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What changed in Ready Capital Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Ready Capital Corp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+856 added−646 removedSource: 10-K (2025-03-03) vs 10-K (2024-02-28)

Top changes in Ready Capital Corp's 2024 10-K

856 paragraphs added · 646 removed · 543 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

75 edited+35 added−6 removed35 unchanged
Biggest changeOur acquired and originated SBA loans held in our loan portfolio had both a UPB and carrying value of $1.3 billion as of December 31, 2023. ​ The table below presents our SBA Section 7(a) Program loan portfolio by delinquency status. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) UPB ​ % of Total ​ Carrying Value (1) ​ % of Total ​ Current $ 1,255,439 ​ 97.5 % $ 1,240,042 ​ 97.7 % 30 - 59 days past due ​ 9,247 ​ 1.2 ​ ​ 8,904 ​ 1.2 ​ 60 + days past due ​ 22,042 ​ 1.3 ​ ​ 20,341 ​ 1.1 ​ Total $ 1,286,728 ​ 100.0 % $ 1,269,287 ​ 100.0 % (1) Includes loan assets of consolidated VIEs and excludes specific and general allowance for loan losses. ​ The table below presents information on our sales of originated SBA loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Proceeds Received for Sale of Guaranteed Portion of Loans UPB Sold Net Proceeds Weighted Average Sales Premium (1) Q1 2021 ​ $ 41,197 $ 36,496 $ 4,701 12.9 % Q2 2021 ​ ​ 115,999 ​ 102,517 ​ 13,482 13.2 ​ Q3 2021 ​ ​ 122,568 ​ 109,203 ​ 13,365 12.2 ​ Q4 2021 ​ ​ 93,818 ​ 84,146 ​ 9,672 11.5 ​ Q1 2022 ​ ​ 67,257 ​ 60,323 ​ 6,934 11.5 ​ Q2 2022 ​ ​ 109,287 ​ 99,827 ​ 9,460 9.5 ​ Q3 2022 ​ ​ 105,351 ​ 97,025 ​ 8,326 8.6 ​ Q4 2022 ​ ​ 109,874 ​ 101,956 ​ 7,918 7.8 ​ Q1 2023 ​ ​ 81,315 ​ 74,252 ​ 7,063 9.5 ​ Q2 2023 ​ ​ 106,825 ​ 97,879 ​ 8,946 9.1 ​ Q3 2023 ​ ​ 98,868 ​ 90,965 ​ 7,903 8.7 ​ Q4 2023 ​ ​ 107,273 ​ 98,525 ​ 8,748 8.9 ​ Total ​ $ 1,159,632 $ 1,053,114 $ 106,518 10.1 % (1) Weighted average sales premiums are net after sharing any premiums above 10% with the SBA ​ The table below presents our securitization activities on the unguaranteed retained portion of our SBA Section 7(a) Program loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in millions) Asset Class Issuance Bonds Issued Weighted Average Debt Cost ​ Outstanding Balance RCLT 2015-1 SBA 7(a) Loans June 2015 $ 189.5 Lesser of L + 125 bps or Prime - 150 bps $ — RCLT 2019-2 SBA 7(a) Loans December 2019 ​ 131.0 SOFR + 250 bps ​ 32.2 RCLT 2023-3 SBA 7(a) Loans July 2023 ​ 132.0 Lesser of 30 day Avg SOFR or Prime + 0.07% ​ 121.5 ​ In addition, we actively participated in the Paycheck Protection Program (the “PPP”) through the Treasury and SBA prior to its termination in May 2021.
Biggest change(in thousands) Proceeds Received for Sale of Guaranteed Portion of Loans UPB Sold Net Proceeds Weighted Average Sales Premium (1) Q1 2022 $ 67,257 $ 60,323 $ 6,934 11.5 % Q2 2022 109,287 99,827 9,460 9.5 Q3 2022 105,351 97,025 8,326 8.6 Q4 2022 109,874 101,956 7,918 7.8 Q1 2023 81,315 74,252 7,063 9.5 Q2 2023 106,825 97,879 8,946 9.1 Q3 2023 98,868 90,965 7,903 8.7 Q4 2023 107,273 98,525 8,748 8.9 Q1 2024 149,303 135,392 13,911 10.3 Q2 2024 189,471 170,663 18,808 11.0 Q3 2024 280,341 254,285 26,056 10.2 Q4 2024 232,678 210,718 21,960 10.4 Total $ 1,637,843 $ 1,491,810 $ 146,033 9.8 % (1) Weighted average sales premiums are net after sharing any premiums above 10% with the SBA The table below presents our securitization activities on the unguaranteed retained portion of our SBA Section 7(a) Program loans.
Other sources of LMM loans include special servicers of large balance LMM ABS and CMBS trusts, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for failed banks, servicers of non-performing SBA Section 7(a) Program loans, and Community Development Companies originating loans under the SBA 504 program, GSEs, and state economic development authorities.
Other sources of LMM loans include special servicers of large balance LMM ABS and CMBS trusts, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for failed banks, servicers of non-performing SBA Section 7(a) Program loans, and Community Development 13 Companies originating loans under the SBA 504 program, GSEs, and state economic development authorities.
The amount of leverage we may employ for particular assets will depend upon the availability of particular types of financing and Waterfall's assessment of the credit, liquidity, price volatility and other risks of those assets and financing counterparties. We currently target a total debt-to-equity leverage ratio between 4:1 to 4.5:1 and a recourse debt-to-equity leverage ratio between 1:1 to 1.5:1.
The amount of leverage we may employ for particular assets will depend upon the availability of particular types of financing and Waterfall's assessment of the credit, liquidity, price volatility and other risks of those assets and financing counterparties. We currently target a total debt-to-equity leverage ratio between 4:1 to 4.5:1 and a recourse debt-to-equity leverage ratio between 1.5:1 to 2:1.
Taylor was Managing Director at Brevet Capital Management, and before that he was Chief Operating Officer of CIT Small Business Lending from 2007 to 2013. Earlier in his career, Mr. Taylor held numerous roles within the financial services industry including Lehman Brothers, Moody's Investor Service, AT&T Capital Corporation, Resolution Trust Corporation, First Chicago Bank & Trust, and Chase Manhattan Bank.
Taylor was Managing Director at Brevet Capital Management, and before that he was Chief Operating Officer of CIT Small Business Lending from 2007 to 2013. Earlier in his career, Mr. Taylor held numerous roles within the financial services industry including Lehman Brothers, Moody's Investors Service, AT&T Capital Corporation, Resolution Trust Corporation, First Chicago Bank & Trust, and Chase Manhattan Bank.
The SBA supports small businesses by administering several programs that provide loan guarantees against default on qualified loans made to eligible small businesses. ​ The SBA Section 7(a) Program is the SBA’s primary program for providing financing for start-up and existing small businesses. The SBA typically guarantees 75% of qualified loans over $150,000.
The SBA supports small businesses by administering several programs that provide loan guarantees against default on qualified loans made to eligible small businesses. The SBA Section 7(a) Program is the SBA’s primary program for providing financing for start-up and existing small businesses. The SBA typically guarantees 75% of qualified loans over $150,000 and 85% of qualified loans under $150,000.
Ross received a Master of Business Administration degree in Finance with distinction from the University of Pennsylvania’s Wharton School of Business in 1984 and a Bachelor of Science degree in Accounting, cum laude, from the State University of New York at Buffalo in 1978. ​ Andrew Ahlborn, 40 is our Chief Financial Officer. Mr.
Ross received a Master of Business Administration degree in Finance with distinction from the University of Pennsylvania’s Wharton School of Business in 1984 and a Bachelor of Science degree in Accounting, cum laude, from the State University of New York at Buffalo in 1978. Andrew Ahlborn, 41 is our Chief Financial Officer. Mr.
He is a licensed Certified Public Accountant in New York. ​ Gary T. Taylor , 64 is our Chief Operating Officer. Prior to joining our Company, Mr. Taylor served as President and Chief Operating Officer of Newtek Business Credit from May 2015 to March 2019. From 2013 to 2015, Mr.
He is a licensed Certified Public Accountant in New York. Gary T. Taylor, 65 is our Chief Operating Officer. Prior to joining our Company, Mr. Taylor served as President and Chief Operating Officer of Newtek Business Credit from May 2015 to March 2019. From 2013 to 2015, Mr.
We or Waterfall may in the future hire additional personnel that may be dedicated to our business.
We or Waterfall may in 18 the future hire additional personnel that may be dedicated to our business.
The proprietary database on the causes of borrower default, loss severity, and market information that we developed from our LMM loan acquisition experience has served as the basis for the development of our LMM and SBA loan origination programs.
The proprietary database on the causes of borrower default, loss severity, and market information that we developed from our LMM loan acquisition experience has served as the basis for the development of our LMM and SBL loan origination programs.
For this reason, we believe that SBA participating lenders that have sold the guaranteed portions of SBA Section 7(a) Program loans in recent years have been able to recognize attractive gains. ​ 13 Table of Contents The SBA was created out of the Small Business Act in 1953. The SBA’s function is to protect the interests of small businesses.
For this reason, we believe that SBA participating lenders that have sold the guaranteed portions of SBA Section 7(a) Program loans in recent years have been able to recognize attractive gains . The SBA was created out of the Small Business Act in 1953. The SBA’s function is to protect the interests of small businesses.
Mr. Taylor received a Bachelor of Science degree, with Honors, in Business from Florida A&M University. ​ Adam Zausmer, 46 is our Chief Credit Officer. Prior to joining Waterfall in 2013, Mr, Zausmer was a Senior Underwriter with JPMorgan Chase’s Commercial Term Lending business.
Mr. Taylor received a Bachelor of Science degree, with Honors, in Business from Florida A&M University. 19 Adam Zausmer, 47 is our Chief Credit Officer. Prior to joining Waterfall in 2013, Mr, Zausmer was a Senior Underwriter with JPMorgan Chase’s Commercial Term Lending business.
Our loans range in original principal amounts generally up to $40 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders primarily through dividends, as well as through capital appreciation.
Our loans range in original principal amounts generally up to $40 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders primarily through dividends.
These Corporate Governance Guidelines include the composition of our Board, its functions and responsibilities, its standing committees, director qualification standards, 16 Table of Contents access to management and independent advisors, director compensation, management succession, director orientation and continuing education and the annual performance evaluation and review of our Board and committees.
These Corporate Governance Guidelines include the composition of our Board, its functions and responsibilities, its standing committees, director qualification standards, access to management and independent advisors, director compensation, management succession, director orientation and continuing education and the annual performance evaluation and review of our Board and committees.
We encourage the professional development of our employees through regular in-person trainings and online learning resources and strive to maintain a work environment that fosters professionalism, high standards of business ethics, teamwork and cooperation. As of December 31, 2023, the Company had 374 full-time employees, excluding employees related to our discontinued operations.
We encourage the professional development of our employees through regular in-person trainings and online learning resources and strive to maintain a work environment that fosters professionalism, high standards of business ethics, teamwork and cooperation. As of December 31, 2024 , the Company had 475 full-time employees, excluding employees related to our discontinued operations.
Accordingly, as of December 31, 2023, our Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of income, and excluded from continuing operations for all periods presented in this annual report on Form 10-K. Item 1.
Accordingly, as of both December 31, 2024 and December 31, 2023, our Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of income, and excluded from continuing operations for all periods presented in this Form 10-K. Item 1.
For loans with a maturity that exceeds 12 months, the upfront guaranty fees are: i) For loans of $1,000,000 or less: 0.00% ii) For loans of $1,000,001 to $2,000,000: 1.45% of the guaranteed portion of the loan up to and including $1,000,000 plus 1.70% of the guaranteed portion of the loan over $1,000,000 iii) For loans of $2,000,001 and greater: 3.50% of the guaranteed portion of the loan up to and including $1,000,000 plus 3.75% of the guaranteed portion of the loan over $1,000,000; ● The annual service fee will be i) For loans of $1,000,000 and less: 0.00%. ii) For loans of $1,000,001 up to and including $5,000,000: 0.55% of the guaranteed portion of the outstanding balance of the loan; and ● A personal guarantee is required from all owners of 20% or more of the equity of the business.
For loans with a maturity that exceeds 12 months, the upfront guaranty fees are: i) For loans of $1,000,000 or less: 0.00% ii) For loans of $1,000,001 to $5,000,000: 3.50% of the guaranteed portion of the loan up to and including $1,000,000 plus 3.75% of the guaranteed portion of the loan over $1,000,000; • The annual service fee will be i) For loans of $500,000 and less: 0.00% ii) For loans of $500,001 to $1,000,000: 0.17% of the guaranteed portion of the outstanding balance of the loan iii) For loans of $1,000,001 up to and including $5,000,000: 0.55% of the guaranteed portion of the outstanding balance of the loan; and • A personal guarantee is required from all owners of 20% or more of the equity of the business.
To a lesser extent, we also source loan leads through commercial real estate realtors, trusted advisors such as financial planners, lawyers, and certified public accountants and through direct-to-the-borrower transactions. ​ 12 Table of Contents ● Other direct origination sources.
To a lesser extent, we also source loan leads through commercial real estate realtors, trusted advisors such as financial planners, lawyers, and certified public accountants and through direct-to-the-borrower transactions. • Other direct origination sources.
We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act. ​ 7 Table of Contents Our Manager We are externally managed and advised by Waterfall, an SEC registered investment adviser.
We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act. 8 Our Manager We are externally managed and advised by Waterfall, an SEC registered investment adviser.
We acquire, originate and service owner-occupied loans guaranteed by the SBA under its SBA Section 7(a) Program through our wholly-owned subsidiary, ReadyCap Lending, LLC (“ReadyCap Lending”). We hold an SBA license as one of only 17 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA.
We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through our subsidiary, ReadyCap Lending, LLC (“ ReadyCap Lending”). We hold an SBA license as one of only 20 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA.
Requests should be directed to Jacques Cornet, ICR, Inc., at 685 Third Avenue, 2 nd Floor, New York, NY 10017. ​ ​ ​ 18 Table of Contents
Requests should be directed to Jacques Cornet, ICR, Inc., at 685 Third Avenue, 2 nd Floor, New York, NY 10017.
The remaining recourse leverage ratio is from our corporate debt offerings. ​ HEDGING STRATEGY Subject to maintaining our qualification as a REIT, we may use derivative financial instruments (or hedging instruments), including interest rate swap agreements, interest rate cap agreements, options on interest rate swaps, or swaptions, financial futures, structured credit indices, and options in an effort to hedge the interest rate and credit spread risk associated with the financing of our portfolio.
HEDGING STRATEGY Subject to maintaining our qualification as a REIT, we may use derivative financial instruments (or hedging instruments), including interest rate swap agreements, interest rate cap agreements, options on interest rate swaps, or swaptions, financial futures, structured credit indices, and options in an effort to hedge the interest rate and credit spread risk associated with the financing of our portfolio.
Our origination platform, which focuses on first mortgage loans, provides conventional LMM mortgage financing for the full life-cycle of LMM properties nationwide through the following programs and allocates capital across four products: ​ ● Construction. Origination of loans and ownership of construction and pre-construction development loans that typically have a short-term maturity profile. ​ ● Bridge .
Our originations focus on first mortgage loans which provide conventional LMM mortgage financing for the full life-cycle of LMM properties nationwide through the following programs and allocate capital across four products: • Construction. Origination of loans and ownership of construction and pre-construction development loans that typically have a short-term maturity profile. • Bridge.
Prior to founding Waterfall in January 2005, Mr. Ross was the founder of Licent Capital, a specialty broker/dealer for intellectual property securitization. From 1987 until 1999, Mr. Ross was employed by Merrill Lynch where he managed the real estate finance and ABS groups. Mr.
Ross was the founder of Licent Capital, a specialty broker/dealer for intellectual property securitization. From 1987 until 1999, Mr. Ross was employed by Merrill Lynch where he managed the real estate finance and ABS groups. Mr.
We sell qualifying loans to Freddie Mac, which, in turn, sells such loans to securitization structures. ​ 10 Table of Contents The following table summarizes the loan features by product types. ​ ​ As of December 31, 2023, we have originated approximately $ 17.9 billion in LMM loans since Ready Capital’s inception.
We sell qualifying loans to Freddie Mac, which, in turn, sells such loans to securitization structures. 11 The following table summarizes the loan features by product types. As of December 31, 2024 , we have originated approximately $19.1 billion in LMM loans since Ready Capital’s inception.
Capasse began his career as a fixed income analyst at Dean Witter and Bank of Boston. Mr. Capasse received a Bachelor of Arts degree in Economics from Bowdoin College in 1979. 17 Table of Contents Jack J. Ross, 66 is our President and a member of our Board. He is a Manager and co-founder of Waterfall.
Capasse began his career as a fixed income analyst at Dean Witter and Bank of Boston. Mr. Capasse received a Bachelor of Arts degree in Economics from Bowdoin College in 1979. Jack J. Ross, 67 is our President and a member of our Board. He is a Manager and co-founder of Waterfall. Prior to founding Waterfall in January 2005, Mr.
We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future, and we may be subject to margin calls as a result of its financing activity. ​ As of December 31, 2023, we had a total leverage ratio of 3.3x and recourse leverage ratio of 0.8x.
We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future, and we may be subject to margin calls as a result of its financing activity.
LMM loans represent a special category of commercial mortgage loans, sharing both commercial and residential mortgage loan characteristics. LMM loans are typically secured by first mortgages on commercial properties or other business assets, but because LMM loans are often correlated to local housing markets and economic environments, aspects of residential mortgage credit analysis are utilized in the underwriting process.
LMM loans are typically secured by first mortgages on commercial properties or other business assets, but because LMM loans are often correlated to local housing markets and economic environments, aspects of residential mortgage credit analysis are utilized in the underwriting process. Most LMM loans are amortizing on a schedule of up to 30 years.
Waterfall uses the data and analytics developed through its experience as an owner of LMM loans and in implementing loss mitigation actions to support our origination activities and to develop our loan underwriting standards.
We rely on Waterfall’s expertise to establish investment strategies and in identifying loan acquisitions and origination opportunities. Waterfall uses the data and analytics developed through its experience as an owner of LMM loans and in implementing loss mitigation actions to support our origination activities and to develop our loan underwriting standards.
These originated loans are held for sale, and subsequently sold to Freddie Mac. We provide construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone and its affiliates (“Red Stone”), a wholly owned subsidiary. In addition, we acquire LMM loans as part of our business strategy.
We provide construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through our subsidiary Red Stone and its affiliates (“Red Stone”). In addition, we acquire LMM loans as part of our business strategy.
As of the date of this annual report on Form 10-K, we have not entered into any definitive agreement with any potential purchaser and there can be no assurance that we will enter into such an agreement in the future or that the contemplated transaction will be completed. ​ AVAILABLE INFORMATION We maintain a website at www.readycapital.com and will make available, free of charge, on our website (a) our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (including any amendments thereto), proxy statements and other information (collectively, “Company Documents”) filed with, or furnished to, the SEC, as soon as reasonably practicable after such documents are so filed or furnished, (b) our Corporate Governance Guidelines, (c) our Director Independence Standards, (d) our Code of Conduct and Ethics and (e) written charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of our Board.
AVAILABLE INFORMATION We maintain a webs ite at www.readycapital.com and will m ake available, free of charge, on our website (a) our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (including any amendments thereto), proxy statements and other information (collectively, “Company Documents”) filed with, or furnished to, the SEC, as soon as reasonably practicable after such documents are so filed or furnished, (b) our Corporate Governance Guidelines, (c) our Director Independence Standards, (d) our Code of Conduct and Ethics and (e) written charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of our Board.
While the eligibility requirements of the SBA Section 7(a) Program vary depending on the industry of the borrower and other factors, the general eligibility requirements include the following: (i) gross sales of the borrower cannot exceed size standards set by the SBA (e.g., $40.0 million for limited service hospitality properties) or, alternatively, average net income cannot exceed $5.0 million for the most recent two fiscal years and tangible net worth of the borrower must be less than $15.0 million, (ii) desired credit is not available for non-federal, non-state, or non-local government sources without SBA assistance, (iii) the borrower must be a U.S. citizen or legal permanent resident and (iv) the maximum aggregate SBA loan guarantees to a borrower and its affiliates cannot exceed $3.75 million. ​ SBA Section 7(a) Program key features include: ● The use of proceeds on fixed assets, working capital, real estate, business start-up costs, purchase an existing business or refinancing business debt. ● Maximum loan amount of $5 million; ● Real estate loans have a 25 year maturity while all other loan purposes have a ten year maturity; ● Interest rates are negotiated between applicant and lender and are subject to maximums.
While the eligibility requirements of the SBA Section 7(a) Program vary depending on the industry of the borrower and other factors, the general eligibility requirements include the following: (i) gross sales of the borrower cannot exceed size standards set by the SBA (e.g., $40.0 million for limited service hospitality properties) or, alternatively, average net income cannot exceed $5.0 million for the most recent two fiscal years and tangible net worth of the borrower must be less than $15.0 million, (ii) desired credit is not available for non-federal, non-state, or non-local government sources without SBA assistance, (iii) the borrower must be a U.S. citizen or legal permanent resident and (iv) the maximum aggregate SBA loan guarantees to a borrower and its affiliates cannot exceed $3.75 million.
The SBA guaranteed 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, was eligible to be reduced by the loan forgiveness amount under the PPP.
The SBA guaranteed 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, was eligible to be reduced by the loan forgiveness amount under the PPP. These loans also earned an origination fee of 1% to 5%, depending on the loan size.
Zausmer received a Bachelor of Science degree in Business Administration from the University of Buffalo in 1999 and a Master of Science degree in Real Estate from New York University in 2007. ​ RECENT DEVELOPMENTS In the fourth quarter of 2023, the Board approved a plan to strategically shift the Company’s core focus to LMM commercial real estate lending and government backed small business loans, which contemplates the disposition of assets and liabilities of the Company’s residential mortgage banking activities.
In the fourth quarter of 2023, the Board approved a plan to strategically shift our Company’s core focus to LMM commercial real estate lending and government backed small business loans, which contemplates the disposition of assets and liabilities of our residential mortgage banking activities.
LMM securitization structures are non-recourse and typically provide debt equal to 50% to 90% of the cost basis of the assets. Non-performing LMM ABS involve liquidating trusts with liquidation proceeds used to repay senior debt. Performing LMM ABS involve longer-duration trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches.
