Ready Capital Corporation Reports Fourth Quarter 2023 Results
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Insights
Ready Capital's reported GAAP earnings per common share and distributable earnings per common share signify the company's profitability from its core operations. The distributable return on average stockholders’ equity (ROE) of 7.5% is a critical metric, as it reflects the efficiency with which the company is using equity to generate profits. Comparatively, an 8.6% distributable ROE for the full year suggests a robust performance, especially in a challenging commercial real estate market. Investors should note the strategic avoidance of office collateral and the granular diversification with over 5,000 positions, which could mitigate risk in a sector known for its volatility.
The merger with Broadmark Realty Capital and the subsequent liquidation of 23% of the portfolio is a strategic move that could streamline Ready Capital's operations and focus on its core lending strategies. However, the merger also entails integration risks and potential for unforeseen costs. The initiation of a stock repurchase program indicates management confidence in the intrinsic value of the company, which could be a positive signal to the market. Yet, repurchases reduce the equity base, which might affect future distributable ROE calculations.
Ready Capital's focus on lower-to-middle-market (LMM) originations and U.S. Small Business Administration (SBA) 7(a) loans aligns with a segment that may provide growth opportunities, particularly given the current economic uncertainties affecting larger-scale commercial real estate investments. The total LMM originations of $1.7 billion and SBA 7(a) originations of $494 million demonstrate a significant commitment to these areas. The completion of two securitizations at a weighted average cost of SOFR + 2.9% reflects current market conditions and the company's cost of capital. The net book value of $14.10 per share offers investors a snapshot of the company's value, though it is essential to consider alongside market dynamics and the company's strategic positioning.
The use of non-GAAP financial measures such as distributable earnings provides additional insight into Ready Capital's operational performance. However, it's crucial for stakeholders to understand that these measures are not standardized across the industry and may not be directly comparable to similar metrics reported by other companies. The adjustments made to net income in calculating distributable earnings, such as unrealized gains or losses on certain assets and non-cash compensation expense, can offer a more nuanced view of the company's profitability that may not be fully captured by GAAP measures. Nonetheless, the reliance on non-GAAP measures should be balanced with GAAP results for a comprehensive understanding of the company's financial health.
- GAAP EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS OF
- DISTRIBUTABLE EARNINGS PER COMMON SHARE OF
- DISTRIBUTABLE RETURN ON AVERAGE STOCKHOLDERS’ EQUITY OF
NEW YORK, Feb. 27, 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 December 31, 2023.
“We continue to make progress on our business strategy of repositioning the capital acquired in our merger with Broadmark Realty Capital into our core lending strategies despite current challenges in the commercial real estate sector,” said Thomas Capasse, Ready Capital’s Chairman and Chief Executive Officer. “We believe our portfolio is well positioned to withstand market headwinds as a result of our avoidance of office collateral, its granularity with over 5,000 positions and its concentration in strong markets.”
Fourth Quarter Highlights
- Total investments of
$449 million , including$297 million of LMM originations and$152 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
$14.10 per share of common stock as of December 31, 2023
Full Year Highlights
- GAAP earnings per common share from continuing operations of
$2.27 and distributable earnings per common share of$1.18 - Distributable return on average stockholders’ equity of
8.6% - Total LMM originations of
$1.7 billion and SBA 7(a) originations of$494 million - Completed two securitizations consisting of
$1.2 billion of floating rate LMM loans and sold$1.0 billion of senior bonds at a weighted average cost of SOFR +2.9% - Completed merger with Broadmark Realty Capital Inc., a specialty real estate finance company specializing in originating and servicing residential and commercial construction loans, with
23% of the portfolio liquidated since acquisition - Initiated a new stock repurchase program, authorizing the repurchase of
$100 million of the Company’s common stock; acquired approximately 1.7 million shares of the Company’s common stock at an average price of$10.82
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
The table below reconciles Net Income computed in accordance with U.S. GAAP to Distributable Earnings.
| (in thousands) | Three Months Ended December 31, 2023 | ||
| Net Income | $ | 10,881 | |
| Reconciling items: | |||
| Unrealized loss on MSR - discontinued operations | 20,715 | ||
| Unrealized loss on joint ventures | 2,124 | ||
| Unrealized loss on foreign exchange hedges | 1,582 | ||
| Increase in CECL reserve | 3,195 | ||
| Non-cash compensation | 1,360 | ||
| Merger transaction costs and other non-recurring expenses | 7,361 | ||
| Loss on bargain purchase | 7,060 | ||
| Total reconciling items | $ | 43,397 | |
| Income tax adjustments | (5,754 | ) | |
| Distributable earnings | $ | 48,524 | |
| Less: Distributable earnings attributable to non-controlling interests | 1,358 | ||
| Less: Income attributable to participating shares | 2,206 | ||
| Distributable earnings attributable to common stockholders | $ | 44,960 | |
| Distributable earnings per common share – basic | $ | 0.26 | |
| Distributable earnings per common share – diluted | $ | 0.26 | |
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 Wednesday, February 28, 2024 at 8:30am ET to provide a general business update and discuss the financial results for the quarter ended December 31, 2023.
