323 $ 4,123,019 $ 4,977,018 $ 5,270,050 $ 5,460,932<br>Adjusted Book Value per Share $ 16.35 $ 16.16 $ 16.12 $ 14.52 $ 14.46<br>6/30/2020 6/30/2019 9/30/2019 12/31/2019 3/31/2020 | ||
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| STATEMENT OF INCOME BY QUARTER<br>21 (1) Certain balances have been reclassified to match current period presentation<br>(In thousands, except share data)<br>Interest income $ 57,034 $ 59,723 $ 64,406 $ 69,551 $ 63,211<br>Interest expense (35,753) (39,390) (40,962) (46,930) (43,408)<br>Net interest income before provision for loan losses $ 21,281 $ 20,333 $ 23,444 $ 22,621 $ 19,803<br>Provision for loan losses (1,348) (693) (1,125) (39,804) 591<br>Net interest income after provision for loan losses $ 19,933 $ 19,640 $ 22,319 $ (17,183) $ 20,394<br>Non-interest income<br>Residential mortgage banking activities $ 21,021 $ 29,013 $ 18,918 $ 36,669 $ 80,564<br>Net realized gain on financial instruments 6,255 7,377 8,044 7,172 7,438<br>Net unrealized gain (loss) on financial instruments (7,006) (7,881) 3,009 (33,434) (13,744)<br>Servicing income, net of amortization and impairment 7,811 7,449 8,653 8,097 8,982<br>Income on purchased future receivables, net — — 2,362 3,483 5,586<br>Income on unconsolidated joint venture 2,083 1,047 29 (3,537) 507<br>Other income 2,792 2,979 4,407 4,073 31,594<br> Total non-interest income $ 32,956 $ 39,984 $ 45,422 $ 22,523 $ 120,927<br>Non-interest expense<br>Employee compensation and benefits (12,509) (13,438) (13,842) (18,936) (27,288)<br>Allocated employee compensation and benefits from related party (1,250) (1,500) (1,870) (1,250) (1,250)<br>Variable expenses on residential mortgage banking activities (13,501) (17,318) (11,765) (20,129) (36,446)<br>Professional fees (1,586) (2,030) (1,989) (2,556) (1,919)<br>Management fees – related party (2,495) (2,495) (2,591) (2,561) (2,666)<br>Incentive fees – related party — — (106) — (3,506)<br>Loan servicing expense (4,571) (4,866) (4,891) (5,570) (10,327)<br>Merger related expenses (603) (51) (1,629) (47) (11)<br>Other operating expenses (8,085) (8,144) (10,070) (13,744) (17,745)<br>Total non-interest expense $ (44,600) $ (49,842) $ (48,753) $ (64,793) $ (101,158)<br>Income before provision for income taxes $ 8,289 $ 9,782 $ 18,988 $ (59,453) $ 40,163<br>Provision for income (taxes) benefit 2,956 2,645 1,948 7,937 (5,500)<br>Net income $ 11,245 $ 12,427 $ 20,936 $ (51,516) $ 34,663<br>Less: Net income attributable to non-controlling interest 276 323 508 (1,064) 810<br>Net income attributable to Ready Capital Corporation $ 10,969 $ 12,104 $ 20,428 $ (50,452) $ 33,853<br>Earnings per common share - basic $ 0.25 $ 0.27 $ 0.43 $ (0.98) $ 0.62<br>Earnings per common share - diluted $ 0.25 $ 0.27 $ 0.43 $ (0.98) $ 0.62<br>Weighted-average shares outstanding - Basic 44,425,598 44,438,652 46,446,573 51,984,040 53,980,451<br>Weighted-average shares outstanding - Diluted 44,431,263 44,467,801 46,482,470 51,990,013 54,013,958<br>Dividends declared per share of common stock $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.25<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 | ||
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| CORE EARNINGS RECONCILIATION BY QUARTER<br>22<br>We believe that providing investors with Core Earnings, a non-U.S. GAAP financial measure, in addition to the related U.S. GAAP measures, gives investors greater transparency into the information used by management in our financial and operational decision-making. However,<br>because Core 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<br>performance. In addition, because not all companies use identical calculations, our presentation of Core Earnings may not be comparable to other similarly-titled measures of other companies.<br>We calculate Core Earnings as GAAP net income (loss) excluding the following:<br>i) any unrealized gains or losses on certain MBS<br>ii) any realized gains or losses on sales of certain MBS<br>iii) any unrealized gains or losses on Residential MSRs<br>iv) any unrealized gains or losses resulting from a change in CECL impairment reserves on accrual loans<br>v) one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses<br>In calculating Core Earnings, Net Income (in accordance with U.S. 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<br>origination businesses, where we transfer originated loans into an MBS securitization and retain an interest in the securitization. In calculating Core Earnings, we do not adjust Net Income (in accordance with U.S. GAAP) to take into account unrealized gains and losses on MBS<br>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<br>our historical loan originations. In calculating Core 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-core. Certain MBS positions are considered to be non-core due to a variety of<br>reasons which may include collateral type, duration, and size. In addition, in calculating Core Earnings, Net Income (in accordance with GAAP) is adjusted to exclude unrealized gains or losses on Residential MSRs, held at fair value. We treat our commercial MSRs and Residential<br>MSRs as two separate classes based on the nature of the underlying mortgages and our treatment of these assets as two separate pools for risk management purposes. Servicing rights relating to our small business commercial business are accounted for under ASC 860, Transfer and<br>Servicing, while our residential MSRs are accounted for under the fair value option under ASC 825, Financial Instruments. In calculating Core Earnings, we do not exclude realized gains or losses on either commercial MSRs or residential MSRs, held at fair value, as servicing<br>income is a fundamental part of our business and is an indicator of the ongoing performance.<br>(In Thousands)<br>Net Income $ 11,245 $ 12,427 $ 20,936 $ (51,516) $ 34,663<br>Reconciling items:<br>Unrealized (gain) loss on mortgage servicing rights $ 6,339 $ 7,582 $ (2,482) $ 16,437 $ 12,044<br>Change in CECL reserve on accrual loans — — — 35,438 (5,076)<br>Non-recurring REO impairment — — — 2,969 106<br>Merger transaction costs and other non-recurring expenses 670 51 1,938 1,255 967<br>Unrealized loss on mortgage-backed securities 106 85 29 230 (45)<br>Unrealized loss on de-designated cash flow hedges — — — 2,118 —<br> Total reconciling items $ 7,115 $ 7,718 $ (515) $ 58,447 $ 7,996<br>Core earnings before income taxes $ 18,360 $ 20,145 $ 20,421 $ 6,931 $ 42,659<br>Income tax adjustments (1,585) (1,896) 544 (5,706) (3,436)<br>Core earnings $ 16,775 $ 18,249 $ 20,965 $ 1,225 $ 39,223<br>Less: Core earnings attributable to non-controlling interests $ 412 $ 474 $ 509 $ 25 $ 917<br>Less: Income attributable to participating shares 79 79 413 463 285<br>Core earnings attributable to Common Stockholders $ 16,284 $ 17,696 $ 20,043 $ 736 $ 38,021<br>Core earnings per share $ 0.37 $ 0.40 $ 0.43 $ 0.01 $ 0.70<br>Weighted average common shares outstanding 44,425,598 44,438,652 46,446,573 51,984,040 53,980,451<br>Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 | ||
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