Non-performing LMM ABS involve liquidating trusts with liquidation proceeds used to repay senior debt. Performing LMM ABS involve longer-duration trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches.
From time to time, we may enter into strategic alliances and other referral programs with servicers, sub-servicers, strategic partners and vendors targeted at the refinancing of LMM loans. ​ LMM Acquisitions. Our LMM Commercial Real Estate segment also includes our acquisition platform, representing our investments in acquired LMM loans.
From time to time, we may enter into strategic alliances and other referral programs with servicers, sub-servicers, strategic partners and vendors targeted at the refinancing of LMM loans. LMM Acquisitions.
We also use derivative instruments to limit our exposure to changes in currency rates in respect of certain investments denominated in foreign currencies. ​ In utilizing leverage and interest rate hedges, our objectives include, where desirable, locking in, on a long-term basis, a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders.
In utilizing leverage and interest rate hedges, our objectives include, where desirable, locking in, on a long-term basis, a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders.
Capitalizing on our experience in underwriting and managing commercial real estate loans, we have grown our LMM and SBA origination and acquisition capabilities and selectively complemented our LMM strategy with acquisitions of future receivables.
Capitalizing on our experience in underwriting and managing commercial real estate loans, we have grown our LMM and SBL origination and acquisition capabilities.
In accordance with NYSE’s independence standards, a majority of the directors serving on our Board are independent.
In accordance with NYSE’s independence standards, a majority of the directors serving on our Board are independent. The Audit, Nominating and Corporate Governance and Compensation Committees of our Board are composed exclusively of independent directors.
We believe that Waterfall’s experience, reputation and ability to underwrite LMM loans make it an attractive buyer for this asset class, and that its network of relationships will continue to produce opportunities for it to acquire LMM loans on attractive terms. ​ Competition for LMM loan asset acquisitions has been limited due to the special servicing expertise required to manage LMM loan assets due to the small size of each loan, the uniqueness of the real properties that collateralize the loans, licensing requirements, the high volume of loans needed to build portfolios, and the need to utilize residential mortgage credit analysis in the underwriting process.
Competition for LMM loan asset acquisitions has been limited due to the special servicing expertise required to manage LMM loan assets due to the small size of each loan, the uniqueness of the real properties that collateralize the loans, licensing requirements, the high volume of loans needed to build portfolios, and the need to utilize residential mortgage credit analysis in the underwriting process.
The Audit, Nominating and Corporate Governance and Compensation Committees of our Board are composed exclusively of independent directors. ​ We strive to maintain a workplace with the highest ethical standards of professional conduct in all business relationships which include: ​ ● Adopting a Code of Conduct and Ethics policy, which covers a wide range of business practices and procedures, that applies to our officers, directors, employees, if any, and independent contractors, to Waterfall and Waterfall’s officers and employees, and to any of our affiliates or affiliates of Waterfall, and such affiliates’ officers and employees, who provide services to us or Waterfall with respect to our Company. ​ ● Implementing a Whistleblowing Procedures for Accounting and Auditing Matters and Code of Conduct and Ethics Violations (the “Whistle-blower Policy”) that set forth procedures by which any Covered Persons (as defined in the Whistle-blower Policy) may raise, on a confidential basis, concerns regarding, among other things, any questionable or unethical accounting, internal accounting controls or auditing matters and any potential violations of the Code of Conduct and Ethics with our Audit Committee or the Chief Compliance Officer. ​ ● Adopting an Insider Trading Policy for Trading in the Securities of our Company (the “Insider Trading Policy”), that governs the purchase or sale of our securities by any of our directors, officers, and associates (as defined in the Insider Trading Policy), if any, and independent contractors, as well as officers and employees of Waterfall and our officers, employees and affiliates, and that prohibits any such persons from buying or selling our securities on the basis of material non-public information.
Covered persons may raise, on a confidential basis, potential violations of the Code of Ethics with the Chief Compliance Officer (as defined in the Code of Ethics). • Implementing a whistleblowing policy for accounting and auditing matters that sets forth procedures by which any c overed persons may raise, on a confidential basis, concerns regarding, among other things, any questionable or unethical accounting, internal accounting controls or auditing matters with our Audit Committee. • Adopting an Insider Trading Policy for Trading in the Securities of our Company (the “Insider Trading Policy”), that governs the purchase or sale of our securities by any of our directors, officers, and associates (as defined in the Insider Trading Policy), if any, and independent contractors, as well as officers and employees of Waterfall and our officers, employees and affiliates, and that prohibits any such persons from buying or selling our securities on the basis of material non-public information.
For additional information concerning these competitive risks, see “Item 1A - Risk Factors – Risks Related to Our Business – New entrants in the market” for risks related to LMM loans that could adversely impact our ability to acquire loans at attractive prices and originate LMM loans at attractive risk-adjusted returns. ​ CORPORATE GOVERNANCE Our Board has adopted guidelines which addresses processes and procedures used to manage company affairs and includes the structure and balance of power between management and the Board.
For additional information concerning these competitive risks, see “Item 1A - Risk Factors – Risks Related to Our Business – New entrants in the market” for risks related to LMM loans that could adversely impact our ability to acquire loans at attractive prices and originate LMM loans at attractive risk-adjusted returns.
Such loans, substantially all of which are performing loans (with only 7.2% of our originated LMM loans being more than 60 days delinquent as of December 31, 2023), represented approximately 73.1% of the UPB and 73.2% of the carrying value of our total loan portfolio. ​ ​ 11 Table of Contents The below chart presents our loan losses by vintage as a percentage of carrying value. ​ ​ We finance our LMM loans primarily through term-match securitizations. ​ The table below summarizes our originated LMM loan securitization activities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in millions) Asset Class Issuance ​ Bonds Issued Weighted Average Debt Cost ​ Outstanding Balance RCMT 2014-1 LMM Originated Conventional September 2014 $ 181.7 3.2% $ — RCMT 2015-2 LMM Originated Conventional November 2015 ​ 218.8 4.0% ​ 27.2 FRESB 2016-SB11 Originated Agency Multi-family January 2016 ​ 110.0 2.8% ​ 14.1 FRESB 2016-SB18 Originated Agency Multi-family July 2016 ​ 118.0 2.2% ​ 14.1 RCMT 2016-3 LMM Originated Conventional November 2016 ​ 162.1 3.4% ​ 35.4 FRESB 2017-SB33 Originated Agency Multi-family June 2017 ​ 197.9 2.6% ​ 51.0 RCMF 2017-FL1 LMM Originated Bridge August 2017 ​ 198.8 L + 139 bps ​ — FRESB 2018-SB45 Originated Agency Multi-family January 2018 ​ 362.0 2.8% ​ 107.1 RCMT 2018-4 LMM Originated Conventional March 2018 ​ 165.0 3.8% ​ 66.6 RCMF 2018-FL2 LMM Originated Bridge June 2018 ​ 217.1 L + 121 bps ​ — FRESB 2018-SB52 Originated Agency Multi-family September 2018 ​ 505.0 2.9% ​ 245.5 FRESB 2018-SB56 Originated Agency Multi-family December 2018 ​ 507.3 3.6% ​ 276.5 RCMT 2019-5 LMM Originated Conventional January 2019 ​ 355.8 4.1% ​ 125.8 RCMF 2019-FL3 LMM Originated Bridge April 2019 ​ 320.2 L + 133 bps ​ — RCMT 2019-6 LMM Originated Conventional November 2019 ​ 430.7 3.2% ​ 248.9 RCMF 2020-FL4 LMM Originated Bridge June 2020 ​ 405.3 L + 290 bps ​ — KCMT 2020-S3 LMM Originated Conventional September 2020 ​ 263.2 5.3% ​ 243.8 RCMF 2021-FL5 LMM Originated Bridge March 2021 ​ 628.9 SOFR + 140 bps ​ 391.6 RCMF 2021-FL6 LMM Originated Bridge August 2021 ​ 652.5 SOFR + 120 bps ​ 527.1 RCMF 2021-FL7 LMM Originated Bridge November 2021 ​ 927.2 SOFR + 150 bps ​ 760.0 RCMF 2022-FL8 LMM Originated Bridge March 2022 ​ 1,135.0 SOFR + 250 bps ​ 1,030.0 RCMT 2022-7 LMM Originated Conventional April 2022 ​ 276.8 4.1% ​ 268.2 RCMF 2022-FL9 LMM Originated Bridge June 2022 ​ 754.2 SOFR + 341 bps ​ 653.0 RCMF 2022-FL10 LMM Originated Bridge October 2022 ​ 860.1 SOFR + 326 bps ​ 857.3 RCMF 2023-FL11 LMM Originated Bridge February 2023 ​ 586.0 SOFR + 277 bps ​ 576.0 RCMF 2023-FL12 LMM Originated Bridge June 2023 ​ 648.6 SOFR + 314 bps ​ 647.1 Total ​ ​ $ 11,188.2 6.9% $ 7,166.3 ​ We believe that we have significant opportunity to originate LMM loans at attractive risk-adjusted returns compared to many banks that have restrictive credit guidelines for target assets.
December 31, 2024 (in millions) Asset Class Issuance Bonds Issued Weighted Average Debt Cost Outstanding Balance RCMT 2014-1 LMM Originated conventional September 2014 $ 181.7 3.2 % $ — RCMT 2015-2 LMM Originated conventional November 2015 218.8 4.0 % — FRESB 2016-SB11 Originated agency multi-family January 2016 110.0 2.8 % 13.7 FRESB 2016-SB18 Originated agency multi-family July 2016 118.0 2.2 % 12.7 RCMT 2016-3 LMM Originated conventional November 2016 162.1 3.4 % 25.9 FRESB 2017-SB33 Originated agency multi-family June 2017 197.9 2.6 % 41.3 RCMF 2017-FL1 LMM Originated bridge August 2017 198.8 L + 139 bps — FRESB 2018-SB45 Originated agency multi-family January 2018 362.0 2.8 % 103.9 RCMT 2018-4 LMM Originated conventional March 2018 165.0 3.8 % 60.5 RCMF 2018-FL2 LMM Originated bridge June 2018 217.1 L + 121 bps — FRESB 2018-SB52 Originated agency multi-family September 2018 505.0 2.9 % 223.5 FRESB 2018-SB56 Originated agency multi-family December 2018 507.3 3.6 % 259.6 RCMT 2019-5 LMM Originated conventional January 2019 355.8 4.1 % 103.6 RCMF 2019-FL3 LMM Originated bridge April 2019 320.2 L + 133 bps — RCMT 2019-6 LMM Originated conventional November 2019 430.7 3.2 % 218.5 RCMF 2020-FL4 LMM Originated bridge June 2020 405.3 L + 290 bps — KCMT 2020-S3 LMM Originated conventional September 2020 263.2 5.3 % 238.0 RCMF 2021-FL5 LMM Originated bridge March 2021 628.9 SOFR + 140 bps 193.9 RCMF 2021-FL6 LMM Originated bridge August 2021 652.5 SOFR + 120 bps 315.7 RCMF 2021-FL7 LMM Originated bridge November 2021 927.2 SOFR + 150 bps 597.4 RCMF 2022-FL8 LMM Originated bridge March 2022 1,135.0 SOFR + 250 bps 809.0 RCMT 2022-7 LMM Originated conventional April 2022 276.8 4.1 % 262.7 RCMF 2022-FL9 LMM Originated bridge June 2022 754.2 SOFR + 341 bps 469.9 RCMF 2022-FL10 LMM Originated bridge October 2022 860.1 SOFR + 326 bps 718.6 RCMF 2023-FL11 LMM Originated bridge February 2023 586.0 SOFR + 277 bps 425.2 RCMF 2023-FL12 LMM Originated bridge June 2023 648.6 SOFR + 314 bps 421.7 Total $ 11,188.2 6.1 % $ 5,515.3 We believe that we have significant opportunity to originate LMM loans at attractive risk-adjusted returns compared to many banks that have restrictive credit guidelines for target assets.
As such, we have become a full-service real estate finance platform and we believe that the breadth of our business allows us to adapt to market conditions and deploy capital in our asset classes with the most attractive risk-adjusted returns. ​ Our acquisition strategy complements our origination strategy by increasing our market intelligence in potential origination geographies, providing additional data to support our underwriting criteria and offering securitization market insight for various product offerings.
As such, we have become a full-service real estate finance platform and we believe that the breadth of our business allows us to adapt to market conditions and deploy capital in our asset classes with the most attractive risk-adjusted returns.
This is reflected in the growth of our balance sheet over the last five years; our book value grew from $536 million as of December 31, 2017 to approximately $2.6 billion as of December 31, 2023 and our total assets grew at a 30% compound annual growth rate (“CAGR”) between 2017 and 2023.
This is reflected in the growth of our balance sheet; our book value grew from $536 million as of December 31, 2017 to approximately $1.9 billion as of December 31, 2024 , a 22% compound annual growth rate (“CAGR”) .
Our operating segments have different levels of recourse debt according to the differentiated nature of each segment. Our LMM Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.3x and 0.6x, respectively.
As of December 31, 2024 , we had a total leverage ratio of 3.8 x and recourse leverage ratio of 1.3 x . Our operating segments have different levels of recourse debt according to the differentiated nature of each segment. Our LMM Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.4x and 0.1x , respectively.
Lenders can require personal guarantees of owners with less than 20% ownership. ​ The illustration below presents our return on equity related to the SBA Section 7(a) Program generated through the retained yield on the unguaranteed principal balance and sale premium and retained servicing on the guaranteed principal balance. ​ 14 Table of Contents ​ We have originated approximately $2.3 billion in SBA loans since our program’s inception in mid-2015.
Lenders can require personal guarantees of owners with less than 20% ownership. 15 The illustration below presents our return on equity related to the SBA Section 7(a) Program generated through the retained yield on the unguaranteed principal balance and sale premium and retained servicing on the guaranteed principal balanc e . 75% Guaranteed Guaranteed portion sold at premium.
Where this is not possible , we seek to effect property resolution through the use of borrower based resolution alternatives to foreclosure. ​ Waterfall specializes in acquiring LMM loans that are sold by banks, including as part of bank recapitalizations or mergers, and from other financial institutions such as thrifts and non-bank lenders.
Waterfall specializes in acquiring LMM loans that are sold by banks, including as part of bank recapitalizations or mergers, and from other financial institutions such as thrifts and non-bank lenders.
We operate our LMM loan originations through ReadyCap Commercial. ReadyCap Commercial is a specialty-finance nationwide originator focused on originating commercial real estate mortgage loans through its agency multifamily and bridge loan programs. ReadyCap Commercial has been approved by Freddie Mac as one of 12 originators and servicers for multifamily loan products under the Freddie Mac program.
LMM Commercial Real Estate As noted above, our LMM Commercial Real Estate segment consists of our LMM loan originations and acquisitions. LMM Originations. We operate our LMM loan originations through ReadyCap Commercial. ReadyCap Commercial is a specialty-finance nationwide originator focused on originating commercial real estate mortgage loans through its agency multifamily and bridge loan programs.
We originate owner-occupied and other business loans guaranteed by the SBA under the SBA Section 7(a) Program through ReadyCap Lending’s license, one of only 17 licensed non-bank SBLCs. Only banks and approved non-bank lenders are eligible to originate loans in the SBA Section 7(a) Program, resulting in a highly fragmented market.
Small Business Lending We acquire, originate, and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through ReadyCap Lending’s license, one of only 20 licensed non-bank SBLCs.
Waterfall makes decisions based on a variety of factors, including expected risk-adjusted returns, credit fundamentals, liquidity, availability of financing, borrowing costs and macroeconomic conditions, as well as maintaining our REIT qualification and our exclusion from registration as an investment company under the 1940 Act. ​ Our Investment Strategy and Market Opportunities Across Our Operating Segments Our investment strategy is to opportunistically expand our market presence in our acquisition and origination platforms and to further grow our LMM securitization capabilities which serve as a source of attractively priced, match-term financing.
Waterfall makes decisions based on a variety of factors, including expected risk-adjusted returns, credit fundamentals, liquidity, availability of financing, borrowing costs and macroeconomic conditions, as well as maintaining our REIT qualification and our exclusion from registration as an investment company under the 1940 Act.
In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital to asset classes and segments with the most attractive risk-adjusted returns. ​ In the fourth quarter of 2023, the Board approved a plan to strategically shift our Company’s core focus to LMM commercial real estate lending and government backed small business loans, which contemplates the disposition of assets and liabilities of our residential mortgage banking activities.
In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital to asset classes and segments with the most attractive risk-adjusted returns.
They are supported by a team of approximately 170 investment and other professionals with extensive experience in commercial mortgage credit underwriting, distressed asset acquisition and financing, LMM loan originations, commercial property valuation, capital deployment, financing strategies and legal and financial matters impacting our business. ​ We rely on Waterfall’s expertise to establish investment strategies and in identifying loan acquisitions and origination opportunities.
Messrs. Capasse and Ross have worked together in the same organization for more than 30 years. They are supported by a team of approximately 160 investment and other professionals with extensive experience in commercial mortgage credit underwriting, distressed asset acquisition and financing, LMM loan originations, commercial property valuation, capital deployment, financing strategies and legal and financial matters impacting our business.
Hedges are periodically re-balanced to match expected duration of the securitization and are closed at securitization issuance with the resulting gain or loss allocated to the retained basis in the securitization with the objective of protecting the yield for the aforementioned changes in securitization liabilities. ​ COMPETITION We compete with numerous regional and community banks, specialty-finance companies, savings and loan associations and other entities, and we expect that others may be organized in the future.
Hedges are periodically re-balanced to match expected duration of the securitization and are closed at securitization issuance with the resulting gain or loss 17 allocated to the retained basis in the securitization with the objective of protecting the yield for the aforementioned changes in securitization liabilities.
To a lesser extent, we also source loan leads through commercial real estate realtors, trusted advisors such as financial planners, lawyers, and certified public accountants and through direct-to-the-borrower transactions. ​ LMM Commercial Real Estate As noted above, our LMM Commercial Real Estate segment (formerly our SBC Lending and Acquisitions segment) consists of our LMM loan origination and acquisition platforms. ​ LMM Originations.
Loan origination leads come directly through our relationships with commercial real estate brokers, bank loan officers and mortgage brokers who refer leads to our loan officers. To a lesser extent, we also source loan leads through commercial real estate realtors, trusted advisors such as financial planners, lawyers, and certified public accountants and through direct-to-the-borrower transactions.
LMM loans typically include those loans with original principal amounts of between $500,000 and $40 million and are primarily financed by community and regional banks, specialty finance companies and loans guaranteed under the SBA loan programs. 8 Table of Contents ​ LMM loans are used by small businesses to purchase real estate used in their operations or by investors seeking to acquire small multifamily, office, retail, mixed use or warehouse properties.
LMM 9 loans typically include those loans with original principal amounts of between $500,000 and $40 million and are primarily financed by community and regional banks, specialty finance companies and loans guaranteed under the SBA loan programs.
Our strategy includes continuing to finance our assets through the securitization market, which will allow us to match fund the LMM loans pledged as collateral in an effort to secure these securitizations on a long-term non-recourse basis. ​ 15 Table of Contents We anticipate using other borrowings as part of our financing strategy, including re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities (including term loans and revolving facilities), and equity and debt issuances. ​ Our financing agreements require us to maintain a debt-to-equity leverage ratio at certain levels.
We anticipate using other borrowings as part of our financing strategy, including re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities (including term loans and revolving facilities), and equity and debt issuances. Our financing agreements require us to maintain a debt-to-equity leverage ratio at certain levels.
We also acquire purchased future receivables through Knight Capital LLC (“Knight Capital”), which is a technology-driven platform that provides working capital to small and medium sized businesses across the U.S. ​ ​ To qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) we are required to annually distribute dividends equal to at least 90% of our net taxable income, excluding capital gain, to stockholders.
To qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) we are required to annually distribute dividends equal to at least 90% of our net taxable income, excluding capital gain, to stockholders.
The majority of our Company’s employees are employed by our Company’s subsidiaries. We do not have, or expect to have, our own employees, as our management team is designated by Waterfall.
The majority of our Company’s employees are employed by our Company’s subsidiaries. We do not have, or expect to have, our own employees, as our management team is designated by Waterfall. Our corporate headquarters are located at 1251 Avenue of the Americas, 50 th Floor, New York, NY 10020, and our telephone number is (212) 257-4600.
These factors have limited institutional investor participation in LMM loan acquisitions, which has allowed us to acquire LMM loans with attractive risk-adjusted return profiles. ​ Acquired LMM loans held in our portfolio had a UPB and carrying value of $1.6 billion as of December 31, 2023.
These factors have limited institutional investor participation in LMM loan acquisitions, which has allowed us to acquire LMM loans with attractive risk-adjusted return profiles. The table below presents our acquired loan securitization activities.
We also offer construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone.
ReadyCap Commercial has been approved by Freddie Mac as one of 12 originators and servicers for multifamily loan products under the Freddie Mac program. We also offer construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone.
We originate LMM loans across the full life-cycle of an LMM property including construction, bridge, stabilized and agency loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial, LLC (“ReadyCap Commercial”). These originated loans are generally held-for-investment or placed into securitization structures. As part of this segment, we originate and service multi-family loan products under the Freddie Mac SBL program.
These originated loans are generally held-for- investment or placed into securitization structures. As part of this segment, we originate and service multi- family loan products under the Freddie Mac SBL program. These originated loans are held for sale, and subsequently sold to Freddie Mac.
Business In this Annual Report on Form 10-K, we refer to Ready Capital Corporation and its subsidiaries as “we,” “us,” “our,” or “our Company” unless we specifically state otherwise or the context indicates otherwise. ​ General We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA loans, residential mortgage loans, construction loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related investments.
General We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA loans, residential mortgage loans, construction loans, USDA loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related investments.
“Business” in this annual report on Form 10-K has been adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two operating segments: ​ ● LMM Commercial Real Estate .
“Business” in this Form 10-K has been adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two operating segments: • LMM Commercial Real Estate. We originate LMM loans across the full life-cycle of an LMM property including construction, bridge, stabilized and agency loan origination channels through our subsidiary, ReadyCap Commercial, LLC (“ReadyCap Commercial”).
Capasse, 66 is our Chairman of the Board, Chief Executive Officer and Chief Investment Officer. He is a Manager and co-founder of Waterfall. Prior to founding Waterfall, Mr. Capasse managed the principal finance groups at Greenwich Capital from 1995 until 1997, Nomura Securities from 1997 until 2001, and Macquarie Securities from 2001 until 2004. Mr.