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 #: 13743091
The playback can be accessed through March 13, 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) | December 31, 2023 | December 31, 2022 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 138,532 | $ | 147,399 | ||||
| Restricted cash | 30,063 | 48,146 | ||||||
| Loans, net (including | 4,020,160 | 3,571,799 | ||||||
| Loans, held for sale, at fair value | 81,599 | 123,735 | ||||||
| Paycheck Protection Program loans (including | 34,597 | 186,985 | ||||||
| Mortgage-backed securities | 27,436 | 32,041 | ||||||
| Investment in unconsolidated joint ventures (including | 133,321 | 118,641 | ||||||
| Derivative instruments | 2,404 | 12,532 | ||||||
| Servicing rights | 102,837 | 87,117 | ||||||
| Real estate owned, held for sale | 252,949 | 117,098 | ||||||
| Other assets | 265,578 | 183,533 | ||||||
| Assets of consolidated VIEs | 6,897,145 | 6,552,760 | ||||||
| Assets held for sale | 454,596 | 439,191 | ||||||
| Total Assets | $ | 12,441,217 | $ | 11,620,977 | ||||
| Liabilities | ||||||||
| Secured borrowings | 2,102,075 | 2,663,735 | ||||||
| Paycheck Protection Program Liquidity Facility (PPPLF) borrowings | 36,036 | 201,011 | ||||||
| Securitized debt obligations of consolidated VIEs, net | 5,068,453 | 4,903,350 | ||||||
| Convertible notes, net | — | 114,397 | ||||||
| Senior secured notes, net | 345,127 | 343,355 | ||||||
| Corporate debt, net | 764,908 | 662,665 | ||||||
| Guaranteed loan financing | 844,540 | 264,889 | ||||||
| Contingent consideration | 7,628 | 28,500 | ||||||
| Derivative instruments | 212 | 1,319 | ||||||
| Dividends payable | 54,289 | 47,177 | ||||||
| Loan participations sold | 62,944 | 54,641 | ||||||
| Due to third parties | 3,641 | 11,805 | ||||||
| Accounts payable and other accrued liabilities | 171,445 | 153,614 | ||||||
| Liabilities held for sale | 333,157 | 271,924 | ||||||
| Total Liabilities | $ | 9,794,455 | $ | 9,722,382 | ||||
| Preferred stock Series C, liquidation preference | 8,361 | 8,361 | ||||||
| Commitments & contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock Series E, liquidation preference | 111,378 | 111,378 | ||||||
| Common stock, | 17 | 11 | ||||||
| Additional paid-in capital | 2,321,989 | 1,684,074 | ||||||
| Retained earnings | 124,413 | 4,994 | ||||||
| Accumulated other comprehensive loss | (17,860 | ) | (9,369 | ) | ||||
| Total Ready Capital Corporation equity | 2,539,937 | 1,791,088 | ||||||
| Non-controlling interests | 98,464 | 99,146 | ||||||
| Total Stockholders’ Equity | $ | 2,638,401 | $ | 1,890,234 | ||||
| Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity | $ | 12,441,217 | $ | 11,620,977 | ||||
| READY CAPITAL CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
| (in thousands, except share data) | Three Months Ended December 31, 2023 | For the Year Ended December 31, 2023 | ||||||
| Interest income | $ | 250,130 | $ | 945,814 | ||||
| Interest expense | (197,591 | ) | (716,468 | ) | ||||
| Net interest income before provision for loan losses | $ | 52,539 | $ | 229,346 | ||||
| Provision for loan losses | (6,688 | ) | (7,230 | ) | ||||
| Net interest income after provision for loan losses | $ | 45,851 | $ | 222,116 | ||||
| Non-interest income | ||||||||
| Net realized gain (loss) on financial instruments and real estate owned | 15,153 | 65,008 | ||||||
| Net unrealized gain (loss) on financial instruments | 1,643 | 9,718 | ||||||
| Servicing income, net of amortization and impairment of | 4,613 | 21,161 | ||||||
| Income on purchased future receivables, net of allowance for credit losses of | 857 | 2,387 | ||||||
| Gain (loss) on bargain purchase | (7,060 | ) | 207,972 | |||||
| Loss on unconsolidated joint ventures | (1,650 | ) | (905 | ) | ||||
| Other income | 46,458 | 103,127 | ||||||
| Total non-interest income | $ | 60,014 | $ | 408,468 | ||||