Capasse managed the principal finance groups at Greenwich Capital from 1995 until 1997, Nomura Securities from 1997 until 2001, and Macquarie Securities from 2001 until 2004. Mr.
Most LMM loans are amortizing on a schedule of up to 30 years. ​ Our investment decisions with respect to allocation of capital are dependent on prevailing market conditions and may change over time in response to opportunities available in different economic and capital market environments.
Our investment decisions with respect to allocation of capital are dependent on prevailing market conditions and may change over time in response to opportunities available in different economic and capital market environments. As a result, we cannot predict the percentage of our equity that will be invested in any particular asset or strategy at any given time.
Additional REITs and other institutions may increase competition for the available supply of LMM and SBA assets suitable for purchase, which may cause the price for such assets to rise. Additionally, greater originations and supply of LMM and SBA loans by our competitors may result in a reduction of interest rates on these loans.
Additionally, greater originations and supply of LMM and SBL loans by our competitors may result in a reduction of interest rates on these loans.
The current maximums are Prime Rate plus 2.25% for maturities fewer than seven years and Prime Rate plus 3.00% for maturities of seven years or longer. Spreads on loans with an initial UPB below $50,000 have higher maximums; ● The guaranty fee is based on the loan’s maturity and dollar amount guaranteed.
The current maximums are i) For loans of $50,000 or less: Prime Rate plus 6.50% ii) For loans of $50,001 to $250,000: Prime Rate plus 6.00% iii) For loans of $250,001 to $350,000: Prime Rate plus 4.50% iv) For loans of $350,001 and greater: Prime Rate plus 3.00%; • The guaranty fee is based on the loan’s maturity and dollar amount guaranteed.
As of December 31, 2023, the loans we originated had a 17.6% 10-year CAGR based on origination volume. The chart below summarizes our annual LMM loan originations since 2019. ​ ​ Originated LMM loans held in our portfolio had a UPB of $ 8.0 billion and carrying value of $ 7.9 billion as of December 31, 2023.
Acquired LMM loans held in our portfolio had a UPB of $0.8 billion and carrying value of $0.7 billion as of December 31, 2024 . Such loans represented approximately 9% of the UPB and 9% of the carrying value of our total loan portfolio.
As a result, we cannot predict the percentage of our equity that will be invested in any particular asset or strategy at any given time. ​ The table below presents our historical pre-tax income growth, net income to assets, distributable earnings and return on equity for each of the years ended December 31, 2021, 2022 and 2023.
The table below presents our historical pre-tax income(loss), net income(loss) to assets, distributable earnings and return on equity for each of the years ended December 31, 2022 , 2023 and 2024 . See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for a reconciliation of net income to distributable earnings.
Our corporate headquarters are located at 1251 Avenue of the Americas, 50 th Floor, New York, NY 10020, and our telephone number is (212) 257-4600. ​ INFORMATION ABOUT OUR EXECUTIVE OFFICERS Set forth below are the name, age, positions with our Company and Waterfall and certain biographical information for our executive officers and other key personnel. ​ Thomas E.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS Set forth below are the name, age, positions with our Company and Waterfall and certain biographical information for our executive officers and other key personnel. Thomas E. Capasse, 67 is our Chairman of the Board, Chief Executive Officer and Chief Investment Officer. He is a Manager and co-founder of Waterfall. Prior to founding Waterfall, Mr.
Such loans represented approximately 14.8% of both the UPB and carrying value of our total loan portfolio. ​ The table below presents information on our acquired loan portfolio by delinquency status. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) UPB ​ % of Total ​ Carrying Value (1) ​ % of Total ​ Current $ 1,173,552 ​ 72.8 % $ 1,170,000 ​ 72.9 % 30 - 59 days past due ​ 53,985 ​ 3.4 ​ ​ 53,917 ​ 3.4 ​ 60 + days past due ​ 383,353 ​ 23.8 ​ ​ 380,136 ​ 23.7 ​ Bankruptcy / Foreclosure ​ 714 ​ — ​ ​ 717 ​ — ​ Total $ 1,611,604 ​ 100.0 % $ 1,604,770 ​ 100.0 % (1) Includes loan assets of consolidated VIEs and excludes specific and general allowance for loan losses ​ The table below presents our acquired loan securitization activities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in millions) Asset Class ​ Issuance ​ Bonds Issued ​ Weighted Average Debt Cost ​ Outstanding Balance WVMT 2011-SBC1 LMM Acquired Loans - NPL ​ February 2011 $ 40.5 ​ 7.0 % $ — WVMT 2011-SBC2 LMM Acquired Loans ​ March 2011 ​ 97.7 ​ 5.1 ​ ​ — WVMT 2011-SBC3 LMM Acquired Loans - NPL ​ October 2011 ​ 143.4 ​ 6.4 ​ ​ — SCML 2015-SBC4 LMM Acquired Loans - NPL ​ August 2015 ​ 125.4 ​ 4.0 ​ ​ — SCMT 2017-SBC6 LMM Acquired Loans ​ August 2017 ​ 154.9 ​ 3.5 ​ ​ 16.8 SCMT 2018-SBC7 LMM Acquired Loans ​ November 2018 ​ 217.0 ​ 4.7 ​ ​ — SCMT 2019-SBC8 LMM Acquired Loans ​ June 2019 ​ 306.5 ​ 2.9 ​ ​ 132.1 SCMT 2020-SBC9 LMM Acquired Loans ​ June 2020 ​ 203.6 ​ 3.7 ​ ​ — SCMT 2021-SBC10 LMM Acquired Loans ​ May 2021 ​ 232.6 ​ 1.6 ​ ​ 102.1 Total ​ ​ ​ $ 1,521.6 ​ 3.8 % $ 251.0 ​ Small Business Lending We operate our SBA loan origination, acquisition, and servicing platforms through ReadyCap Lending.
December 31, 2024 (in millions) Asset Class Issuance Bonds Issued Weighted Average Debt Cost Outstanding Balance WVMT 2011-SBC1 LMM Acquired Loans - NPL February 2011 $ 40.5 7.0 % $ — WVMT 2011-SBC2 LMM Acquired Loans March 2011 97.6 5.1 % — WVMT 2011-SBC3 LMM Acquired Loans - NPL October 2011 143.4 6.4 % — SCML 2015-SBC4 LMM Acquired Loans - NPL August 2015 125.4 4.0 % — SCMT 2017-SBC6 LMM Acquired Loans August 2017 154.9 3.5 % 10.2 SCMT 2018-SBC7 LMM Acquired Loans November 2018 217.0 4.7 % — SCMT 2019-SBC8 LMM Acquired Loans June 2019 306.5 2.9 % 116.4 SCMT 2020-SBC9 LMM Acquired Loans June 2020 203.6 3.7 % — SCMT 2021-SBC10 LMM Acquired Loans May 2021 232.6 1.6 % 76.8 Total $ 1,521.5 3.8 % $ 203.4 LMM Asset Management Strategy.
These originated loans are either held-for-investment, placed into securitization structures or sold.
These originated loans are either held-for-investment, placed into securitization structures, or sold. In addition, we acquire, originate and service USDA loans through our subsidiary, Madison One, as well as originate and service small business loans through our subsidiary iBusiness Funding LLC.
Additionally, our origination strategy complements our acquisition strategy by providing additional captive refinancing options for our borrowers and further data to support our investment analysis while increasing our market presence with potential sellers of LMM assets. ​ The table below presents information with respect to our two business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands, except personnel) ​ LMM Commercial Real Estate ​ Small Business Lending ​ Coordinating Affiliate/ Manager ​ Waterfall, ReadyCap Commercial and Red Stone ​ ReadyCap Lending and Knight Capital ​ Strategy ​ LMM loan originations and acquisitions ​ SBA loan originations, acquisitions and servicing ​ Gross Assets $ 10,282,531 $ 1,395,687 ​ Loan Portfolio Allocation ​ 87.9% ​ 12.1% ​ Equity Allocation ​ 92.1% ​ 4.8% ​ Distributable Earnings $ 253,823 $ 56,628 ​ Distributable Earnings Allocation ​ 79.5% ​ 17.7% ​ Personnel ​ 128 ​ 246 ​ ​ The commercial mortgage market is largely bifurcated by loan size between “large balance” loans and “small balance” loans.
December 31, 2024 (in thousands, except personnel) LMM Commercial Real Estate Small Business Lending Coordinating Affiliate/ Manager Waterfall, ReadyCap Commercial and Red Stone ReadyCap Lending, Madison One and iBusiness Strategy LMM loan originations and acquisitions SBA and USDA loan originations, acquisitions and servicing Gross Assets $8,058,707 $1,427,281 Loan Portfolio Allocation 84.7% 15.3% Equity Allocation 88.9% 9.7% Distributable Earnings $29,779 $57,066 Distributable Earnings Allocation 29.8% 57.1% Personnel 118 357 The commercial mortgage market is largely bifurcated by loan size between “large balance” loans and LMM loans.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for a reconciliation of net income to distributable earnings. ​ ​ Our Loan Portfolio As of December 31, 2023, our loan portfolio was $10.7 billion (excluding PPP loans) and was comprised of approximately 5,500 loans diversified across 50 states and Europe, 98% of which were secured by senior liens and the remaining 2% of which were secured by subordinated liens. ​ The table below presents a summary of our loan assets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) Segment UPB % of Total Carrying Value % of Total Bridge LMM Commercial Real Estate $ 6,837,816 62.8 % $ 6,815,021 62.8 % Fixed Rate/CMBS LMM Commercial Real Estate ​ 1,032,641 9.5 ​ ​ 1,037,544 9.6 ​ Construction LMM Commercial Real Estate ​ 1,212,526 11.1 ​ ​ 1,207,783 11.1 ​ Freddie Mac LMM Commercial Real Estate ​ 30,448 0.3 ​ ​ 30,455 0.3 ​ Other LMM Commercial Real Estate ​ 457,825 4.2 ​ ​ 454,599 4.2 ​ Paycheck Protection Program Small Business Lending ​ 35,802 0.3 ​ ​ 34,597 0.3 ​ SBA 7(a) Small Business Lending ​ 1,286,728 11.8 ​ ​ 1,269,287 11.7 ​ Total ​ $ 10,893,786 100.0 % $ 10,849,286 100.0 % 9 Table of Contents ​ In the table above, ● The loan carrying value includes loan assets of consolidated variable interest entities (“VIEs”) and excludes both specific and general allowance for loan losses. ● Loans with the “Other” classification are generally LMM acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, Construction, or Freddie Mac classifications due to loan size, rate type, collateral or borrower criteria. ● Real estate, held for sale loans and mortgage servicing rights (“MSR”) are excluded. ​ Loan origination leads come directly through our relationships with commercial real estate brokers, bank loan officers and mortgage brokers who refer leads to our loan officers.
December 31, 2024 (in thousands) Segment UPB % of Total Carrying Value % of Total Bridge LMM Commercial Real Estate $ 5,413,832 60.0 % $ 5,160,410 60.4 % Fixed rate LMM Commercial Real Estate 891,675 9.9 885,417 10.4 Construction LMM Commercial Real Estate 952,045 10.5 787,668 9.2 Freddie Mac LMM Commercial Real Estate 35,931 0.4 36,248 0.4 Other LMM Commercial Real Estate and Small Business Lending 390,992 4.3 370,650 4.3 SBA - 7(a) Small Business Lending 1,347,106 14.9 1,309,443 15.3 Total $ 9,031,581 100.0 % $ 8,549,836 100.0 % In the table above, • The loan carrying value includes loan assets of consolidated variable interest entities (“VIEs”) and is net of allowance. • Loans with the “Other” classification are generally LMM acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, Construction, or Freddie Mac classifications due to loan size, rate type, collateral or borrower criteria. • Real estate, held for sale loans and mortgage servicing rights (“MSR”) are excluded.
We hold LMM loans to term, and we seek to maximize the value of the non-performing LMM loans acquired by us through proprietary loan reperformance programs.
Our LMM Commercial Real Estate segment also includes our acquired loans generally acquired through mergers and acquisitions as well as non-performing LMM loans acquired by us through proprietary loan reperformance programs.
Removed
Messrs. Capasse and Ross have worked together in the same organization for more than 30 years.
Added
Item 1. Business In this Form 10-K, we refer to Ready Capital Corporation and its subsidiaries as “we,” “us,” “our,” or “our Company” unless we specifically state otherwise or the context indicates otherwise.
Removed
We see an opportunity to earn an attractive risk spread premium by lending to borrowers that do not fit the credit guidelines of many banks.
Added
Our Investment Strategy and Market Opportunities Across Our Operating Segments Our investment strategy is to opportunistically expand our market presence and to further grow our LMM securitization capabilities which serve as a source of attractively priced, match-term financing.
Removed
These loans also earned an origination fee of 1% to 5%, depending on the loan size. ​ FINANCING STRATEGY We use prudent leverage to increase potential returns to our stockholders.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result, a court may determine that a residential mortgage loan did not meet the standard or test even if the originator reasonably believed such standard or test had been satisfied. ​ ​ 42 Table of Contents Mortgage loans also are subject to various other federal laws, including, among others: ​ ● the Equal Credit Opportunity Act of 1974, as amended, and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act of 1968, as amended, in the extension of credit; ​ ● the Truth in Lending Act, as amended (“TILA”) and Regulation Z promulgated thereunder, which both require certain disclosures to the mortgagors regarding the terms of residential loans; ​ ● the Real Estate Settlement Procedures Act, as amended (“RESPA”) and Regulation X promulgated thereunder, which (among other things) prohibit the payment of referral fees for real estate settlement services (including mortgage lending and brokerage services) and regulate escrow accounts for taxes and insurance and billin g inquiries made by mortgagors; ​ ● the Americans with Disabilities Act of 1990, as amended, which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation; ​ ● the Fair Credit Reporting Act of 1970, as amended, and Regulation V promulgated thereunder, which regulates the use and reporting of information related to the borrower’s credit history; ​ ● the Consumer Financial Protection Act, enacted as part of the Dodd-Frank Act, which (among other things) created the CFPB and gave it broad rulemaking, supervisory and enforcement jurisdiction over mortgage lenders and servicers, and proscribes any unfair, deceptive or abusive acts or practices in connection with any consume r financial product or service; ​ ● the Fair Debt Collection Practices Act, which prohibits a debt collector from using abusive, unfair or decep tive practices to collect debts; ​ ● the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, under which residential mortgage loan originators employed by financial institutions, must register with the Nationwide Mortgage Licensing System and Registry, obtain a unique identifier from the registry, and maintain their registration in order to origi nate residential mortgage loans; ​ ● the Home Equity Loan Consumer Protection Act of 1988, which requires additional disclosures and limits changes that may be made to the loan documents without the mortgagor’s consent, and restricts a mortgagee’s ability to declare a default or to suspend or reduce a mortgagor’s credit limi t to certain enumerated events; ​ ● the Depository Institutions Deregulation and Monetary Control Act of 1980, which pre- empts certain state usury laws; ​ ● the Dodd-Frank Ac t, including as described above; ​ ● the Service Members Civil Relief Act, as amended, which provides relief to borrowers who enter into active military service or who were on reserve status but are called to active duty after the origi nation of their mortgage loans; ​ ● the Right to Financial Privacy Act, which, among other requirements, imposes a duty to maintain confidentiality of consumer financial records; ​ ● the Fair Housing Act of 1968, which, among other things, prohibits discrimination on the basis of race , religion , sex, disability, family status, and national origin; ​ ● the Home Mortgage Disclosure Act, which requires certain financial institutions to publicly disclose infor mation about home mortgages; and ​ ● the Alternative Mortgage Transaction Parity Act of 1982, which pre-empts certain state lending laws which regulate alternative mortgage transactions. 43 Table of Contents ​ Failure of us, residential mortgage loan originators, mortgage brokers or servicers to comply with these laws and regulations, could subject us to monetary penalties and defenses to foreclosure, including by recoupment or setoff of finance charges and fees collected, and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results. ​ GMFS is a seller/servicer approved to sell residential mortgage loans to Freddie Mac, Fannie Mae, the Housing and Urban Development (“HUD”)/ FHA, the USDA, and the VA and failure to maintain its status as an approved seller/servicer could harm our business. ​ GMFS is an approved Fannie Mae seller/servicer, Freddie Mac seller/servicer, Ginnie Mae issuer, HUD/ FHA mortgage, USDA approved originator, and VA lender.
Biggest changeMortgage loans also are subject to various other federal laws, including, among others: • the Equal Credit Opportunity Act of 1974, as amended, and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act of 1968, as amended, in the extension of credit; • the Truth in Lending Act, as amended (“TILA”) and Regulation Z promulgated thereunder, which both require certain disclosures to the mortgagors regarding the terms of residential loans; • the Real Estate Settlement Procedures Act, as amended (“RESPA”) and Regulation X promulgated thereunder, which (among other things) prohibit the payment of referral fees for real estate settlement services (including mortgage lending and brokerage services) and regulate escrow accounts for taxes and insurance and billing inquiries made by mortgagors; • the Americans with Disabilities Act of 1990, as amended, which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation; 46 • the Fair Credit Reporting Act of 1970, as amended, and Regulation V promulgated thereunder, which regulates the use and reporting of information related to the borrower’s credit history; • the Consumer Financial Protection Act, enacted as part of the Dodd-Frank Act, which (among other things) created the CFPB and gave it broad rulemaking, supervisory and enforcement jurisdiction over mortgage lenders and servicers, and proscribes any unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service; • the Fair Debt Collection Practices Act, which prohibits a debt collector from using abusive, unfair or deceptive practices to collect debts; • the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, under which residential mortgage loan originators employed by financial institutions, must register with the Nationwide Mortgage Licensing System and Registry, obtain a unique identifier from the registry, and maintain their registration in order to originate residential mortgage loans; • the Home Equity Loan Consumer Protection Act of 1988, which requires additional disclosures and limits changes that may be made to the loan documents without the mortgagor’s consent, and restricts a mortgagee’s ability to declare a default or to suspend or reduce a mortgagor’s credit limit to certain enumerated events; • the Depository Institutions Deregulation and Monetary Control Act of 1980, which pre-empts certain state usury laws; • the Dodd-Frank Act, including as described above; • the Service Members Civil Relief Act, as amended, which provides relief to borrowers who enter into active military service or who were on reserve status but are called to active duty after the origination of their mortgage loans; • the Right to Financial Privacy Act, which, among other requirements, imposes a duty to maintain confidentiality of consumer financial records; • the Fair Housing Act of 1968, which, among other things, prohibits discrimination on the basis of race, religion, sex, disability, family status, and national origin; • the Home Mortgage Disclosure Act, which requires certain financial institutions to publicly disclose information about home mortgages; and • the Alternative Mortgage Transaction Parity Act of 1982, which pre-empts certain state lending laws which regulate alternative mortgage transactions.
We have engaged in certain securitization transactions that are treated as taxable mortgage pools for U.S. federal income tax purposes.
We have engaged in certain securitization transactions that are treated as taxable mortgage pools for U.S. federal income tax purposes.
Although little interpretive guidance has been issued with respect to Section 3(c)(6), we believe that certain of our subsidiaries may rely on Section 3(c)(6) if, among other things, 55% of the assets of such subsidiaries consist of, and at least 55% of the income of such subsidiaries are derived from, qualifying real estate investment assets owned by wholly-owned or majority-owned subsidiaries of such subsidiaries. ​ Qualification for exemption from registration under the 1940 Act will limit our ability to make certain investments.
Although little interpretive guidance has been issued with respect to Section 3(c)(6), we believe that certain of our subsidiaries may rely on Section 3(c)(6) if, among other things, 55% of the assets of such subsidiaries consist of, and at least 55% of the income of such subsidiaries are derived from, qualifying real estate investment assets owned by wholly-owned or majority-owned subsidiaries of such subsidiaries. 38 Qualification for exemption from registration under the 1940 Act will limit our ability to make certain investments.
Our Board may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, prospectively or retroactively, waive the ownership limits or establish a different limit on ownership, or excepted holder limit, for a particular stockholder if the stockholder’s ownership in excess of the ownership limits would not result in us being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT.
Our Board may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, prospectively or retroactively, waive the ownership limits or establish a different limit 65 on ownership, or excepted holder limit, for a particular stockholder if the stockholder’s ownership in excess of the ownership limits would not result in us being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT.
If, however, less than 95% of the assets of a REMIC in which we hold an interest consists of real estate assets (determined as if we held such assets), we will be treated as holding our proportionate share of the assets of the REMIC for the purpose of the asset tests and receiving directly our proportionate share of the income of the REMIC for the purpose of determining the amount of income from the REMIC that is treated as interest on an obligation secured by a mortgage on real property.
If, however, less than 95% of the assets of a REMIC in which we hold an interest consists of real estate assets (determined as if we held such assets), we will be treated as holding our proportionate share of the assets of the REMIC for the purpose of the asset tests and receiving directly our proportionate share of the income of the REMIC for the 64 purpose of determining the amount of income from the REMIC that is treated as interest on an obligation secured by a mortgage on real property.
Section 1033 could impose additional privacy and security requirements, operational burdens and increased risk of liability for access to confidential information on providers of financial services. ​ Mortgage loan modification and refinance programs as well as future legislative action may adversely affect the value of, and the returns on, the target assets in which we invest. ​ The U.S.
Section 1033 could impose additional privacy and security requirements, operational burdens and increased risk of liability for access to confidential information on providers of financial services. 48 Mortgage loan modification and refinance programs as well as future legislative action may adversely affect the value of, and the returns on, the target assets in which we invest. The U.S.
Failure to maintain GMFS’s status as an approved seller/servicer would mean it would not be able to sell mortgage loans to these entities, could result in it being required to re-purchase loans previously sold to these entities, or could otherwise restrict our business and investment options and could harm our business and expose us to losses or other claims.
Failure to maintain 47 GMFS’s status as an approved seller/servicer would mean it would not be able to sell mortgage loans to these entities, could result in it being required to re-purchase loans previously sold to these entities, or could otherwise restrict our business and investment options and could harm our business and expose us to losses or other claims.
If we cannot acquire, make or sell government-guaranteed loans, we may generate less interest income, fewer origination fees, and our ability to generate gains on sale of loans may decrease. From time-to-time, the government agencies that guarantee these loans reach their internally budgeted limits and cease to guarantee loans for a stated time period.
If we cannot acquire, make or sell government-guaranteed loans, we may generate less interest income, fewer origination fees, and our ability to generate gains on sale of loans may decrease. 53 From time-to-time, the government agencies that guarantee these loans reach their internally budgeted limits and cease to guarantee loans for a stated time period.
The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges, and these economic losses will be reflected in our results of operations. We may also be required to provide margin to our counterparties to collateralize our obligations under hedging agreements.
The amount due would be equal to the unrealized loss of 57 the open swap positions with the respective counterparty and could also include other fees and charges, and these economic losses will be reflected in our results of operations. We may also be required to provide margin to our counterparties to collateralize our obligations under hedging agreements.
The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We will treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test.
The 1940 Act further defines voting securities as any security presently 37 entitling the owner or holder thereof to vote for the election of directors of a company. We will treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test.
As a result, in a period of rising interest rates, we could experience a decrease in net income or a net loss. ​ In most cases, the interest rate indices and repricing terms of floating rate mortgage loans and our borrowings are not identical, thereby potentially creating an interest rate mismatch between our investments and our borrowings.
As a result, in a period of rising interest rates, we could experience a decrease in net income or a net loss. 45 In most cases, the interest rate indices and repricing terms of floating rate mortgage loans and our borrowings are not identical, thereby potentially creating an interest rate mismatch between our investments and our borrowings.
Additionally, the current support provided by the Treasury to Freddie Mac, and any additional support it may provide in the future, could have the effect of lowering the interest rates we expect to receive from such assets, thereby tightening the spread between the interest we earn on these assets and the cost of financing these assets.
Additionally, the current support provided by the Treasury to Freddie Mac, and any additional support it may provide in the future, could have the effect of lowering the interest rates we expect to receive from such assets, thereby tightening 52 the spread between the interest we earn on these assets and the cost of financing these assets.
We intend to conduct our operations so that any asset that we or a subsidiary REIT owns that could be treated as held for sale to customers in the ordinary course of our business qualifies for certain safe harbor provisions that prevent the application of this prohibited transaction tax.
We intend to conduct our operations so that any asset that we or a subsidiary REIT owns that could be treated as held for sale to customers in the 66 ordinary course of our business qualifies for certain safe harbor provisions that prevent the application of this prohibited transaction tax.
Aggregate characteristics taken into consideration include type of collateral, index, margin, periodic cap, lifetime cap, underwriting standards, age and delinquency experience. However, the fair value reflects estimates and may not be indicative of the amounts we would receive in a current market exchange.
Aggregate characteristics taken into consideration include type of collateral, index, margin, periodic cap, lifetime cap, underwriting standards, age and delinquency experience. However, the fair value reflects estimates and may not be indicative of the amounts we would receive in a 36 current market exchange.
The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value.
The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make 51 the loan, whether or not the value of the property justifies such an appraised value.
In addition, when purchasing the equity tranche of a securitization, we may rely on opinions or advice of counsel regarding the qualification of the securitization for exemption from U.S. corporate income tax and the qualification of interests in such securitization as debt for U.S. federal income tax purposes.
In addition, when purchasing the equity tranche of a securitization, we may rely on opinions or advice of counsel regarding the 68 qualification of the securitization for exemption from U.S. corporate income tax and the qualification of interests in such securitization as debt for U.S. federal income tax purposes.
It is possible that the integration process related to acquisitions could result in the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients, customers, and employees.
It is possible that the integration process related to acquisitions could result in the disruption of our ongoing 29 businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients, customers, and employees.
When we sell loans, we are required to make customary representations and warranties about such loans to the loan purchaser. Our mortgage loan sale agreements may require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser.
When we sell loans, we are required to make customary representations and warranties about such loans to the loan purchaser. Our mortgage loan sale agreements may require us to repurchase or 55 substitute loans in the event we breach a representation or warranty given to the loan purchaser.
In addition, certain ABS (particularly subordinated ABS) provide that the non-payment of interest thereon in cash will not constitute an event of default in certain circumstances, and the holders of such ABS will not have available to them any associated default remedies.
In addition, certain ABS (particularly subordinated ABS) provide that the non-payment of interest thereon in cash will not constitute an event of default in certain circumstances, and the holders of such ABS will not have available to 34 them any associated default remedies.
A government shutdown occurred in October 2013 and December 2018, which affected the ability of entities to originate SBA loans because Congress failed to approve a budget which in turn eliminated the availability of funds for these programs.
A government shutdown occurred in October 2013 and December 2018, which affected the ability of entities to originate SBA and USDA loans because Congress failed to approve a budget which in turn eliminated the availability of funds for these programs.
If we are unable to collect the full amount of the working capital advance receivable we acquire through the advance, we may be required to expend monies in connection with remedial actions, which expenditures could be material.
If we are unable to collect the full amount of the working capital advance receivable we acquire through the advance, we may be required to expend monies in connection with remedial actions, 39 which expenditures could be material.
In such a case, we might need to borrow money or sell assets in order to pay our taxes. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders.
In such a case, we might need to borrow money or sell assets in 60 order to pay our taxes. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders.
Further, if many of our potential lenders are unwilling or unable to provide us with financing, we could be forced to sell our assets at an inopportune time when prices are depressed.
Further, if many of our potential lenders are unwilling or unable to provide us with financing, we could be forced to sell our assets at an 73 inopportune time when prices are depressed.
To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our undistributed income.
To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our 62 undistributed income.
Performing LMM loans (either loans purchased with historical activity, i.e., not originated, purchased in the secondary market or ReadyCap Commercial originations) will be securitized with us retaining the subordinate tranches.
Performing LMM loans (either loans purchased with historical activity, i.e., not originated, purchased 30 in the secondary market or ReadyCap Commercial originations) will be securitized with us retaining the subordinate tranches.
Important determinants of the risk associated with issuing or holding ABS include: (i) the relative seniority or subordination of the class of ABS held by an investor, (ii) the relative allocation of principal, and interest payments in the priorities by which such payments are made under the governing documents, (iii) the effect of credit losses on both the issuing vehicle and investors’ returns, (iv) whether the underlying collateral represents a fixed set of specific assets or accounts, (v) whether the underlying collateral assets are revolving or closed-end, (vi) the terms (including maturity of the ABS) under which any remaining balance in the accounts may revert to the issuing vehicle and (vii) the extent to which the entity that sold the underlying collateral to the issuing vehicle is obligated to provide support to the 31 Table of Contents issuing vehicle or to investors.
Important determinants of the risk associated with issuing or holding ABS include: (i) the relative seniority or subordination of the class of ABS held by an investor, (ii) the relative allocation of principal, and interest payments in the priorities by which such payments are made under the governing documents, (iii) the effect of credit losses on both the issuing vehicle and investors’ returns, (iv) whether the underlying collateral represents a fixed set of specific assets or accounts, (v) whether the underlying collateral assets are revolving or closed-end, (vi) the terms (including maturity of the ABS) under which any remaining balance in the accounts may revert to the issuing vehicle and (vii) the extent to which the entity that sold the underlying collateral to the issuing vehicle is obligated to provide support to the issuing vehicle or to investors.
We believe we will meet the conditions set forth in the No-Action Letter and we have filed our claim with the CFTC to perfect the use of the no-action relief from registration.
We believe we will meet the conditions set forth in the No-Action Letter and we have filed our claim with the 59 CFTC to perfect the use of the no-action relief from registration.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions described above.
Any person or entity purchasing or otherwise acquiring any interest in shares of 71 our capital stock shall be deemed to have notice of and to have consented to the provisions described above.
Our independent directors will review Waterfall’s performance and the management fees annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of at least a majority of the outstanding shares of our common stock (other than shares held by members of our 40 Table of Contents senior management team and affiliates of Waterfall), based upon: (i) Waterfall’s unsatisfactory performance that is materially detrimental to our Company, or (ii) a determination that the management fees or incentive distribution payable to Waterfall are not fair, subject to Waterfall’s right to prevent termination based on unfair fees by accepting a reduction of management fees or incentive distribution agreed to by at least two-thirds of our independent directors.
Our independent directors will review Waterfall’s performance and the management fees annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of at least a majority of the outstanding shares of our common stock (other than shares held by members of our senior management team and affiliates of Waterfall), based upon: (i) Waterfall’s unsatisfactory performance that is materially detrimental to our Company, or (ii) a determination that the management fees or incentive distribution payable to Waterfall are not fair, subject to Waterfall’s right to prevent termination based on unfair fees by accepting a reduction of management fees or incentive distribution agreed to by at least two-thirds of our independent directors.
For further information on these covenants see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” included in this annual report on Form 10-K. ​ Our securitizations may also reduce and/or restrict our available cash needed to pay dividends to our stockholders in order to satisfy the REIT requirements.
For further information on these covenants see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” included in this Form 10-K. Our securitizations may also reduce and/or restrict our available cash needed to pay dividends to our stockholders in order to satisfy the REIT requirements.
If a merger, acquisition, tender offer or other takeover attempt involving our Company by a third-party constitutes a change of control under the related indentures, we or ReadyCap Holdings, LLC (“ReadyCap Holdings”) may be required to offer to repurchase all of our senior secured notes and corporate debt.
If a merger, acquisition, tender offer or other takeover attempt involving our Company by a third-party constitutes a change of control under the related indentures, we, ReadyCap Holdings, LLC (“ReadyCap Holdings”), or RCC Merger Sub, LLC may be required to offer to repurchase all of our senior secured notes and corporate debt.
We will also treat securitization trusts as majority-owned subsidiaries for purposes of this analysis even where the securities issued by such trusts do not meet the definition of voting securities under the 1940 Act only in cases where this conclusion is supported by an opinion of counsel that the trust certificates or other interests issued by such securitization trusts are the 34 Table of Contents functional equivalent of voting securities and that, in any event, such securitization trusts should be considered to be majority-owned subsidiaries for purposes of this analysis.
We will also treat securitization trusts as majority-owned subsidiaries for purposes of this analysis even where the securities issued by such trusts do not meet the definition of voting securities under the 1940 Act only in cases where this conclusion is supported by an opinion of counsel that the trust certificates or other interests issued by such securitization trusts are the functional equivalent of voting securities and that, in any event, such securitization trusts should be considered to be majority-owned subsidiaries for purposes of this analysis.
U.S. Federal government agencies, including the Federal Reserve, the Treasury Department and the SEC, as well as other governmental and regulatory bodies, have taken, are taking or may in the future take, various actions to address financial crises or other areas of national regulatory concern.
Federal government agencies, including the Federal Reserve, the Treasury Department and the SEC, as well as other governmental and regulatory bodies, have taken, are taking or may in the future take, various actions to address financial crises or other areas of national regulatory concern.
Accordingly, we would likely enter into such transactions through a qualified REIT subsidiary of one or more subsidiary 61 Table of Contents REITs formed by the operating partnership and will be precluded from selling to outside investors equity interests in such securitizations or from selling any debt securities issued in connection with such securitizations that might be considered equity for U.S. federal income tax purposes.
Accordingly, we would likely enter into such transactions through a qualified REIT subsidiary of one or more subsidiary REITs formed by the operating partnership and will be precluded from selling to outside investors equity interests in such securitizations or from selling any debt securities issued in connection with such securitizations that might be considered equity for U.S. federal income tax purposes.
Section 1033 of the Dodd Frank Act instructed the CFPB to implement rules that ensure certain providers of financial services will make available to a consumer in an electronic form, upon request, information in the control or possession of such providers concerning the consumer financial product or service that the consumer obtained from such provider, including 44 Table of Contents information relating to any transaction, series of transaction, or to the account including costs, charges and usage data.
Section 1033 of the Dodd Frank Act instructed the CFPB to implement rules that ensure certain providers of financial services will make available to a consumer in an electronic form, upon request, information in the control or possession of such providers concerning the consumer financial product or service that the consumer obtained from such provider, including information relating to any transaction, series of transaction, or to the account including costs, charges and usage data.
These claims would be subject to significant delay and, if and when received, may be substantially less than the damages we actually incur. ​ 53 Table of Contents The change of control provisions in our senior secured notes, corporate debt and the related indentures could deter, delay or prevent an otherwise beneficial merger, acquisition, tender offer or other takeover attempt involving our Company.
These claims would be subject to significant delay and, if and when received, may be substantially less than the damages we actually incur. The change of control provisions in our senior secured notes, corporate debt and the related indentures could deter, delay or prevent an otherwise beneficial merger, acquisition, tender offer or other takeover attempt involving our Company.
If we were to acquire an interest in an eligible REMIC less 60 Table of Contents than 95% of the assets of which constitute real estate assets, the IRS guidance described above may generally allow us to treat 80% of our interest in such a REMIC as a qualifying real estate asset for the purpose of the asset tests and 80% of the gross income derived from the interest as qualifying income for the purpose of the 75% gross income test.
If we were to acquire an interest in an eligible REMIC less than 95% of the assets of which constitute real estate assets, the IRS guidance described above may generally allow us to treat 80% of our interest in such a REMIC as a qualifying real estate asset for the purpose of the asset tests and 80% of the gross income derived from the interest as qualifying income for the purpose of the 75% gross income test.
In order to meet the REIT qualification requirements, or to avoid the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of inventory or property held primarily for sale to customers 63 Table of Contents in the ordinary course of business, we may hold some of our assets through taxable subsidiary corporations, including domestic TRSs.
In order to meet the REIT qualification requirements, or to avoid the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of inventory or property held primarily for sale to customers in the ordinary course of business, we may hold some of our assets through taxable subsidiary corporations, including domestic TRSs.
Disruptions and uncertainty in the financial and banking sectors, including due to recent regional bank failures and decreased consumer confidence in the banking system, may hinder our ability to access capital on reasonable terms or at all.
Disruptions and uncertainty in 21 the financial and banking sectors, including due to regional bank failures or decreased consumer confidence in the banking system, may hinder our ability to access capital on reasonable terms or at all.
To the extent that our Board approves material changes to the investment guidelines, we will inform our stockholders of such changes through disclosure in our periodic reports and other filings required under the Exchange Act. 41 Table of Contents In addition, in conducting its periodic reviews, our Board may rely primarily on information provided to them by Waterfall.
To the extent that our Board approves material changes to the investment guidelines, we will inform our stockholders of such changes through disclosure in our periodic reports and other filings required under the Exchange Act. In addition, in conducting its periodic reviews, our Board may rely primarily on information provided to them by Waterfall.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Incentive Distribution Payable to Waterfall” included in this annual report on Form 10-K. ​ Our Board will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines. ​ We have authorized Waterfall to follow broad investment guidelines established by our Board.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Incentive Distribution Payable to Waterfall” included in this Form 10-K. Our Board will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines. We have authorized Waterfall to follow broad investment guidelines established by our Board.
If we determine that a security is other-than-temporarily impaired, we would be required to reduce the value of such security on our balance sheet by recording an impairment charge in our income statement and our stockholders’ equity 33 Table of Contents would be correspondingly reduced.
If we determine that a security is other-than-temporarily impaired, we would be required to reduce the value of such security on our balance sheet by recording an impairment charge in our income statement and our stockholders’ equity would be correspondingly reduced.
We believe that for U.S. federal income tax purposes we will be treated as the owner of the assets that are the subject of repurchase agreements and that the repurchase agreements will be treated as secured lending transactions 62 Table of Contents notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement.
We believe that for U.S. federal income tax purposes we will be treated as the owner of the assets that are the subject of repurchase agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement.
Compensating factors may include, without limitations, a lower LTV ratio, a higher debt coverage ratio, experience as a real estate owner or investor, borrower net worth or liquidity, stable employment, longer length of 20 Table of Contents time in business and length of time owning the property.
Compensating factors may include, without limitations, a lower LTV ratio, a higher debt coverage ratio, experience as a real estate owner or investor, borrower net worth or liquidity, stable employment, longer length of time in business and length of time owning the property.
Recent dislocations in the mortgage market or other developments may change the way that prepayment trends respond to interest rate changes, which may adversely affect our ability to assess the market value of our portfolio of assets, implement our hedging strategies or implement techniques to reduce our prepayment rate volatility.
Disruptions in the mortgage market or other developments may change the way that prepayment trends respond to interest rate changes, which may adversely affect our ability to assess the market value of our portfolio of assets, implement our hedging strategies or implement techniques to reduce our prepayment rate volatility.
The recent downgrade by Fitch, and any future downgrades by Fitch or other ratings agencies, could affect the terms or stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio, and could result in our counterparties requiring additional collateral for our borrowings.
The downgrades by Fitch and Moody’s, and any future downgrades by Fitch, Moody’s or other ratings agencies, could affect the terms or stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio, and could result in our counterparties requiring additional collateral for our borrowings.
This could have a negative impact on our results of operations, as borrowing costs would no longer be fixed after the end of the hedging instrument while the 54 Table of Contents income earned on the LMM loan or ABS asset would remain fixed.
This could have a negative impact on our results of operations, as borrowing costs would no longer be fixed after the end of the hedging instrument while the income earned on the LMM loan or ABS asset would remain fixed.
Further, disruptions in the broader financial markets, including the occurrence of unforeseen or catastrophic events such as the effects of COVID-19 or other widespread health emergencies, geopolitical tensions or terrorist attacks, could adversely affect our business and operations.
Further, disruptions in the broader financial markets, including the occurrence of unforeseen or catastrophic events such as the effects of widespread health emergencies, geopolitical tensions or terrorist attacks, could adversely affect our business and operations.
We expect to continue our current distribution practices in the future, but our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this annual report on Form 10-K.
We expect to continue our current distribution practices in the future, but our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this Form 10-K.
Freddie Mac performed an audit during 2023 and as a result of that audit, ReadyCap Commercial and Red Stone received an overall assessment of Satisfactory.
Freddie Mac performed an audit during 2024 and as a result of that audit, ReadyCap Commercial and Red Stone received an overall assessment of Satisfactory .
In the event of a bankruptcy of a servicer, we may not have a perfected 28 Table of Contents interest in any collections on the mortgage loans owned by us that are in that servicer’s possession at the time of the commencement of the bankruptcy case.
In the event of a bankruptcy of a servicer, we may not have a perfected interest in any collections on the mortgage loans owned by us that are in that servicer’s possession at the time of the commencement of the bankruptcy case.
To the extent that the SEC staff 35 Table of Contents provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly.
To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly.
The remainder of our investment in securities (other than government securities and qualifying real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. ​ In addition, in general, no more than 5% of the value of our assets (other than government securities and qualifying real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by stock and securities of one or more TRSs and no more than 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
In addition, in general, no more than 5% of the value of our assets (other than government securities and qualifying real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by stock and securities of one or more TRSs and no more than 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
Our current policy is to pay 58 Table of Contents distributions which will allow us to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax on our undistributed income. ​ Our taxable income may substantially exceed our net income as determined under U.S.
Our current policy is to pay distributions which will allow us to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax on our undistributed income. Our taxable income may substantially exceed our net income as determined under U.S.
Moreover, in the case of a taxable distribution of shares of our stock with respect to which any withholding tax is imposed on a non-U.S. stockholder, we may have to withhold or dispose of part of the shares in such distribution and use such withheld shares or the proceeds of such disposition to satisfy the withholding tax imposed. ​ Complying with REIT requirements may limit our ability to hedge effectively. ​ The REIT provisions of the Code may limit our ability to hedge our assets and operations.
Moreover, in the case of a taxable distribution of shares of our stock with respect to which any withholding tax is imposed on a non- U.S. stockholder, we may have to withhold or dispose of part of the shares in such distribution and use such withheld shares or the proceeds of such disposition to satisfy the withholding tax imposed. 67 Complying with REIT requirements may limit our ability to hedge effectively.
We currently hold, and may acquire in the future, investments that are denominated in GBP and EURs (including loans secured 23 Table of Contents by assets located in the United Kingdom or Europe), as well as equity interests in real estate properties located in Europe.
We currently hold, and may acquire in the future, investments that are denominated in GBP and EURs (including loans secured by assets located in the United Kingdom or Europe), as well as equity interests in real estate properties located in Europe.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, 64 Table of Contents regulation or administrative interpretation, will be adopted, promulgated or become effective, and any such law, regulation or interpretation may take effect retroactively.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective, and any such law, regulation or interpretation may take effect retroactively.
Divestitures are subject to numerous risks and uncertainties, including, among others: ● the risk that a divestiture may not be completed in the expected time frame or at all; ● disruption of our management’s attention from ongoing business operations due to a proposed or pending divestiture; ● the acceptance of a less than favorable sales price or other terms of sale; ● the potential loss of key personnel or operations; ● adverse reactions from our borrowers, lenders or other counterparties, or those of the divested business segment; ● the risk of litigation or other judicial or administrative proceedings arising from the divestiture; and ● negative reactions from market analysts and adverse impacts on our stock price. ​ A divestiture could result in significant costs to us and is subject to numerous risks, including those listed above.
Divestitures are subject to numerous risks and uncertainties, including, among others: • the risk that a divestiture may not be completed in the expected time frame or at all; • disruption of our management’s attention from ongoing business operations due to a proposed or pending divestiture; • the acceptance of a less than favorable sales price or other terms of sale; • the potential loss of key personnel or operations; • adverse reactions from our borrowers, lenders or other counterparties, or those of the divested business segment; 42 • the risk of litigation or other judicial or administrative proceedings arising from the divestiture; and • negative reactions from market analysts and adverse impacts on our stock price.
Our duties as a general partner to our operating partnership and our partners may come into conflict with the duties of our directors and officers. ​ Certain provisions of Maryland law could inhibit changes in control and prevent our stockholders from realizing a premium over the then-prevailing market price of our common stock. ​ Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: ​ ● “business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of our then outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, impose fair price and/or supermajority stockholder voting requirements on these combinations; ​ ● "control share" provisions of the MGCL that provide that a holder of "control shares" of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and personnel who are also directors; and ​ ● "unsolicited takeover" provisions of the MGCL that permit our Board, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not yet have. ​ As permitted by the MGCL, our Board has by resolution exempted from the "business combination" provision of the MGCL business combinations (1) between us and our affiliates and (2) between us and any other person, provided that such business combination is first approved by our Board (including a majority of our directors who are not affiliates or associates of such person).
Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: • “business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of our then outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, impose fair price and/or supermajority stockholder voting requirements on these combinations; • "control share" provisions of the MGCL that provide that a holder of "control shares" of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and personnel who are also directors; and 70 • "unsolicited takeover" provisions of the MGCL that permit our Board, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not yet have.