| Non-interest expense | ||||||||
| Employee compensation and benefits | (19,410 | ) | (81,530 | ) | ||||
| Allocated employee compensation and benefits from related party | (3,010 | ) | (10,837 | ) | ||||
| Professional fees | (15,997 | ) | (34,738 | ) | ||||
| Management fees – related party | (7,035 | ) | (25,103 | ) | ||||
| Incentive fees – related party | — | (1,791 | ) | |||||
| Loan servicing expense | (9,221 | ) | (40,811 | ) | ||||
| Transaction related expenses | (576 | ) | (17,764 | ) | ||||
| Other operating expenses | (24,806 | ) | (59,591 | ) | ||||
| Total non-interest expense | $ | (80,055 | ) | $ | (272,165 | ) | ||
| Income from continuing operations before provision for income taxes | 25,810 | 358,419 | ||||||
| Income tax provision | (1,236 | ) | (7,174 | ) | ||||
| Net income from continuing operations | $ | 24,574 | $ | 351,245 | ||||
| Discontinued operations | ||||||||
| Loss from discontinued operations before provision for income taxes | (18,258 | ) | (3,779 | ) | ||||
| Income tax benefit | 4,565 | 945 | ||||||
| Net loss from discontinued operations | (13,693 | ) | (2,834 | ) | ||||
| Net income | 10,881 | 348,411 | ||||||
| Less: Dividends on preferred stock | 1,999 | 7,997 | ||||||
| Less: Net income attributable to non-controlling interest | 1,118 | 8,960 | ||||||
| Net income attributable to Ready Capital Corporation | $ | 7,764 | $ | 331,454 | ||||
| Earnings per common share from continuing operations - basic | $ | 0.12 | $ | 2.27 | ||||
| Earnings per common share from discontinued operations - basic | $ | (0.08 | ) | $ | (0.02 | ) | ||
| Total earnings per common share - basic | $ | 0.04 | $ | 2.25 | ||||
| Earnings per common share from continuing operations - diluted | $ | 0.12 | $ | 2.24 | ||||
| Earnings per common share from discontinued operations - diluted | $ | (0.08 | ) | $ | (0.02 | ) | ||
| Total earnings per common share - diluted | $ | 0.04 | $ | 2.22 | ||||
| Weighted-average shares outstanding | ||||||||
| Basic | 172,116,989 | 146,841,594 | ||||||
| Diluted | 173,957,731 | 148,567,026 | ||||||
| Dividends declared per share of common stock | $ | 0.30 | $ | 1.46 | ||||
| READY CAPITAL CORPORATION UNAUDITED SEGMENT REPORTING FOR THE THREE MONTHS ENDED DECEMBER 31, 2023 | |||||||||||||||
| (in thousands) | LMM Commercial Real Estate | Small Business Lending | Corporate- Other | Consolidated | |||||||||||
| Interest income | $ | 217,566 | $ | 32,564 | $ | — | $ | 250,130 | |||||||
| Interest expense | (171,629 | ) | (25,983 | ) | 21 | (197,591 | ) | ||||||||
| Net interest income before provision for loan losses | $ | 45,937 | $ | 6,581 | $ | 21 | $ | 52,539 | |||||||
| Provision for loan losses | (6,592 | ) | (96 | ) | — | (6,688 | ) | ||||||||
| Net interest income after provision for loan losses | $ | 39,345 | $ | 6,485 | $ | 21 | $ | 45,851 | |||||||
| Non-interest income | |||||||||||||||
| Net realized gain (loss) on financial instruments and real estate owned | 6,838 | 8,315 | — | 15,153 | |||||||||||
| Net unrealized gain (loss) on financial instruments | 700 | 943 | — | 1,643 | |||||||||||
| Servicing income, net | 1,638 | 2,975 | — | 4,613 | |||||||||||
| Income on purchased future receivables, net | — | 857 | — | 857 | |||||||||||
| Loss on bargain purchase | — | — | (7,060 | ) | (7,060 | ) | |||||||||
| Loss on unconsolidated joint ventures | (1,650 | ) | — | — | (1,650 | ) | |||||||||
| Other income | 12,723 | 32,722 | 1,013 | 46,458 | |||||||||||
| Total non-interest income (loss) | $ | 20,249 | $ | 45,812 | $ | (6,047 | ) | $ | 60,014 | ||||||
| Non-interest expense | |||||||||||||||
| Employee compensation and benefits | (7,859 | ) | (8,893 | ) | (2,658 | ) | (19,410 | ) | |||||||
| Allocated employee compensation and benefits from related party | (301 | ) | — | (2,709 | ) | (3,010 | ) | ||||||||