If we cannot continue to obtain such services from our current institutions or elsewhere, or if we cannot transition to another processor quickly, our ability to 36 Table of Contents fund working capital advances and process payments will suffer.
If we cannot continue to obtain such services from our current institutions or elsewhere, or if we cannot transition to another processor quickly, our ability to fund working capital advances and process payments will suffer.
These mortgage loans are secured by properties acquired by investors for rental income and capital appreciation and tend to default more than properties regularly occupied or used by the related 26 Table of Contents borrowers.
These mortgage loans are secured by properties acquired by investors for rental income and capital appreciation and tend to default more than properties regularly occupied or used by the related borrowers.
Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act. ​ We intend to conduct our operations so that we do not come within the definition of an investment company under Section 3(a)(1)(C) of the 1940 Act because fewer than 40% of our total assets on an unconsolidated basis will consist of “investment securities.” The securities issued to us by any wholly-owned or majority-owned subsidiary that we currently own or may form in the future that is excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our total assets on an unconsolidated basis.
We intend to conduct our operations so that we do not come within the definition of an investment company under Section 3(a)(1)(C) of the 1940 Act because fewer than 40% of our total assets on an unconsolidated basis will consist of “investment securities.” The securities issued to us by any wholly-owned or majority-owned subsidiary that we currently own or may form in the future that is excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our total assets on an unconsolidated basis.
On a case-by-case basis, 47 Table of Contents underwriters may determine that a prospective borrower that does not strictly qualify under the underwriting guidelines warrants an underwriting exception, based upon compensating factors.
On a case-by-case basis, underwriters may determine that a prospective borrower that does not strictly qualify under the underwriting guidelines warrants an underwriting exception, based upon compensating factors.
Difficult market conditions, as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, such as the outbreak of COVID-19, unemployment and the availability and cost of credit, can contribute to increased volatility and diminished expectations for the economy and markets.
Difficult market conditions, as well as inflation, 20 energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, unemployment and the availability and cost of credit, can contribute to increased volatility and diminished expectations for the economy and markets.
Any such adjustment in our strategy could have a material adverse effect on us. ​ We believe that certain of our subsidiaries qualify to be excluded from the definition of investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exception generally requires that at least 55% of such subsidiaries’ assets must be comprised of qualifying assets and at least 80% of their total assets must be comprised of qualifying assets and real estate-related assets under the 1940 Act.
We believe that certain of our subsidiaries qualify to be excluded from the definition of investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exception generally requires that at least 55% of such subsidiaries’ assets must be comprised of qualifying assets and at least 80% of their total assets must be comprised of qualifying assets and real estate-related assets under the 1940 Act.
We 51 Table of Contents do not expect to be directly liable for any of the ABS issued by these entities.
We do not expect to be directly liable for any of the ABS issued by these entities.
Additionally, we rely heavily on financial, accounting and other data processing systems and operational risks arising from mistakes made in the confirmation or settlement of transactions, from transactions not being properly booked, evaluated or accounted for or other similar disruption in our operations may cause us to suffer financial loss, the disruption of our business, liability to third parties, regulatory intervention or reputational damage. ​ Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
Additionally, we rely heavily on financial, accounting and other data processing systems and operational risks arising from mistakes made in the confirmation or settlement of transactions, from transactions not being properly booked, evaluated or accounted for or other similar disruption in our operations may cause us to suffer financial loss, the disruption of our business, liability to third parties, regulatory intervention or reputational damage.
No assurance can be given that any property that we sell, other than property sold through a TRS or property that satisfies the safe harbor described above, will not be treated as property held for sale to customers.
No assurance can be given that any property that we sell, other than property sold through a TRS or property that satisfies the safe harbor described above, will not be treated as property held for sale to customers. As a result, no assurance can be provided that we will not be subject to prohibited transaction tax.
Construction loans are subject to additional risks as compared to loans secured by existing structures or land. Of the loans we held as of December 31, 2023, 8.9% were more than 60 days delinquent and 38.8% of those loans were acquired as a result of the Mosaic Mergers and the Broadmark Merger.
Construction loans are subject to additional risks as compared to loans secured by existing structures or land. Of the loans we held as of December 31, 2024 , 5.3 % were more than 60 days delinquent and 17.9% of those loans were acquired as a result of the Mosaic Mergers and the Broadmark Merger.
If any such adjustment would be significant in amount, the resulting redetermination of our gross income for U.S. federal income tax purposes could cause us or Pre-Merger Sutherland to fail to satisfy the gross income tests, which could cause us to fail to qualify as a REIT.
If any such adjustment would be significant in amount, the resulting redetermination of our gross income for U.S. federal income tax purposes could cause us or our predecessor to the ZAIS Financial merger (“Pre-Merger Sutherland”) to fail to satisfy the gross income tests, which could cause us to fail to qualify as a REIT.
Further changes to the tax laws are possible. In particular, the federal income taxation of REITs may be modified, possibly with retroactive effect, by legislative, administrative or judicial action at any time. ​ We cannot assure stockholders that any such changes will not adversely affect the taxation of our stockholders.
In particular, the federal income taxation of REITs may be modified, possibly with retroactive effect, by legislative, administrative or judicial action at any time. 69 We cannot assure stockholders that any such changes will not adversely affect the taxation of our stockholders.
We believe that a change in any one of the following factors, among others, could adversely affect our results of operations and impair our ability to pay distributions to our stockholders: ​ ● the profitability of the assets we hold or acquire; ​ ● our ability to make profitable acquisitions; ​ ● margin calls or other expenses that reduce our cash flow; ​ ● defaults in our asset portfolio or decreases in the value of our portfolio; and ​ ● the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates. ​ We cannot assure you that we will achieve results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future.
We believe that a change in any one of the following factors, among others, could adversely affect our results of operations and impair our ability to pay distributions to our stockholders: • the profitability of the assets we hold or acquire; • our ability to make profitable acquisitions; • margin calls or other expenses that reduce our cash flow; • defaults in our asset portfolio or decreases in the value of our portfolio; and • the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
To estimate the value of a particular asset, we may use historical assumptions that may or may not be appropriate during the recent downturn in the real estate market and general economy.
To estimate the value of a particular asset, we may use historical assumptions that may or may not be appropriate during a declining real estate market or contractions in the general economy.
If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. ​ We could face potential adverse effects from tenant defaults, bankruptcies or insolvencies. ​ The bankruptcy of our tenants may adversely affect the income generated by our properties.
If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. We could face potential adverse effects from tenant defaults, bankruptcies or insolvencies.
These laws and regulations significantly affect the way that GMFS conducts its business and restrict the scope of the existing business of GMFS and may limit the ability of GMFS to expand its product offerings or can make the cost to originate and service mortgage loans higher, which could impact our financial results. ​ The CFPB adopted changes to its Mortgage Servicing Rules in August 2016.
These laws and regulations significantly affect the way that GMFS conducts its business and restrict the scope of the existing business of GMFS and may limit the ability of GMFS to expand its product offerings or can make the cost to originate and service mortgage loans higher, which could impact our financial results.
For example, by relying on incorrect models and data, especially valuation models, Waterfall may be induced to buy certain target assets at prices that are too high, to sell certain other assets at prices that are too low, or to miss favorable opportunities altogether.
For example, by relying on incorrect models and data, especially valuation models, Waterfall may be induced to buy certain target assets at prices that are too high, to sell certain other assets at prices that are too low, or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.
These may increase the costs of loss mitigation and increase foreclosure timelines. Other new regulatory requirements or changes to existing requirements that the CFPB may promulgate could require changes in the business of GMFS, result in increased compliance costs and impair the profitability of such business.
The CFPB adopted changes to its Mortgage Servicing Rules in August 2016. These may increase the costs of loss mitigation and increase foreclosure timelines. Other new regulatory requirements or changes to existing requirements that the CFPB may promulgate could require changes in the business of GMFS, result in increased compliance costs and impair the profitability of such business.
The investigations and lawsuits by several state attorneys general led to a settlement agreement in March 2012 with five of the nation’s largest banks, pursuant to which the banks agreed to pay more than $25 billion to settle claims relating to improper foreclosure practices.
Department of Justice and HUD, began an investigation into foreclosure practices of banks and servicers. The investigations and lawsuits by several state attorneys general led to a settlement agreement in March 2012 with five of the nation’s largest banks, pursuant to which the banks agreed to pay more than $25 billion to settle claims relating to improper foreclosure practices.
In addition, some of our distributions may include a return of capital. ​ Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock. ​ Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
If one of our tenants files for bankruptcy, we generally cannot evict the tenant solely because of such bankruptcy. In addition, a bankruptcy court could authorize a bankrupt tenant to reject and terminate its lease with us.
The bankruptcy of our tenants may adversely affect the income generated by our properties. If one of our tenants files for bankruptcy, we generally cannot evict the tenant solely because of such bankruptcy. In addition, a bankruptcy court could authorize a bankrupt tenant to reject and terminate its lease with us.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeCertain members of the IRT report to our Board on a quarterly basis regarding the external threat environment, steps taken by us to address and mitigate cybersecurity risks as well as updates on our readiness to prevent, detect, respond and recover from a potential cybersecurity incident (“Incident”). ​ In the event of an Incident, the IRT is authorized to take the appropriate steps deemed necessary to identify, assess, contain, mitigate, and resolve the Incident including by (a) maintaining (i) the Company’s Incident Response Plan in the event of an Incident, (ii) the Company’s Written Information Security Policy which governs information technology security policies, and (iii) the Company’s Business Continuity Plan designed to keep all major business systems in operation in the event of an Incident or other disaster (b) regularly monitoring all Company systems and user accounts for any suspected Incidents (c) performing quarterly audits on all Company systems and user accounts (d) and general cybersecurity awareness and data protection training for our employees.
Biggest changeIn the event of an Incident, the IRT is authorized to take the appropriate steps deemed necessary to identify, assess, contain, mitigate, and resolve the Incident including by (a) maintaining (i) the Company’s Incident Response Plan in the event of an Incident, (ii) the Company’s Written Information Security Policy which governs information technology security policies, and (iii) the Company’s Business Continuity Plan designed to keep all major business systems in operation in the event of an Incident or other disaster (b) regularly monitoring all Company systems and user accounts for any suspected Incidents (c) performing quarterly audits on all Company systems and user accounts (d) and general cybersecurity awareness and data protection training for our employees.
As of the date of this Form 10-K, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our financial position, results of operations and/or business strategy.
As of the date of 74 this Form 10-K, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us, including our financial position, results of operations and/or business strategy .
We also assess third party risks when determining the selection and oversight of applicable third-party service providers. ​ Increased cybersecurity risk due to the diversification of our data across external service providers and cyber Incidents may adversely affect our business by causing a disruption to our operations, compromise our confidential information and/or damage to our business relationships, all of which could negatively impact our financial results.
Increased cybersecurity risk due to the diversification of our data across external service providers and cyber Incidents may adversely affect our business by causing a disruption to our operations, compromise our confidential information and/or damage to our business relationships, all of which could negatively impact our financial results.
While we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or Incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such an Incident in the future where we may be unable to implement effective preventative measures in a timely manner. ​ Further discussion of the potential impacts on our business from cyber intrusions is provided in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. ​
While we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or Incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such an Incident in the future where we may be unable to implement effective preventative measures in a timely manner.
In particular, our Head of Infrastructure is an experienced information technology professional with over 20 years of experience in the industry, including oversight of our cybersecurity department.
The IRT is responsible for assessing and managing cybersecurity risks, subject to the oversight of our Board. In particular, our Head of Infrastructure is an experienced information technology professional with over 20 years of experience in the industry, including oversight of our cybersecurity department.
This risk management process is led by our Incident Response Team (“IRT”), which is comprised of the Company’s Chief Technical Officer, Chief Financial Officer, Chief Executive Officer and Chief Investment Officer, General Counsel, and Head of Infrastructure, who is responsible for assessing and managing cybersecurity risks, subject to the oversight of our Board.
This risk management process is led by our Incident Response Team (“IRT”) , which is led by the Company’s Chief Technical Officer and the Head of Infrastructure , and supported by the Chief Financial Officer, Chief Executive Officer and Chief Investment Officer, and General Counsel.
Added
Certain members of the IRT report to our Board on a quarterly basis regarding the external threat environment, steps taken by us to address and mitigate cybersecurity risks as well as updates on our readiness to prevent, detect, respond and recover from a potential cybersecurity incident (“Incident”).
Added
We conduct due diligence prior to engaging third-party service providers that have access to our networks, systems, and/or customer or employee data. Third-party service providers are required to comply with our policies regarding information security and are contractually required to meet all legal and regulatory obligations.
Added
The Board reviews IRT reports, practices relating to information technology, information security, cybersecurity, disaster recovery, business continuity, data privacy and data governance; and the Board monitors compliance with regulatory requirements and industry standards.
Added
We also assess third party risks when determining the selection and oversight of applicable third-party service providers.
Added
Further discussion of the potential impacts on our business from cyber intrusions is provided in “Risk Factors” in Part I, Item 1A of this Form 10-K.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe use the office of ReadyCap Lending located at 200 Connell Drive, Suite 4000, Berkeley Heights, New Jersey, 07922 and Knight Capital LLC, located at 110 Southeast 6 th Street, Suite 700, Fort Lauderdale, FL 33301 for our Small Business Lending segment.
Biggest changeFor our Small Business Lending segment, w e use the office of ReadyCap Lending located at 200 Connell Drive, Suite 4000, Berkeley Heights, New Jersey, 07922, the office of Madison One located at 9375 East Shea Boulevard, Suite 100, Scottsdale, Arizona, 85260, the office of Funding Circle located at 85 2nd Street, San Francisco, California, 94105, and the office of iBusiness Funding LLC, located at 110 Southeast 6th Street, Suite 700, Fort Lauderdale, Florida, 33301 .
Item 2. Properties ​ Our principal executive offices are located at 1251 Avenue of the Americas, 50 th Floor, New York, New York 10020, in an office space leased by our Manager as part of our management agreement.
Item 2. Properties Our principal executive offices are located at 1251 Avenue of the Americas, 50th Floor, New York, New York, 10020, in an office space leased by our Manager as part of our management agreement.
We do not own any properties and lease the space we utilize for our offices and consider these facilities, which exclude properties related to our discontinued operations, to be adequate for the management and operations of our business. ​ ​ ​ 70 Table of Contents
We do not own any properties and lease the space we utilize for our offices and consider these facilities, which exclude properties related to our discontinued operations, to be adequate for the management and operations of our business .
We use the office of ReadyCap Commercial, LLC, located at 1320 Greenway Drive, Suite 560, Irving, Texas, 75038 and the three offices of Red Stone located at 666 Old Country Road, Suite 603, Garden City, New York, 11530, 350 Fifth Avenue, Suite 4830, New York, New York, 10118 and 750 Main Street, Suite 202, Mendota Heights, Minnesota, 55118 for our LMM Commercial Real Estate segment.
We use our principal executive offices and the three offices of Red Stone located at 666 Old Country Road, Suite 603, Garden City, New York, 11530, 350 Fifth Avenue, Suite 4830, New York, New York, 10118 and 750 Main Street, Suite 202, Mendota Heights, Minnesota, 55118 for our LMM Commercial Real Estate segment.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe complaints in the Anworth Merger Actions assert that the Anworth Board breached their fiduciary duties by failing to properly consider acquisition proposals that were purportedly superior to the Anworth Merger, agreeing to purportedly unreasonable deal protections in connection with the Anworth Merger, and authorizing the issuance of the Form 424B3 filed on February 9, 2021, which allegedly contained materially misleading information.
Biggest changeThe Action names as defendants Broadmark’s former board of directors and alleges they breached their fiduciary duties in connection with the Broadmark Merger by failing to properly consider acquisition proposals that were purportedly superior to the Broadmark Merger, by relying on purportedly false and misleading valuation analyses, and by authorizing the issuance of a purportedly false and misleading proxy statement.
Item 3. Legal Proceedings ​ From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. ​ On February 24, 2021, Sheila Baker and Merle W. Bundick purported shareholders of Anworth Mortgage Asset Corporation (“Anworth”), filed lawsuits in the California Superior Court, styled Baker v.
Item 3. Legal Proceedings From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. On June 6, 2024, a purported former stockholder of Broadmark filed a class action lawsuit, captioned Eibling v. Pyatt, et al., Case No. C-24-CV-24-000818, in the Circuit Court for Baltimore City, Maryland (the “Action”).
Removed
McAdams, et al., No. 21STCV07569 (the “Baker Action”) and Bundick v. McAdams, et al., No. 21STCV07571 (the “Bundick Action”). On March 2, 2021, Benjamin Gigli, a purported shareholder of Anworth, also filed a lawsuit in California Superior Court, styled Gigli v.
Added
The Action also asserts claims against Broadmark’s financial advisor for aiding and abetting these alleged breaches of fiduciary duty. The Action seeks damages in the form of compensatory damages, quasi-appraisal damages, rescissory damages, and disgorgement of any merger-related benefits. The Action also seeks reimbursement for litigation expenses and attorneys’ and experts’ fees.
Removed
McAdams, et al., No. 21STCV08413 (the “Gigli Action,” and together with the Baker Action and the Bundick Action, the “Anworth Merger Actions”). The Anworth Merger Actions were filed against the former members of Anworth’s Board of Directors (the “Anworth Board”).
Added
On September 13, 2024, the Action was assigned to the Business and Technology Case Management Program of the Circuit Court for Baltimore City, Maryland. Thereafter, on December 10, 2024, the defendants moved to dismiss the operative complaint.
Removed
The Anworth Merger Actions seek, among other things, rescissory damages and an award of attorneys’ and experts’ fees. On May 26, 2021, the Anworth Merger Actions were consolidated and restyled In re Anworth Mortgage Asset Corporation Stockholder Litigation, Lead Case No. 21STCV07569. A consolidated amended complaint was filed by Sheila Baker, Merle W.
Added
Although the Company is not a defendant in the Action, it is subject to contractual indemnification obligations (conditioned on the satisfaction of various contractual requirements) in connection therewith, including with respect to the defendants’ service as Broadmark directors and provision of services to Broadmark, as applicable. The defendants intend to vigorously defend against the Action. Item 4.
Removed
Bundick, and Benjamin Gigli (together, the “Plaintiffs”) on June 14, 2021, and the California Superior Court denied Anworth’s Demurrer seeking to dismiss the consolidated amended complaint on December 2, 2021.
Removed
The Anworth Board filed their answer on January 3, 2022. ​ On December 27, 2022, the parties notified the California Superior Court that they have reached an agreement in principle resolving this action.
Removed
On June 30, 2023, the California Superior Court entered an Order granting preliminary approval of the settlement, and on November 14, 2023, the California Superior Court entered a final Order approving the settlement. ​ Item 4. Mine Safety Disclosures ​ Not applicable. ​ PART II ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe timing and amount of repurchase transactions will be determined by our management based on its evaluation of market conditions, share price, legal requirements and other factors. ​ The table below presents purchases of our common stock during the quarter. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of Shares Purchased ​ ​ Average Price Paid per Share ​ Total Number of Shares Purchased as Part of Publicly Announced Programs ​ ​ Maximum Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Program October ​ 339 ​ $ 9.90 ​ — ​ $ 81,953,841 November ​ 3,208 ​ ​ 9.87 ​ — ​ ​ 81,953,841 December ​ 72,014 ​ ​ 10.25 ​ — ​ ​ 81,953,841 Total ​ 75,561 (1) ​ $ 10.23 (2) ​ — ​ $ 81,953,841 (1) Total shares purchased includes shares of common stock owned by certain of our employees which have been surrendered by them to satisfy their tax and other compensation related withholdings associated with the vesting of restricted stock units and other equity awards.
Biggest changeTotal Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Program October — $ — — $ 42,802,320 November — — — 42,802,320 December 5,843,463 7.35 5,821,219 — Total 5,843,463 (1) $ 7.35 (2) 5,821,219 $ — (1) Total shares purchased includes shares of common stock owned by certain of our employees which have been surrendered by them to satisfy their tax and other compensation related withholdings associated with the vesting of restricted stock units and other equity awards. 77 (2) The price paid per share is based on the price of our common stock as of the date of the withholding.
Repurchases under the stock repurchase programs may be made at management’s discretion from time to time on the open market, in privately negotiated transactions or otherwise, in each case subject to compliance with all Securities and Exchange Commission rules and other legal requirements and may be made in part under one or more Rule 10b5-1 plans, which permit stock repurchases at times when we might otherwise be precluded from doing so.
Repurchases under the stock repurchase programs may be made at management’s discretion from time to time on the open market, in privately negotiated transactions or otherwise, in each case subject to compliance with all Securities and Exchange Commission rules and other legal requirements and may be made in part under one or more Rule 10b5-1 and Rule 10b-18 plans, which permit stock repurchases at times when we might otherwise be precluded from doing so.
There can be no assurance that the performance of our common stock will continue in line with the same or similar trends depicted. ​ ​ ● The Competitor Composite Average is a measure of the total return performance of mortgage REIT competitors based on actual share prices of the following companies: Blackstone Mortgage Trust Inc.
There can be no assurance that the performance of our common stock will continue in line with the same or similar trends depicted. • The Competitor Composite Average is a measure of the total return performance of mortgage REIT competitors based on actual share prices of the following companies: Blackstone Mortgage Trust Inc. (BXMT), Starwood Property Trust, Inc.
In connection with the name change, the Company’s trading symbol on the New York Stock Exchange changed from “SLD” to “RC” for shares of the Company’s common stock. ​ The following graph is a comparison of the cumulative total stockholder return on our shares of common stock, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and a Competitor Composite Average, a peer group index from October 31, 2016 to December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of the period ended As of December 31, Index October 31, 2016 2016 2017 2018 2019 2020 2021 2022 2023 RC 100.0 100.4 124.9 125.8 155.3 147.0 206.5 165.3 173.0 S&P 500 100.0 105.3 125.7 117.9 152.0 176.7 224.2 180.6 224.3 Competitor Composite Average 100.0 100.6 115.0 125.3 169.9 160.7 203.5 165.4 204.0 ​ In the table above: ​ ● Total return performance presents our common stock during the two months ended December 31, 2016 and each of the fiscal years ended December 31, 2017 through 2023, reflecting the post-merger prices of our common stock. ​ ​ ● Details shall not be deemed, under the Securities Act or the Exchange Act, to be (i) “soliciting material” or “filed” or (ii) incorporated by reference by any general statement into any filing made by the Company with the SEC, except to the extent that the Company specifically incorporates such stock performance graph and table by reference. ​ ● It is assumed that $100 was invested on October 31, 2016 in shares of common stock of Ready Capital Corporation (previously Sutherland Asset Management Corporation), the S&P 500 Index, and each of the companies’ shares of common stock included in the Competitor Composite Average and that all dividends were reinvested without the payment of any commissions.
The following graph is a comparison of the cumulative total stockholder return on our shares of common stock, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and a Competitor Composite Average, a peer group index from October 31, 2016 to December 31, 2024 . 76 As of the period ended As of December 31, Index October 31, 2016 2016 2017 2018 2019 2020 2021 2022 2023 2024 RC 100.0 100.4 124.9 125.8 155.3 147.0 206.5 165.3 173.0 130.5 S&P 500 100.0 105.3 125.7 117.9 152.0 176.7 224.2 180.6 224.3 279.5 Competitor Composite Average 100.0 100.6 115.0 125.3 169.9 160.7 203.5 165.4 204.0 194.8 In the table above: • Total return performance presents our common stock during the two months ended December 31, 2016 and each of the fiscal years ended December 31, 2017 through 2024 , reflecting the post-merger prices of our common stock. • Details shall not be deemed, under the Securities Act or the Exchange Act, to be (i) “soliciting material” or “filed” or (ii) incorporated by reference by any general statement into any filing made by the Company with the SEC, except to the extent that the Company specifically incorporates such stock performance graph and table by reference. • It is assumed that $100 was invested on October 31, 2016 in shares of common stock of Ready Capital Corporation (previously Sutherland Asset Management Corporation), the S&P 500 Index, and each of the companies’ shares of common stock included in the Competitor Composite Average and that all dividends were reinvested without the payment of any commissions.
Such information was obtained through our registrar and transfer agent. ​ Dividends We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013.
Dividends We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013.
The holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock.
The holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock. Such information was obtained through our registrar and transfer agent.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ Market Information Our common stock is listed for trading on the NYSE under the symbol “RC”. ​ Holders As of February 27, 2024, we had 895 registered holders of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed for trading on the NYSE under the symbol “RC”. 75 Holders As of February 28, 2025 , we ha d 806 re gistered holders of our common stock.
To facilitate further repurchases, on June 1, 2023, our Board approved a new share repurchase program, replacing the previous program, authorizing, but not obligating, the repurchase of up to $100.0 million of our common stock.
On January 16, 2025, our Board approved a new share repurchase program, replacing the previous program, authorizing, but not obligating the repurchase of up to $150.0 million of our common stock.
See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” of this annual report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends. ​ 71 Table of Contents Stockholder Return Performance On November 1, 2016, we began trading on the NYSE under the ticker symbol “SLD”.
See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” of this Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends.
In addition, the Company amended and restated its bylaws and the second amended and restated agreement of limited partnership, effective September 26, 2018, each solely the reflect the name change.
In addition, the Company amended and restated its bylaws and the second amended and restated agreement of limited partnership, effective September 26, 2018, each solely the reflect the name change. In connection with the name change, the Company’s trading symbol on the New York Stock Exchange changed from “SLD” to “RC” for shares of the Company’s common stock.
(ABR), and Ladder Capital Corporation (LADR). ​ Securities Authorized For Issuance Under Equity Compensation Plans The information required by this item is set forth under Item 12 of Part III of this annual report on Form 10-K and is incorporated herein by reference. ​ Purchases of Equity Securities By the Issuer and Affiliated Purchasers ​ Share Repurchase Program On March 6, 2018, our Board approved a share repurchase program authorizing, but not obligating, the repurchase of our common stock, and on September 29, 2022, our Board approved an increase to the size of the share repurchase program bringing the total authorized repurchases thereunder to $50.0 million.
(STWD), Ares Commercial Real Estate Corporation (ACRE), Apollo Commercial Real Estate Finance Inc. (ARI), Arbor Realty Trust, Inc. (ABR), and Ladder Capital Corporation (LADR). Securities Authorized For Issuance Under Equity Compensation Plans The information required by this item is set forth under Item 12 of Part III of this Form 10-K and is incorporated herein by reference.
Removed
(BXMT), Starwood 72 Table of Contents Property Trust, Inc. (STWD), Ares Commercial Real Estate Corporation (ACRE), Apollo Commercial Real Estate Finance Inc. (ARI), Arbor Realty Trust, Inc.
Added
Stockholder Return Performance On November 1, 2016, we began trading on the NYSE under the ticker symbol “SLD”.
Removed
(2) The price paid per share is based on the price of our common stock as of the date of the withholding. ​ ​
Added
Purchases of Equity Securities By the Issuer and Affiliated Purchasers Share Repurchase Program O n June 1, 2023, our Board approved a new share repurchase program, replacing the previous program, authorizing, but not obligating, the repurchase of up to $100.0 million of our common stock.
Added
The timing and amount of repurchase transactions will be determined by our management based on its evaluation of market conditions, share price, legal requirements and other factors. The table below presents purchases of our common stock during the quarter.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeHistorically, we have acquired less than a majority of the assets in our pipeline at any one time and there can be no assurance the assets currently in our pipeline will be acquired or originated by us in the future. ​ The table below presents information on our investment portfolio originations and acquisitions (based on fully committed amounts). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, Year Ended December 31, (in thousands) ​ ​ 2023 2023 ​ 2022 Loan originations: ​ ​ ​ ​ ​ ​ ​ ​ LMM loans ​ $ 296,850 $ 1,683,363 ​ $ 4,520,385 SBA loans ​ ​ 152,172 ​ 493,949 ​ ​ 499,599 Total loan originations ​ $ 449,022 $ 2,177,312 ​ $ 5,019,984 Total loan acquisitions ​ $ — $ — ​ $ 659,636 Total loan investment activity ​ $ 449,022 $ 2,177,312 ​ $ 5,679,620 ​ ​ 78 Table of Contents The table below presents information on our acquisition and origination pipeline opportunities (based on fully committed amounts). ​ ​ ​ ​ ​ (in thousands) ​ ​ Current Pipeline Loan originations: ​ ​ ​ LMM loans ​ $ 450,787 SBA loans ​ ​ 291,109 Total loan originations ​ $ 741,896 Total loan acquisitions ​ $ — Total loan investment pipeline (1) ​ $ 741,896 (1) Includes 2024 fundings ​ ​ ​ ​ Balance Sheet Analysis and Metrics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2023 ​ December 31, 2022 ​ ​ $ Change ​ % Change Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 138,532 ​ $ 147,399 ​ ​ $ (8,867) ​ (6.0) % Restricted cash ​ 30,063 ​ 48,146 ​ ​ ​ (18,083) ​ (37.6) ​ Loans, net (including $9,348 and $9,786 held at fair value) ​ 4,020,160 ​ 3,571,799 ​ ​ ​ 448,361 ​ 12.6 ​ Loans, held for sale, at fair value ​ 81,599 ​ 123,735 ​ ​ ​ (42,136) ​ (34.1) ​ Paycheck Protection Program loans (including $165 and $576 held at fair value) ​ 34,597 ​ 186,985 ​ ​ ​ (152,388) ​ (81.5) ​ Mortgage-backed securities ​ 27,436 ​ ​ 32,041 ​ ​ ​ (4,605) ​ (14.4) ​ Investment in unconsolidated joint ventures (including $7,360 and $8,094 held at fair value) ​ ​ 133,321 ​ ​ 118,641 ​ ​ ​ 14,680 ​ 12.4 ​ Derivative instruments ​ ​ 2,404 ​ ​ 12,532 ​ ​ ​ (10,128) ​ (80.8) ​ Servicing rights ​ ​ 102,837 ​ ​ 87,117 ​ ​ ​ 15,720 ​ 18.0 ​ Real estate owned, held for sale ​ ​ 252,949 ​ ​ 117,098 ​ ​ ​ 135,851 ​ 116.0 ​ Other assets ​ ​ 265,578 ​ ​ 183,533 ​ ​ ​ 82,045 ​ 44.7 ​ Assets of consolidated VIEs ​ ​ 6,897,145 ​ ​ 6,552,760 ​ ​ ​ 344,385 ​ 5.3 ​ Assets held for sale ​ 454,596 ​ 439,191 ​ ​ ​ 15,405 ​ 3.5 ​ Total Assets ​ $ 12,441,217 ​ $ 11,620,977 ​ ​ $ 820,240 ​ 7.1 % Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured borrowings ​ ​ 2,102,075 ​ ​ 2,663,735 ​ ​ ​ (561,660) ​ (21.1) ​ Paycheck Protection Program Liquidity Facility (PPPLF) borrowings ​ ​ 36,036 ​ ​ 201,011 ​ ​ ​ (164,975) ​ (82.1) ​ Securitized debt obligations of consolidated VIEs, net ​ ​ 5,068,453 ​ ​ 4,903,350 ​ ​ ​ 165,103 ​ 3.4 ​ Convertible notes, net ​ ​ — ​ ​ 114,397 ​ ​ ​ (114,397) ​ (100.0) ​ Senior secured notes, net ​ ​ 345,127 ​ ​ 343,355 ​ ​ ​ 1,772 ​ 0.5 ​ Corporate debt, net ​ ​ 764,908 ​ ​ 662,665 ​ ​ ​ 102,243 ​ 15.4 ​ Guaranteed loan financing ​ ​ 844,540 ​ ​ 264,889 ​ ​ ​ 579,651 ​ 218.8 ​ Contingent consideration ​ ​ 7,628 ​ ​ 28,500 ​ ​ ​ (20,872) ​ (73.2) ​ Derivative instruments ​ ​ 212 ​ ​ 1,319 ​ ​ ​ (1,107) ​ (83.9) ​ Dividends payable ​ ​ 54,289 ​ ​ 47,177 ​ ​ ​ 7,112 ​ 15.1 ​ Loan participations sold ​ ​ 62,944 ​ ​ 54,641 ​ ​ ​ 8,303 ​ 15.2 ​ Due to third parties ​ ​ 3,641 ​ ​ 11,805 ​ ​ ​ (8,164) ​ (69.2) ​ Accounts payable and other accrued liabilities ​ ​ 171,445 ​ ​ 153,614 ​ ​ ​ 17,831 ​ 11.6 ​ Liabilities held for sale ​ ​ 333,157 ​ ​ 271,924 ​ ​ ​ 61,233 ​ 22.5 ​ Total Liabilities ​ $ 9,794,455 ​ $ 9,722,382 ​ ​ $ 72,073 ​ 0.7 % 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, 172,276,105 and 110,523,641 shares issued and outstanding, respectively ​ ​ 17 ​ 11 ​ ​ ​ 6 ​ 54.5 ​ Additional paid-in capital ​ ​ 2,321,989 ​ ​ 1,684,074 ​ ​ ​ 637,915 ​ 37.9 ​ Retained earnings ​ ​ 124,413 ​ ​ 4,994 ​ ​ ​ 119,419 ​ 2,391.2 ​ Accumulated other comprehensive loss ​ ​ (17,860) ​ ​ (9,369) ​ ​ ​ (8,491) ​ (90.6) ​ Total Ready Capital Corporation equity ​ ​ 2,539,937 ​ 1,791,088 ​ ​ ​ 748,849 ​ 41.8 ​ Non-controlling interests ​ ​ 98,464 ​ 99,146 ​ ​ ​ (682) ​ (0.7) ​ Total Stockholders’ Equity ​ $ 2,638,401 ​ $ 1,890,234 ​ ​ $ 748,167 ​ 39.6 % Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity ​ $ 12,441,217 ​ $ 11,620,977 ​ ​ $ 820,240 ​ 7.1 % ​ As of December 31, 2023, total assets in our consolidated balance sheet were $12.4 billion, an increase of $820 million from December 31, 2022, primarily reflecting an increase in Loans, net and Assets of consolidated VIEs, partially offset by a decrease in PPP loans.
Biggest change(in thousands) Current Pipeline Loan originations: LMM loans $ 728,005 SBL loans 1,784,167 Total loan investment pipeline (1) $ 2,512,172 (1) Includes 2025 fundings Balance Sheet Analysis and Metrics (in thousands) December 31, 2024 December 31, 2023 $ Change % Change Assets Cash and cash equivalents $ 143,803 $ 138,532 $ 5,271 3.8 % Restricted cash 30,560 30,063 497 1.7 Loans, net (including $3,533 and $9,348 held at fair value) 3,378,149 4,020,160 (642,011) (16.0) Loans, held for sale (including $128,531 and $81,599 held at fair value and net of valuation allowance of $97,620 and $0) 241,626 81,599 160,027 196.1 Mortgage-backed securities 31,006 27,436 3,570 13.0 Investment in unconsolidated joint ventures (including $6,577 and $7,360 held at fair value) 161,561 133,321 28,240 21.2 Derivative instruments 7,963 2,404 5,559 231.2 Servicing rights 128,440 102,837 25,603 24.9 Real estate owned, held for sale 193,437 252,949 (59,512) (23.5) Other assets 362,486 300,175 62,311 20.8 Assets of consolidated VIEs 5,175,295 6,897,145 (1,721,850) (25.0) Assets held for sale 287,595 454,596 (167,001) (36.7) Total Assets $ 10,141,921 $ 12,441,217 $ (2,299,296) (18.5) % Liabilities Secured borrowings 2,035,176 2,102,075 (66,899) (3.2) Securitized debt obligations of consolidated VIEs, net 3,580,513 5,068,453 (1,487,940) (29.4) Senior secured notes, net 437,847 345,127 92,720 26.9 Corporate debt, net 895,265 764,908 130,357 17.0 Guaranteed loan financing 691,118 844,540 (153,422) (18.2) Contingent consideration 573 7,628 (7,055) (92.5) Derivative instruments 352 212 140 66.0 Dividends payable 43,168 54,289 (11,121) (20.5) Loan participations sold 95,578 62,944 32,634 51.8 Due to third parties 1,442 3,641 (2,199) (60.4) Accounts payable and other accrued liabilities 188,051 207,481 (19,430) (9.4) Liabilities held for sale 228,735 333,157 (104,422) (31.3) Total Liabilities $ 8,197,818 $ 9,794,455 $ (1,596,637) (16.3) % 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, 162,792,372 and 172,276,105 shares issued and outstanding, respectively 17 17 — — Additional paid-in capital 2,250,291 2,321,989 (71,698) (3.1) Retained earnings (deficit) (505,089) 124,413 (629,502) (506.0) Accumulated other comprehensive loss (18,552) (17,860) (692) (3.9) Total Ready Capital Corporation equity 1,838,045 2,539,937 (701,892) (27.6) Non-controlling interests 97,697 98,464 (767) (0.8) Total Stockholders’ Equity $ 1,935,742 $ 2,638,401 $ (702,659) (26.6) % Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity $ 10,141,921 $ 12,441,217 $ (2,299,296) (18.5) % 82 As of December 31, 2024 , total assets in our consolidated balance sheet were $10.1 billion , a decrease of $2.3 billion from December 31, 2023 , primarily reflecting a decrease in Assets of consolidated VIEs and Loans, net.
Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts and purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction, and cross default and setoff provisions. ​ We maintain certain assets, which, from time to time, may include cash, unpledged LMM loans, LMM ABS and short-term investments (which may be subject to various haircuts if pledged as collateral to meet margin requirements) and collateral in excess of margin requirements held by our counterparties, or collectively, the “Cushion”, to meet routine margin calls and protect against unforeseen reductions in our borrowing capabilities.
Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts and purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction, and cross default and setoff provisions. 90 We maintain certain assets, which, from time to time, may include cash, unpledged LMM loans, LMM ABS and short- term investments (which may be subject to various haircuts if pledged as collateral to meet margin requirements) and collateral in excess of margin requirements held by our counterparties, or collectively, the “Cushion”, to meet routine margin calls and protect against unforeseen reductions in our borrowing capabilities.
For such loans that we determine that foreclosure of the collateral is probable, we measure the expected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date.
For such loans that we determine that foreclosure of the collateral is probable, we measure the 95 expected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date.
Sales of the 6.20% 2026 Notes and the 5.75% 2026 Notes pursuant to the Sales Agreement, if any, may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act (the “Debt ATM Program”).
Sales of the 6.20% 2026 Notes and the 5.75% 2026 Notes pursuant to 93 the Sales Agreement, if any, may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act (the “Debt ATM Program”).
We typically acquire non-performing loans at a discount to their unpaid principal balance when we believe that resolution of the loans will provide attractive risk-adjusted returns. ​ ● Small Business Lending . We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through our wholly-owned subsidiary, ReadyCap Lending.
We typically acquire non-performing loans at a discount to their unpaid principal balance when we believe that resolution of the loans will provide attractive risk-adjusted returns. • Small Business Lending. We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through our subsidiary, ReadyCap Lending.
Our MD&A is presented in five main sections: ​ ● Overview ● Results of Operations ● Liquidity and Capital Resources ● Contractual Obligations and Off-Balance Sheet Arrangements ● Critical Accounting Estimates ​ The following discussion should be read in conjunction with our consolidated financial statements and accompanying Notes included in Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K.
Our MD&A is presented in five main sections: • Overview • Results of Operations • Liquidity and Capital Resources • Contractual Obligations and Off-Balance Sheet Arrangements • Critical Accounting Estimates The following discussion should be read in conjunction with our consolidated financial statements and accompanying Notes included in Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.
Refer to “Notes to Consolidated Financial Statements, Note 8 – Servicing Rights” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to servicing rights impairment. ​ Refer to “Notes to Consolidated Financial Statements, Note 4 – Recent Accounting Pronouncements” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a discussion of recent accounting developments and the expected impact to the Company. ​
Refer to “Notes to Consolidated Financial Statements, Note 8 – Servicing Rights” included in Item 8, “Financial Statements and Supplementary Data,” in this Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to servicing rights impairment. 96 Refer to “Notes to Consolidated Financial Statements, Note 4– Recent Accounting Pronouncements” included in Item 8, “Financial Statements and Supplementary Data,” in this Form 10-K for a discussion of recent accounting developments and the expected impact to the Company.
See “Forward-Looking Statements” and “Critical Accounting Estimates” in this annual report on Form 10-K for certain other factors that may cause actual results to differ, materially, from those anticipated in the forward-looking statements included in this annual report on Form 10-K.
See “Forward- Looking Statements” and “Critical Accounting Estimates” in this Form 10-K for certain other factors that may cause actual results to differ, materially, from those anticipated in the forward-looking statements included in this Form 10-K.
On October 20, 2021, ReadyCap Holdings, an indirect subsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50% Senior Secured Notes due 2026 87 Table of Contents (the “Senior Secured Notes”).
On October 20, 2021, ReadyCap Holdings, an indirect subsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50% Senior Secured Notes due 2026 (the “Senior Secured Notes”).
The discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2023 compared with the year ended December 31, 2022.
The discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2024 compared with the year ended December 31, 2023 .
Fixed rate mortgage loans bear interest that is fixed for the term of the loan and we typically utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with such fixed rate mortgages. As of December 31, 2023, 72% of fixed rate loans are match funded in securitization.
Fixed rate mortgage loans bear interest that is fixed for the term of the loan and we typically utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with such fixed rate mortgages. As of December 31, 2024 , all fixed rate loans are match funded in securitization.
We are organized in a traditional UpREIT format pursuant to which we serve as the general partner of, and conduct substantially all of our business through, our operating partnership. We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act. ​ Acquisitions ​ Broadmark.
We are organized in a traditional UpREIT format pursuant to which we serve as the general partner of, and conduct substantially all of our business through, our operating partnership. We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 194 0 Act.
The note purchase agreement governing these notes 88 Table of Contents contains financial covenants that require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other customary affirmative and negative covenants. ​ The Debt ATM Agreement On May 20, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.
The note purchase agreement governing these notes contains financial covenants that require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other customary affirmative and negative covenants. The Debt ATM Agreement On May 20, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc.
Riley Securities, Inc. (the “Agent”), pursuant to which it may offer and sell, from time to time, up to $100.0 million of the 6.20% 2026 Notes and the 5.75% 2026 Notes.
(the “Agent”), pursuant to which it may offer and sell, from time to time, up to $100.0 million of the 6.20% 2026 Notes and the 5.75% 2026 Notes.
To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be required to pay regular U.S. federal corporate income tax on the undistributed amount.
To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay U.S. federal corporate income tax on the undistributed income.
No sales were made through the Debt ATM Program during the year ended December 31, 2023. ​ Securitization transactions Our Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled us to complete several securitizations of LMM and SBA loan assets since January 2011.
No such sales through the Debt ATM Program were made during the years ended December 31, 2024 or December 31, 2023 , respectively. Securitization transactions Our Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled us to complete several securitizations of LMM and SBA loan assets since January 2011.