| Professional fees | (1,989 | ) | (11,672 | ) | (2,336 | ) | (15,997 | ) | |||||||
| Management fees – related party | — | — | (7,035 | ) | (7,035 | ) | |||||||||
| Incentive fees – related party | — | — | — | — | |||||||||||
| Loan servicing expense | (9,062 | ) | (159 | ) | — | (9,221 | ) | ||||||||
| Transaction related expenses | — | — | (576 | ) | (576 | ) | |||||||||
| Other operating expenses | (8,367 | ) | (13,760 | ) | (2,679 | ) | (24,806 | ) | |||||||
| Total non-interest expense | $ | (27,578 | ) | $ | (34,484 | ) | $ | (17,993 | ) | $ | (80,055 | ) | |||
| Income (loss) before provision for income taxes | $ | 32,016 | $ | 17,813 | $ | (24,019 | ) | $ | 25,810 | ||||||
| Total assets | $ | 10,282,531 | $ | 1,395,687 | $ | 308,403 | $ | 11,986,621 | |||||||
| READY CAPITAL CORPORATION UNAUDITED SEGMENT REPORTING FOR THE YEAR ENDED DECEMBER 31, 2023 | |||||||||||||||
| (in thousands) | LMM Commercial Real Estate | Small Business Lending | Corporate- Other | Consolidated | |||||||||||
| Interest income | $ | 847,253 | $ | 98,561 | $ | — | $ | 945,814 | |||||||
| Interest expense | (650,624 | ) | (65,844 | ) | — | (716,468 | ) | ||||||||
| Net interest income before provision for loan losses | $ | 196,629 | $ | 32,717 | $ | — | $ | 229,346 | |||||||
| Provision for loan losses | (1,413 | ) | (5,817 | ) | — | (7,230 | ) | ||||||||
| Net interest income after provision for loan losses | $ | 195,216 | $ | 26,900 | $ | — | $ | 222,116 | |||||||
| Non-interest income | |||||||||||||||
| Net realized gain (loss) on financial instruments and real estate owned | 34,072 | 30,936 | — | 65,008 | |||||||||||
| Net unrealized gain (loss) on financial instruments | 8,427 | 1,291 | — | 9,718 | |||||||||||
| Servicing income, net | 5,819 | 15,342 | — | 21,161 | |||||||||||
| Income on purchased future receivables, net | — | 2,387 | — | 2,387 | |||||||||||
| Gain on bargain purchase | — | — | 207,972 | 207,972 | |||||||||||
| Loss on unconsolidated joint ventures | (905 | ) | — | — | (905 | ) | |||||||||
| Other income | 38,552 | 62,112 | 2,463 | 103,127 | |||||||||||
| Total non-interest income | $ | 85,965 | $ | 112,068 | $ | 210,435 | $ | 408,468 | |||||||
| Non-interest expense | |||||||||||||||
| Employee compensation and benefits | (33,012 | ) | (40,289 | ) | (8,229 | ) | (81,530 | ) | |||||||
| Allocated employee compensation and benefits from related party | (882 | ) | — | (9,955 | ) | (10,837 | ) | ||||||||
| Professional fees | (5,369 | ) | (19,535 | ) | (9,834 | ) | (34,738 | ) | |||||||
| Management fees – related party | — | — | (25,103 | ) | (25,103 | ) | |||||||||
| Incentive fees – related party | — | — | (1,791 | ) | (1,791 | ) | |||||||||
| Loan servicing expense | (40,070 | ) | (741 | ) | — | (40,811 | ) | ||||||||
| Transaction related expenses | — | — | (17,764 | ) | (17,764 | ) | |||||||||
| Other operating expenses | (24,443 | ) | (27,763 | ) | (7,385 | ) | (59,591 | ) | |||||||
| Total non-interest expense | $ | (103,776 | ) | $ | (88,328 | ) | $ | (80,061 | ) | $ | (272,165 | ) | |||
| Income before provision for income taxes | $ | 177,405 | $ | 50,640 | $ | 130,374 | $ | 358,419 | |||||||
| Total assets | $ | 10,282,531 | $ | 1,395,687 | $ | 308,403 | $ | 11,986,621 | |||||||
FAQ
What were Ready Capital's GAAP earnings per common share from continuing operations?
What was the distributable earnings per common share for Ready Capital?
What was the distributable return on average stockholders' equity for Ready Capital?
What were the total investments highlighted by Ready Capital in the fourth quarter?
What was the net book value per share of common stock for Ready Capital as of December 31, 2023?
What were the total LMM originations reported by Ready Capital for the full year?
What was the total SBA 7(a) originations reported by Ready Capital for the full year?
What was the purpose of Ready Capital's new stock repurchase program?