By contributing these LMM and SBA assets to the various securitizations, these transactions created capacity for us to fund other investments. ​ The table below presents information on the securitization structures and related issued tranches of notes to investors. ​ ​ ​ ​ ​ ​ ​ ​ (in millions) Collateral Asset Class Issuance Active / Collapsed ​ Bonds Issued Trusts (Firm sponsored) ​ ​ ​ ​ ​ ​ Waterfall Victoria Mortgage Trust 2011-1 (SBC1) LMM Acquired loans February 2011 Collapsed ​ $ 40.5 Waterfall Victoria Mortgage Trust 2011-3 (SBC3) LMM Acquired loans October 2011 Collapsed ​ ​ 143.4 Sutherland Commercial Mortgage Trust 2015-4 (SBC4) LMM Acquired loans August 2015 Collapsed ​ ​ 125.4 Sutherland Commercial Mortgage Trust 2018 (SBC7) LMM Acquired loans November 2018 Collapsed ​ ​ 217.0 ReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1) Acquired SBA 7(a) loans June 2015 Collapsed ​ ​ 189.5 ReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2) Originated SBA 7(a) loans, Acquired SBA 7(a) loans December 2019 Active ​ ​ 131.0 ReadyCap Lending Small Business Loan Trust 2023-3 (RCLT 2023-3) Originated SBA 7(a) loans, Acquired SBA 7(a) loans July 2023 Active ​ ​ 132.0 ​ ​ ​ ​ ​ ​ ​ Real Estate Mortgage Investment Conduits (REMICs) ​ ​ ​ ​ ​ ​ ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1) LMM Originated conventional September 2014 Collapsed ​ ​ 181.7 ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2) LMM Originated conventional November 2015 Active ​ ​ 218.8 ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3) LMM Originated conventional November 2016 Active ​ ​ 162.1 ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4) LMM Originated conventional March 2018 Active ​ ​ 165.0 Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5) LMM Originated conventional January 2019 Active ​ ​ 355.8 Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6) LMM Originated conventional November 2019 Active ​ ​ 430.7 Ready Capital Mortgage Trust 2022-7 (RCMT 2022-7) LMM Originated conventional April 2022 Active ​ ​ 276.8 Waterfall Victoria Mortgage Trust 2011-2 (SBC2) LMM Acquired loans March 2011 Collapsed ​ ​ 97.6 Sutherland Commercial Mortgage Trust 2018 (SBC6) LMM Acquired loans August 2017 Active ​ ​ 154.9 Sutherland Commercial Mortgage Trust 2019 (SBC8) LMM Acquired loans June 2019 Active ​ ​ 306.5 Sutherland Commercial Mortgage Trust 2020 (SBC9) LMM Acquired loans June 2020 Collapsed ​ ​ 203.6 Sutherland Commercial Mortgage Trust 2021 (SBC10) LMM Acquired loans May 2021 Active ​ ​ 232.6 ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations (CLOs) ​ ​ ​ ​ ​ ​ Ready Capital Mortgage Financing 2017– FL1 LMM Originated bridge August 2017 Collapsed ​ ​ 198.8 Ready Capital Mortgage Financing 2018 – FL2 LMM Originated bridge June 2018 Collapsed ​ ​ 217.1 Ready Capital Mortgage Financing 2019 – FL3 LMM Originated bridge April 2019 Collapsed ​ ​ 320.2 Ready Capital Mortgage Financing 2020 – FL4 LMM Originated bridge June 2020 Collapsed ​ ​ 405.3 Ready Capital Mortgage Financing 2021 – FL5 LMM Originated bridge March 2021 Active ​ ​ 628.9 Ready Capital Mortgage Financing 2021 – FL6 LMM Originated bridge August 2021 Active ​ ​ 652.5 Ready Capital Mortgage Financing 2021 – FL7 LMM Originated bridge November 2021 Active ​ ​ 927.2 Ready Capital Mortgage Financing 2022 – FL8 LMM Originated bridge March 2022 Active ​ ​ 1,135.0 Ready Capital Mortgage Financing 2022 – FL9 LMM Originated bridge June 2022 Active ​ ​ 754.2 Ready Capital Mortgage Financing 2022 – FL10 LMM Originated bridge October 2022 Active ​ ​ 860.1 Ready Capital Mortgage Financing 2023 – FL11 LMM Originated bridge February 2023 Active ​ ​ 586.0 Ready Capital Mortgage Financing 2023 – FL12 LMM Originated bridge June 2023 Active ​ ​ 648.6 ​ ​ ​ ​ ​ ​ ​ Trusts (Non-firm sponsored) ​ ​ ​ ​ ​ ​ Freddie Mac Small Balance Mortgage Trust 2016-SB11 Originated agency multi-family January 2016 Active ​ ​ 110.0 Freddie Mac Small Balance Mortgage Trust 2016-SB18 Originated agency multi-family July 2016 Active ​ ​ 118.0 Freddie Mac Small Balance Mortgage Trust 2017-SB33 Originated agency multi-family June 2017 Active ​ ​ 197.9 Freddie Mac Small Balance Mortgage Trust 2018-SB45 Originated agency multi-family January 2018 Active ​ ​ 362.0 Freddie Mac Small Balance Mortgage Trust 2018-SB52 Originated agency multi-family September 2018 Active ​ ​ 505.0 Freddie Mac Small Balance Mortgage Trust 2018-SB56 Originated agency multi-family December 2018 Active ​ ​ 507.3 Key Commercial Mortgage Trust 2020-S3 (1) LMM Originated conventional September 2020 Active ​ ​ 263.2 (1) Contributed portion of assets into trust ​ ​ ​ ​ ​ ​ ​ 89 Table of Contents We used the proceeds from the sale of the tranches issued to purchase and originate LMM and SBA loans.
(in millions) Collateral Asset Class Issuance Active / Collapsed Bonds Issued Trusts (Firm sponsored) Waterfall Victoria Mortgage Trust 2011-1 (SBC1) LMM Acquired loans February 2011 Collapsed $ 40.5 Waterfall Victoria Mortgage Trust 2011-3 (SBC3) LMM Acquired loans October 2011 Collapsed 143.4 Sutherland Commercial Mortgage Trust 2015-4 (SBC4) LMM Acquired loans August 2015 Collapsed 125.4 Sutherland Commercial Mortgage Trust 2018 (SBC7) LMM Acquired loans November 2018 Collapsed 217.0 ReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1) Acquired SBA 7(a) loans June 2015 Collapsed 189.5 ReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2) Originated SBA 7(a) loans, Acquired SBA 7(a) loans December 2019 Active 131.0 ReadyCap Lending Small Business Loan Trust 2023-3 (RCLT 2023-3) Originated SBA 7(a) loans, Acquired SBA 7(a) loans July 2023 Active 132.0 Real Estate Mortgage Investment Conduits (REMICs) ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1) LMM Originated conventional September 2014 Collapsed 181.7 ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2) LMM Originated conventional November 2015 Collapsed 218.8 ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3) LMM Originated conventional November 2016 Active 162.1 ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4) LMM Originated conventional March 2018 Active 165.0 Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5) LMM Originated conventional January 2019 Active 355.8 Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6) LMM Originated conventional November 2019 Active 430.7 Ready Capital Mortgage Trust 2022-7 (RCMT 2022-7) LMM Originated conventional April 2022 Active 276.8 Waterfall Victoria Mortgage Trust 2011-2 (SBC2) LMM Acquired loans March 2011 Collapsed 97.6 Sutherland Commercial Mortgage Trust 2018 (SBC6) LMM Acquired loans August 2017 Active 154.9 Sutherland Commercial Mortgage Trust 2019 (SBC8) LMM Acquired loans June 2019 Active 306.5 Sutherland Commercial Mortgage Trust 2020 (SBC9) LMM Acquired loans June 2020 Collapsed 203.6 Sutherland Commercial Mortgage Trust 2021 (SBC10) LMM Acquired loans May 2021 Active 232.6 Collateralized Loan Obligations (CLOs) Ready Capital Mortgage Financing 2017– FL1 LMM Originated bridge August 2017 Collapsed 198.8 Ready Capital Mortgage Financing 2018 – FL2 LMM Originated bridge June 2018 Collapsed 217.1 Ready Capital Mortgage Financing 2019 – FL3 LMM Originated bridge April 2019 Collapsed 320.2 Ready Capital Mortgage Financing 2020 – FL4 LMM Originated bridge June 2020 Collapsed 405.3 Ready Capital Mortgage Financing 2021 – FL5 LMM Originated bridge March 2021 Active 628.9 Ready Capital Mortgage Financing 2021 – FL6 LMM Originated bridge August 2021 Active 652.5 Ready Capital Mortgage Financing 2021 – FL7 LMM Originated bridge November 2021 Active 927.2 Ready Capital Mortgage Financing 2022 – FL8 LMM Originated bridge March 2022 Active 1,135.0 Ready Capital Mortgage Financing 2022 – FL9 LMM Originated bridge June 2022 Active 754.2 Ready Capital Mortgage Financing 2022 – FL10 LMM Originated bridge October 2022 Active 860.1 Ready Capital Mortgage Financing 2023 – FL11 LMM Originated bridge February 2023 Active 586.0 Ready Capital Mortgage Financing 2023 – FL12 LMM Originated bridge June 2023 Active 648.6 Trusts (Non-firm sponsored) Freddie Mac Small Balance Mortgage Trust 2016-SB11 Originated agency multi-family January 2016 Active 110.0 Freddie Mac Small Balance Mortgage Trust 2016-SB18 Originated agency multi-family July 2016 Active 118.0 Freddie Mac Small Balance Mortgage Trust 2017-SB33 Originated agency multi-family June 2017 Active 197.9 Freddie Mac Small Balance Mortgage Trust 2018-SB45 Originated agency multi-family January 2018 Active 362.0 Freddie Mac Small Balance Mortgage Trust 2018-SB52 Originated agency multi-family September 2018 Active 505.0 Freddie Mac Small Balance Mortgage Trust 2018-SB56 Originated agency multi-family December 2018 Active 507.3 Key Commercial Mortgage Trust 2020-S3 (1) LMM Originated conventional September 2020 Active 263.2 (1) Contributed portion of assets into trust 94 We used the proceeds from the sale of the tranches issued to purchase and originate LMM and SBL loans .
Because the severity, magnitude and duration of these economic events remain uncertain, rapidly changing and difficult to predict, the impact on our operations and liquidity also remains uncertain and difficult to predict. ​ 84 Table of Contents Cash flow Year Ended December 31, 2023.
Because the severity, magnitude and duration of these economic events remain uncertain, rapidly changing and difficult to predict, the impact on our operations and liquidity also remains uncertain and difficult to predict . Cash flow Year Ended December 31, 2024 .
The net cash provided by investing activities primarily reflected proceeds from dispositions and paydowns, partially offset by loan originations. The net cash provided by operating activities primarily reflected net income, partially offset by a bargain purchase gain in connection with the Broadmark Merger. ​ Year Ended December 31, 2022.
The net cash provided by investing activities primarily reflected proceeds from dispositions and paydowns, partially offset by loan originations. The net cash provided by operating activities primarily reflected net income, partially offset by a bargain purchase gain in connection with the Broadmark Merger.
(2) Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year. (3) Interest on the corporate debt is payable quarterly on January 30, April 30, July 30, and October 30 of each year. (4) Interest on the corporate debt is payable semiannually on April 30 and October 30 of each year.
(2) Interest on the term loan is payable quarterly on January 12, April 12, July 12 and October 12 of each year. (3) Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year.
We refer to assets as being part of our acquisition or origination pipeline if (i) an asset or portfolio opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our investment strategy and exhibit the appropriate risk/reward characteristics (ii) in the case of acquired loans, we have executed a non-disclosure agreement (“NDA”) or an exclusivity agreement and commenced the due diligence process or we have executed more definitive documentation, such as a letter of intent (“LOI”); and (iii) in the case of originated loans, we have issued an LOI, and the borrower has paid a deposit. ​ We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire the potential investments in the pipeline.
We refer to assets as being part of our acquisition or origination pipeline if (i) an asset or portfolio opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our investment strategy and exhibit the appropriate risk/reward characteristics (ii) in the case of acquired loans, we have executed a non-disclosure agreement (“NDA”) or an exclusivity agreement and commenced the due diligence process or we have executed more definitive documentation, such as a letter of intent (“LOI”); and (iii) in the case of originated loans, we have issued an LOI, and the borrower has paid a deposit.
Difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, such as the outbreak of COVID-19 and the emergence and severity of variants, unemployment and the availability and cost of credit are factors which could also impact our operating results. ​ Changes in Market Interest Rates.
Difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, unemployment and the availability and cost of credit are factors which could also impact our operating results. Changes in Market Interest Rates.
We hold an SBA license as one of only 17 non-bank SBLCs and have been granted preferred lender status by the SBA. These originated loans are either held-for-investment, placed into securitization structures or sold.
We hold an SBA license as one of only 20 non-bank Small Business Lending Companies and have been granted preferred lender status by the SBA. These originated loans are either held-for-investment, placed into securitization structures, or sold .
Generally, the loan repurchase facilities and securities repurchase agreements contain a SOFR-based financing rate, term and haircuts depending on the types of collateral and the counterparties involved.
Generally, the loan repurchase facilities and securities repurchase agreements contain a SOFR- based financing rate, term and haircuts depending on the types of collateral and the counterparties involved. The loan repurchase facilities also include financial maintenance covenants.
We issue senior unsecured notes in public and private transactions. The notes are governed by a base indenture and supplemental indentures. Often, the notes are redeemable by us following a non-call period, through the payment of the outstanding principal balance plus a “make-whole” or other premium that typically decreases the closer the notes are to maturity.
The notes are governed by a base indenture and supplemental indentures. Often, the notes are redeemable by us following a non-call period, through the payment of the outstanding principal balance plus a “make-whole” or other premium that typically decreases the closer the notes are to maturity.
Refer to Notes 1 and 5, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K, for more information about the Broadmark Merger and the assets acquired and liabilities assumed as a result of the Broadmark Merger. ​ Mosaic.
Refer to Notes 1 and 5, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K, for more information about the Madison One Acquisition and the assets acquired and liabilities assumed as a result of the Madison One Acquisition. Broadmark.
In addition, because not all companies use identical calculations, our presentation of distributable earnings may not be comparable to other similarly-titled measures of other companies. ​ We calculate distributable earnings as GAAP net income (loss) excluding the following: ​ i) any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses ii) any realized gains or losses on sales of certain MBS iii) any unrealized gains or losses on Residential MSRs from discontinued operations iv) any unrealized change in current expected credit loss reserve v) any unrealized gains or losses on de-designated cash flow hedges vi) any unrealized gains or losses on foreign exchange hedges vii) any unrealized gains or losses on certain unconsolidated joint ventures viii) any non-cash compensation expense related to stock-based incentive plan ix) one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses ​ In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by us in the secondary market but is not adjusted to exclude unrealized gains and losses on MBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS securitization and retain an interest in the securitization.
We calculate distributable earnings as GAAP net income (loss) excluding the following: i) any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses ii) any realized gains or losses on sales of certain MBS iii) any unrealized gains or losses on Residential MSRs from discontinued operations iv) any unrealized change in current expected credit loss reserve and valuation allowances v) any unrealized gains or losses on de-designated cash flow hedges vi) any unrealized gains or losses on foreign exchange hedges vii) any unrealized gains or losses on certain unconsolidated joint ventures viii) any non-cash compensation expense related to stock-based incentive plan ix) any unrealized gains or losses on preferred equity , at fair value x) one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by us in the secondary market but is not adjusted to exclude unrealized gains and losses on MBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS securitization and retain an interest in the securitization.
We also have established processes to provide that the valuation methodologies, techniques and approaches for investments that are categorized within Level 3 of the ASC 820 Fair Value Measurement fair value hierarchy (the “fair value hierarchy”) are fair, consistent and verifiable.
We also have established processes to provide that the valuation methodologies, techniques and approaches for investments that are categorized within Level 3 of the ASC 820 Fair Value Measurement fair value hierarchy (the “fair value hierarchy”) are fair, consistent and verifiable. Our processes provide a framework that ensures the oversight of our fair value methodologies, techniques, validation procedures, and results.
On May 31, 2023, the Company, Broadmark Realty Capital Inc., a Maryland corporation (“Broadmark”), and RCC Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“RCC Merger Sub”), completed a merger (such transaction, the “Broadmark Merger”) in which Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of the Company.
On May 31, 2023, the Company, Broadmark , a Maryland corporation , and RCC Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), completed a merger (the “Broadmark Merger”) in which Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of the operating partnership.
These securitizations allow us to match fund the LMM and SBA loans on a long-term, non-recourse basis. The assets pledged as collateral for these securitizations were contributed from our portfolio of assets.
These securitizations allow us to match fund the LMM and SBA loans on a long-term, non-recourse basis. The assets pledged as collateral for these securitizations were contributed from our portfolio of assets. By contributing these LMM and SBA assets to the various securitizations, these transactions created capacity for us to fund other investments.
The net cash used for financing activities primarily reflected the repayments of secured borrowings, PPPLF borrowings and the convertible note and dividend payments, partially offset by proceeds from secured borrowings and net proceeds from the issuance of securitized debt obligations of consolidated VIEs.
The net cash used for financing activities primarily reflected the repayments of secured borrowings, Paycheck Protection Program Liquidity Facility (“ PPPLF”) borrowings and the convertible note and dividend payments, partially offset by proceeds from secured borrowings and net proceeds from the issuance of securitized debt obligations of consolidated VIEs.
Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part, 1.
Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part, 1. Item 1A, “Risk Factors” in this Form 10-K.
We utilize credit facilities and other financing arrangements to finance our business. The financings are collateralized by the underlying mortgages, assets, related documents, and instruments, and typically contain index-based financing rate and terms, haircut and collateral posting provisions which depend on the types of collateral and the counterparties involved.
The financings are collateralized by the underlying mortgages, assets, related documents, and instruments, and typically contain index-based financing rate and terms, haircut and collateral posting provisions which depend on the types of collateral and the counterparties involved.
The loan repurchase facilities also include financial maintenance covenants. ​ If the estimated fair values of the assets increase due to changes in market interest rates or other market factors, lenders may release collateral back to us.
If the estimated fair values of the assets increase due to changes in market interest rates or other market factors, lenders may release collateral back to us.
In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of reasons which may include collateral type, duration, and size. ​ In addition, in calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value from discontinued operations.
In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of reasons which may include collateral type, duration, and size.
Securitization structures typically consist of trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches, and provide debt equal to 50% to 90% of the cost basis of the assets. ​ We also finance originated Freddie Mac SBL with secured borrowings until the loans are sold, generally within 30 days. ​ As of December 31, 2023, we had a total leverage ratio of 3.3x and recourse leverage ratio of 0.8x.
Securitization structures typically consist of trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches, and provide debt equal to 50% to 90% of the cost basis of the assets. We also finance originated SBL with secured borrowings until the loans are sold, generally within 30 days.
Refer to “Notes to Consolidated Financial Statements, Note 7 – Fair Value Measurements” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to fair value measurements. ​ Servicing rights impairment Servicing rights, at amortized cost, are initially recorded at fair value and subsequently carried at amortized cost.
Refer to “Notes to Consolidated Financial Statements, Note 7 – Fair Value Measurements” included in Item 8, “Financial Statements and Supplementary Data,” in this Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to fair value measurements.
Our processes provide a framework that ensures the oversight of our fair value methodologies, techniques, validation procedures, and results. ​ When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
Discussions of our financial condition and results of operations for the year ended December 31, 2022 compared with the year ended December 31, 2021 that have been omitted under this item can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 28, 2023 . ​ In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions.
Discussions of our financial condition and results of operations for the year ended December 31, 2023 compared with the year ended December 31, 2022 that have been omitted under this item can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on February 28, 2024 .
Item 1A, “Risk Factors” in this annual report on Form 10-K. ​ Overview ​ Our Business We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA loans, construction loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related investments.
Overview Our Business We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA loans, construction loans, USDA loans and , to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related investments.
Cash and cash equivalents decreased by $11.1 million to $262.5 million at the end of 2023, primarily due to net cash used for financing activities, partially offset by net cash provided by investing and operating activities.
C ash and cash equivalents as of December 31, 2023 , decreased by $11.1 million to $262.5 million from December 31, 2022 , primarily due to net cash used for financing activities , partially offset by net cash provided by investing and operating activities.
Our ability to meet future margin calls will be impacted by the Cushion, which varies based on the fair value of our investments, our cash position and margin requirements.
Our ability to meet future margin calls will be impacted by the Cushion, which varies based on the fair value of our investments, our cash position and margin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs.
(7) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year.
(9) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year. (10) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year.
This summary should be read in conjunction with our accounting policies and use of estimates included in “Notes to Consolidated Financial Statements, Note 3 – Summary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in the Company’s annual report on Form 10-K. ​ Allowance for credit losses The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost.
This summary should be read in conjunction with our accounting policies and use of estimates included in “Notes to Consolidated Financial Statements, Note 3 – Summary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in the Company’s Form 10-K.
In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns. ​ During 2023, our Residential Mortgage Banking segment met the criteria to be classified as held for sale and presented as a discontinued operation.
In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns.
Such loans and lending commitments are reviewed quarterly considering credit quality indicators, including probable and historical losses, collateral values, LTV ratio and economic conditions.
Allowance for credit losses The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators, including probable and historical losses, collateral values, LTV ratio and economic conditions.
Consolidated distributable earnings of $48.5 million for the three months ended December 31, 2023 represented a decrease of $3.1 million from the prior year respective period, primarily due to a decrease in the provision for loan losses, partially offset by an increase in unrealized losses on the MSR and a measurement period adjustment on the bargain purchase gain. ​ Incentive distribution payable to our Manager Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our operating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not less than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) distributable 83 Table of Contents earnings (as described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the current quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating partnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number of shares of common stock outstanding (including any restricted shares of common stock and any other shares of common stock underlying awards granted under our 2013 Equity Incentive Plan and our 2023 Equity Incentive Plan) and OP units (without double counting) in such quarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three quarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any calendar quarter unless cumulative distributable earnings is greater than zero for the most recently completed 12 calendar quarters. ​ The incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall promptly be delivered to our Company.
Incentive distribution payable to our Manager Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our operating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not less than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) IFCE (as described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the current quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating partnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number of shares of common stock outstanding (including any restricted shares of common stock and any other shares of common stock underlying awards granted under our 2013 Equity Incentive Plan, our 2023 Equity Incentive Plan and the Broadmark Equity Plan) and OP units (without double counting) in such quarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three quarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any calendar quarter unless cumulative IFCE is greater than zero for the most recently completed 12 calendar quarters.
We hold performing LMM loans to term and seek to maximize the value of the non-performing LMM loans acquired by us through borrower-based resolution 74 Table of Contents strategies.
In addition, we acquire LMM loans as part of our business strategy. We hold performing LMM loans to term and seek to maximize the value of the non-performing LMM loans acquired by us through borrower-based resolution strategies.
Should prepayment speeds on the mortgages underlying our investments or market interest rates suddenly increase, margin calls on the loan repurchase facilities and securities repurchase agreements could result, causing an adverse change in our liquidity position.
Should prepayment speeds on the mortgages underlying our investments or market interest rates suddenly increase, margin calls on the loan repurchase facilities and securities repurchase agreements could result, causing an adverse change in our liquidity position. To date, we have satisfied all of our margin calls and have never sold assets in response to any margin call under these borrowings.
Our operating segments have different levels of recourse debt according to the differentiated nature of each segment. Our LMM Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.3x and 0.6x, respectively. The remaining recourse leverage ratio is from our corporate debt offerings. ​ Secured Borrowings ​ Credit Facilities and Other Financing Agreements.
Our LMM 89 Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.4x and 0.1x , respectively. The remaining recourse leverage ratio is from our corporate debt offerings. Secured Borrowings Credit Facilities and Other Financing Agreements. We utilize credit facilities and other financing arrangements to finance our business.
These originated loans are held for sale, and subsequently sold to Freddie Mac. We provide construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone, a wholly owned subsidiary. In addition, we acquire LMM loans as part of our business strategy.
As part of this segment, we originate and service multi-family loan products under the Freddie Mac SBL program. These originated loans are held for sale, and subsequently sold to Freddie Mac. We provide construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone, a subsidiary.
ReadyCap Holdings is required to offer to repurchase the Senior Secured Notes at 101% of the principal balance of the Senior Secured Notes in the event of a change in control and a downgrade of the rating on the Senior Secured Notes in connection therewith, as set forth more fully in the note purchase agreement. ​ The Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary negative covenants and requirements relating to the collateral and our company, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates. ​ Convertible notes .
The Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary negative covenants and requirements relating to the collateral and our company, ReadyCap Holdings, and the SSN Guarantors, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates.
(5) Interest on the corporate debt is payable semiannually on January 31 and July 31 of each year. (6) Interest on the corporate debt is payable semiannually on May 15 and November 15 of each year; assumed as part of the Broadmark Merger.
(7) Interest on the corporate debt is payable semiannually on May 15 and November 15 of each year; assumed as part of the Broadmark Merger. (8) Interest on the corporate debt is payable quarterly on March 15, June 15, September 15, and December 15 of each year.
For collateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. ​ 90 Table of Contents While we have a formal methodology to determine the adequate and appropriate level of the allowance for credit losses, estimates of inherent loan losses involve judgment and assumptions as to various factors, including current economic conditions.
For collateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
For purposes of testing our servicing rights, carried at amortized cost, for impairment, we first determine whether facts and 91 Table of Contents circumstances exist that would suggest the carrying value of the servicing asset is not recoverable. If so, we then compare the net present value of servicing cash flow with its carrying value.
Servicing rights impairment Servicing rights, at amortized cost, are initially recorded at fair value and subsequently carried at amortized cost. For purposes of testing our servicing rights, carried at amortized cost, for impairment, we first determine whether facts and circumstances exist that would suggest the carrying value of the servicing asset is not recoverable.
Non-interest expense of $80.1 million for 2023 represented an increase of $19.4 million from the prior year, primarily due to transaction related expenses for the Broadmark Merger. ​ Non-GAAP financial measures We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors greater transparency into the information used by management in our financial and operational decision-making, including the determination of dividends.
Non-GAAP financial measures We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors greater transparency into the information used by management in our financial and operational decision-making, including the determination of dividends.
The supplemental indentures governing the notes often contain customary negative covenants and financial covenants relating to maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates. ​ In addition, in connection with the Broadmark Merger, RCC Merger Sub, a wholly owned subsidiary of the Company, assumed Broadmark’s obligations on certain senior unsecured notes.
The supplemental indentures governing the notes often contain customary negative covenants and financial covenants relating to maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates.
As of December 31, 2023, we had $36.0 million outstanding under this credit facility . ​ Senior Secured Notes, Convertible Notes and Corporate Debt, Net The table below presents information about senior secured notes and corporate debt issued through public and private transactions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Coupon Rate ​ Maturity Date December 31, 2023 Senior secured notes principal amount (1) ​ 4.50 % ​ 10/20/2026 ​ $ 350,000 Unamortized deferred financing costs - Senior secured notes ​ ​ ​ ​ ​ ​ ​ (4,873) Total Senior secured notes, net ​ ​ ​ ​ ​ ​ $ 345,127 Corporate debt principal amount (2) ​ 5.50 % ​ 12/30/2028 ​ ​ 110,000 Corporate debt principal amount (3) ​ 6.20 % ​ 7/30/2026 ​ ​ 104,614 Corporate debt principal amount (3) ​ 5.75 % ​ 2/15/2026 ​ ​ 206,270 Corporate debt principal amount (4) ​ 6.125 % ​ 4/30/2025 ​ ​ 120,000 Corporate debt principal amount (5) ​ 7.375 % ​ 7/31/2027 ​ ​ 100,000 Corporate debt principal amount (6) ​ 5.00 % ​ 11/15/2026 ​ ​ 100,000 Unamortized discount - corporate debt ​ ​ ​ ​ ​ ​ ​ (7,121) Unamortized deferred financing costs - corporate debt ​ ​ ​ ​ ​ ​ ​ (5,105) Junior subordinated notes principal amount (7) ​ SOFR + 3.10 % ​ 3/30/2035 ​ ​ 15,000 Junior subordinated notes principal amount (8) ​ SOFR + 3.10 % ​ 4/30/2035 ​ ​ 21,250 Total corporate debt, net ​ ​ ​ ​ ​ ​ $ 764,908 Total carrying amount of debt ​ ​ ​ ​ ​ ​ $ 1,110,035 (1) Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.
(in thousands) Coupon Rate Maturity Date December 31, 2024 Senior secured notes principal amount (1) 4.50 % 10/20/2026 $ 350,000 Term loan principal amount (2) SOFR + 5.50% 4/12/2029 95,000 Unamortized discount - Senior secured notes (2,456) Unamortized deferred financing costs - Term loan (4,697) Total senior secured notes, net $ 437,847 Corporate debt principal amount (3) 5.50 % 12/30/2028 110,000 Corporate debt principal amount (4) 6.20 % 7/30/2026 104,614 Corporate debt principal amount (4) 5.75 % 2/15/2026 206,270 Corporate debt principal amount (5) 6.125 % 4/30/2025 120,000 Corporate debt principal amount (6) 7.375 % 7/31/2027 100,000 Corporate debt principal amount (7) 5.00 % 11/15/2026 100,000 Corporate debt principal amount (8) 9.00 % 12/15/2029 130,000 Unamortized discount - corporate debt (8,318) Unamortized deferred financing costs - corporate debt (3,551) Junior subordinated notes principal amount (9) SOFR + 3.10% 3/30/2035 15,000 Junior subordinated notes principal amount (10) SOFR + 3.10% 4/30/2035 21,250 Total corporate debt, net $ 895,265 Total carrying amount of debt $ 1,333,112 (1) Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.
We originate LMM loans across the full life-cycle of an LMM property including construction, bridge, stabilized and agency loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial. These originated loans are generally held-for-investment or placed into securitization structures. As part of this segment, we originate and service multi-family loan products under the Freddie Mac SBL program.
We report our activities in the following two operating segments: • LMM Commercial Real Estate. We originate LMM loans across the full life-cycle of an LMM property including construction, bridge, stabilized and agency loan origination channels through our subsidiary, ReadyCap Commercial. These originated loans are generally held-for-investment or placed into 78 securitization structures.
In calculating distributable earnings, we do not exclude realized gains or losses on commercial MSRs, as servicing income is a fundamental part of our business and an indicator of the ongoing performance. ​ 82 Table of Contents To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.
To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.
To date, we have satisfied all of our margin calls and have never sold assets in response to any margin call under these borrowings. ​ Our borrowings under repurchase agreements are renewable at the discretion of our lenders and, as such, our ability to roll-over such borrowings are not guaranteed.
Our borrowings under repurchase agreements are renewable at the discretion of our lenders and, as such, our ability to roll-over such borrowings are not guaranteed.
Although the full impact of these changes remains uncertain and difficult to predict, concerns and uncertainties about the economic outlook may adversely impact our financial condition, results of operations and cash flows. ​ ​ 77 Table of Contents Results of Operations ​ Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared per share, distributable earnings, return on equity, and net book value per share.
Results of Operations 80 Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared per share, distributable earnings, return on equity, and net book value per share.
Refer to Notes 1 and 5, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K, for more information about the Mosaic Mergers and assets acquired and liabilities assumed in the Mosaic Mergers. ​ For additional information on our business, refer to Part I, Item 1, “Business” in this Annual Report on Form 10-K. ​ 75 Table of Contents Factors Impacting Operating Results We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of interest income from our assets, the market value of our assets and the supply of, and demand for, LMM loans, SBA loans, construction loans, MBS and other assets we may acquire in the future, demand for housing, population trends, construction costs, the availability of alternative real estate financing from other lenders and the financing and other costs associated with our business.
Factors Impacting Operating Results We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of interest income from our assets, the market and fair value of our assets and the supply of, and demand for, LMM loans, SBA loans, USDA loans, construction loans, MBS and other assets we may acquire in the future, demand for housing, population trends, construction costs, the availability of alternative real estate financing from other lenders, changes in credit spreads, and the financing and other costs associated with our business.
The net increase in the outstanding balances during 2022 was primarily due to increased borrowings to fund LMM originations and acquisitions volumes. ​ Paycheck Protection Program Facility borrowings. The Company uses the Paycheck Protection Program Liquidity Facility (“PPPLF”) from the Federal Reserve to finance PPP loans. The program charges an interest rate of 0.35%.
The net decrease in the outstanding balances during 2023 was primarily due to the closings of RCMF 2023-FL11 and RCMF 2023-FL12, partially offset by the collapse of RCMF 2019-FL3 and RCMF 2020-FL4. Paycheck Protection Program Liquidity Facility borrowings. The Company uses the PPPLF from the Federal Reserve to finance PPP loans. The program charges an interest rate of 0.35%.
Our primary sources of liquidity will include our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and revolving facilities), the net proceeds of offerings of equity and debt securities, including our senior secured notes, corporate debt, and net cash provided by operating activities. ​ We are continuing to monitor the impact of rising interest rates, credit spreads and inflation on the Company, the borrowers underlying our real estate-related assets, the tenants in the properties we own, our financing sources, and the economy as a whole.
These factors may increase our reliance on our primary sources of liquidity, including our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and revolving facilities), the net proceeds of offerings of equity and debt securities, including our senior secured notes, corporate debt, and net cash provided by operating activities.
Interest expense of $650.6 million for 2023 represented an increase of $286.3 million from the prior year, driven by increases in interest rates. Provision for loan losses of $1.4 million for 2023 represented a decrease of $30.1 million from the prior year, due to changes in the forecasted macroeconomic inputs for reserve modeling.
Provision for loan losses of $9.0 million represented an increase of $3.1 million , due to changes in the forecasted macroeconomic inputs for reserve modeling, partially offset by a decrease in specific loan reserves.
(8) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year. ​ The table below presents the contractual maturities for senior secured notes and corporate debt. ​ ​ ​ ​ ​ (in thousands) December 31, 2023 2024 $ — 2025 ​ 120,000 2026 ​ 760,884 2027 ​ 100,000 2028 ​ ​ 110,000 Thereafter ​ 36,250 Total contractual amounts ​ $ 1,127,134 Unamortized deferred financing costs, discounts, and premiums, net ​ ​ (17,099) Total carrying amount of debt ​ $ 1,110,035 ​ ReadyCap Holdings 4.50% senior secured notes due 2026.
(in thousands) December 31, 2024 2025 $ 120,000 2026 760,884 2027 100,000 2028 110,000 2029 225,000 Thereafter 36,250 Total contractual amounts $ 1,352,134 Unamortized deferred financing costs, discounts, and premiums, net (19,022) Total carrying amount of debt $ 1,333,112 ReadyCap Holdings 4.50% senior secured notes due 2026.
The Senior Secured Notes are fully and unconditionally guaranteed by the Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the Senior Secured Notes (collectively, the “Guarantors”). ​ ReadyCap Holdings’ and the Guarantors’ respective obligations under the Senior Secured Notes are secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “SSN Collateral”) owned by certain subsidiaries of the Company. ​ The Senior Secured Notes are redeemable by ReadyCap Holdings’ following a non-call period, through the payment of the outstanding principal balance of the Senior Secured Notes plus a “make-whole” or other premium that decreases the closer the Senior Secured Notes are to maturity.
The Senior Secured Notes are fully and unconditionally guaranteed by the Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the Senior Secured Notes (collectively, the “SSN Guarantors”).
Refer to “Notes to Consolidated Financial Statements, Note 6 – Loans and Allowance for Credit Losses” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for results of our loan impairment evaluation. ​ Accretion of discounts associated with PPP loans, held for investment The Company’s loan originations in the second round of the program are accounted for as loans, held-for-investment under ASC 310, Receivables (“ASC 310”).
Refer to “Notes to Consolidated Financial Statements, Note 6 – Loans and Allowance for Credit Losses” included in I tem 8, “Financial Statements and Supplementary Data,” in this Form 10-K for results of our loan impairment evaluation .
Floating rate mortgage loans generally have an adjustable interest rate equal to the sum of a fixed spread plus an index rate, such as the Secured Overnight Financing Rate (“SOFR”), which typically resets monthly.
Floating rate mortgage loans generally have an adjustable interest rate equal to the sum of a fixed spread plus an index rate, such as the SOFR , which typically resets monthly. As of December 31, 2024 , approximate ly 84% of the loans in our portfolio were floating rate mortgages, and 16% wer e fixed rate mortgages, based on UPB.
The net cash provided by operating activities primarily reflected an increase in loans, held for sale, net. ​ Financing Strategy and Leverage ​ In addition to raising capital through offerings of our public equity and debt securities, we finance our investment portfolio through securitization and secured borrowings.
Financing Strategy and Leverage In addition to raising capital through offerings of our public equity and debt securities, we finance our investment portfolio through securitization and secured borrowings. We generally seek to match-fund our investments to minimize the differences in the terms of our investments and our liabilities.
The net decrease in the outstanding balances during 2023 was primarily due to the closings of RCMF 2023- FL11 and RCMF 2023-FL12, partially offset by the collapse of RCMF 2019-FL3 and RCMF 2020-FL4. ​ Year Ended December 31, 2022.
The net decrease in the outstanding balances during 2024 was primarily due to the sale of warehouse loans, partially offset by increased borrowings to fund origination volumes and the collapse of RCMT 2015-2. Year Ended December 31, 2023.
We generally seek to match-fund our investments to minimize the differences in the terms of our investments and our liabilities. Our secured borrowings have various recourse levels including full recourse, partial recourse and non-recourse, as well as varied mark-to-market provisions including full mark-to-market, credit mark only and non-mark-to-market.
Our secured borrowings have various recourse levels including full recourse, partial recourse and non-recourse, as well as varied mark-to-market provisions including full mark-to-market, credit mark only and non-mark-to-market. Securitizations allow us to match fund loans pledged as collateral on a long-term, non-recourse basis.
For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two operating segments: ​ ● LMM Commercial Real Estate .
Our Residential Mortgage Banking segment meets the criteria to be classified as held for sale and presented as a discontinued operation. For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
The net cash provided by financing activities primarily reflected net proceeds from issuances of securitized debt and secured borrowings, partially offset by the repayment of PPPLF borrowings.
T he net cash used for financing activities primarily reflected repayments of securitized debt obligations of consolidated VIEs, dividend payments and repayments of secured borrowings. The net cash provided by investing activities primarily reflected proceeds from disposition and principal payments of loans, partially offset by net cash used for loan originations.
GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of the independent directors and (ii) do not exclude any realized gains or losses on the sales of MBS and on discontinued operations which were excluded from the definition of distributable earnings described above under "Non-GAAP Financial Measures". ​ Liquidity and Capital Resources ​ Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements.
The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non- cash charges after discussions between our Manager and our independent directors and after approval by a majority of the independent directors. 88 Liquidity and Capital Resources Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements.
PPPLF borrowings decreased $165 million due to PPP principal forgiveness. ​ As of December 31, 2023, total stockholders’ equity was $2.6 billion, an increase of $748 million from December 31, 2022, primarily due to equity raised in connection with the Broadmark Merger, partially offset by common stock repurchased through the Company’s share repurchase program. ​ Selected Balance Sheet Information by Business Segment.
As of December 31, 2024 , total stockholders’ equity was $1.9 billion , a decrease of $702.7 million from December 31, 2023 , primarily due to net losses, dividends paid and common stock repurchased through the Company’s share repurchase program. Selected Balance Sheet Information by Business Segment.
Cash and cash equivalents decreased by $2.6 million to $273.6 million at the end of 2022, primarily due to net cash used for investing activities, partially offset by net cash provided by financing and operating activities. The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns.
Cash and cash equivalents as of December 31, 2024 , decreased by $79.7 million to $182.8 million from December 31, 2023 , primarily due to net cash used for financing activities, partially offset by net cash provided by investing and operating activities.
Distributable earnings is a non-U.S. GAAP financial measure and because distributable earnings is an incomplete measure of our financial performance and involves differences from net income computed in accordance with U.S. GAAP, it should be considered along with, but not as an alternative to, our net income as a measure of our financial performance.
We utilize distributable earnings before realized losses as an additional performance metric to consider when assessing our ability to declare and pay dividends. Distributable earnings and distributable earnings before realized losses are non-U.S. GAAP financial measures and because these non-U.S. GAAP measures are incomplete measures of our financial performance and involve differences from net income computed in accordance with U.S.
Refer to “Notes to Consolidated Financial Statements, Note 19 – Other Income and Operating Expenses” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of PPP loans, held for investment. ​ Valuation of financial assets and liabilities carried at fair value We measure our MBS, derivative assets and liabilities, and any assets or liabilities where we have elected the fair value option at fair value, including certain loans we have originated that are expected to be sold to third parties or securitized in the near term. ​ We have established valuation processes and procedures designed so that fair value measurements are appropriate and reliable, that they are based on observable inputs where possible, that the valuation approaches are consistently applied, and the assumptions and inputs are reasonable.
Valuation of financial assets and liabilities carried at fair value We measure our MBS, derivative assets and liabilities, and any assets or liabilities where we have elected the fair value option at fair value, including certain loans we have originated that are expected to be sold to third parties or securitized in the near term.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBecause non-performing LMM loans are short-term assets, the discount rates used for valuation are based on short-term market interest rates, which may not move in tandem with long-term market interest rates. ​ The table below projects the impact on our interest income and expense for the twelve-month period following December 31, 2023, assuming an immediate increase or decrease of 25, 50, 75, and 100 basis points in interest rates. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12-month pretax net interest income sensitivity profiles ​ ​ Instantaneous change in rates (in thousands) ​ 25 basis point increase ​ 50 basis point increase ​ 75 basis point increase ​ 100 basis point increase ​ 25 basis point decrease ​ 50 basis point decrease ​ 75 basis point decrease ​ 100 basis point decrease Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans $ 18,960 $ 37,925 $ 56,892 $ 75,860 $ (18,948) $ (37,877) $ (56,768) $ (75,540) Interest rate swap hedges ​ 1,498 ​ 2,996 ​ 4,494 ​ 5,992 ​ (1,498) ​ (2,996) ​ (4,494) ​ (5,992) Total $ 20,458 $ 40,921 $ 61,386 $ 81,852 $ (20,446) $ (40,873) $ (61,262) $ (81,532) Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured borrowings ​ (4,630) ​ (9,261) ​ (13,891) ​ (18,521) ​ 4,630 ​ 9,261 ​ 13,891 ​ 18,521 Securitized debt obligations ​ (10,971) ​ (21,943) ​ (32,914) ​ (43,886) ​ 10,971 ​ 21,943 ​ 32,914 ​ 43,886 Total $ (15,601) $ (31,204) $ (46,805) $ (62,407) $ 15,601 $ 31,204 $ 46,805 $ 62,407 Total Net Impact to Net Interest Income (Expense) $ 4,857 $ 9,717 $ 14,581 $ 19,445 $ (4,845) $ (9,669) $ (14,457) $ (19,125) ​ Such hypothetical impact of interest rates on our variable rate debt does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment.
Biggest changeBecause non-performing LMM loans are short-term assets, the discount rates used for valuation are based on short-term market interest rates, which may not move in tandem with long-term market interest rates. 97 The table below projects the impact on our interest income and expense for the twelve-month period following December 31, 2024 , assuming an immediate increase or decrease of 25, 50, 75, and 100 basis points in interest rates. 12-month pretax net interest income sensitivity profiles Instantaneous change in rates (in thousands) 25 basis point increase 50 basis point increase 75 basis point increase 100 basis point increase 25 basis point decrease 50 basis point decrease 75 basis point decrease 100 basis point decrease Assets: Loans $ 15,516 $ 31,118 $ 46,739 $ 62,374 $ (15,421) $ (29,447) $ (42,640) $ (55,666) Interest rate swap hedges 1,058 2,116 3,174 4,232 (1,058) (2,116) (3,174) (4,232) Total $ 16,574 $ 33,234 $ 49,913 $ 66,606 $ (16,479) $ (31,563) $ (45,814) $ (59,898) Liabilities: Secured borrowings (4,408) (8,816) (13,224) (17,632) 4,408 8,816 13,224 17,632 Securitized debt obligations (7,431) (14,862) (22,293) (29,724) 7,431 14,862 22,293 29,724 Senior secured notes and corporate debt (328) (656) (984) (1,313) 328 656 984 1,313 Total $ (12,167) $ (24,334) $ (36,501) $ (48,669) $ 12,167 $ 24,334 $ 36,501 $ 48,669 Total Net Impact to Net Interest Income (Expense) $ 4,407 $ 8,900 $ 13,412 $ 17,937 $ (4,312) $ (7,229) $ (9,313) $ (11,229) Such hypothetical impact of interest rates on our variable rate debt does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment.
Off-balance sheet risk refers to situations where the maximum potential loss resulting from changes in the level or volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of the reported amounts of such assets and liabilities currently reflected in the accompanying consolidated balance sheets. ​ Inflation risk.
Off-balance sheet risk refers to situations where the maximum potential loss resulting from changes in the level or volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of the reported amounts of such assets and liabilities currently reflected in the accompanying consolidated balance sheets.
Most of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. Changes in interest rates may, but do not necessarily, correlate with inflation rates and/or changes in inflation rates.
Inflation risk. Most of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. Changes in interest rates may, but do not necessarily, correlate with inflation rates and/or changes in inflation rates.
While we may finance certain investments in security positions using traditional margin arrangements and reverse repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer-term financing vehicles may be utilized to provide us with sources of long-term financing. ​ 93 Table of Contents Prepayment risk .
While we may finance certain investments in security positions using traditional margin arrangements and reverse repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer-term financing vehicles may be utilized to provide us with sources of long-term financing. Prepayment risk.
If we were forced to dispose of an illiquid investment at an inopportune time, we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in LMM loans, ABS and other financial instruments.
Additionally, i f we were forced to dispose of an illiquid investment at an inopportune time , we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in LMM loans, ABS and other financial instruments.
Many of these risks have been augmented due to the continuing economic disruptions caused by inflationary pressures, rising energy costs, heightened geopolitical tensions, and the impact of the COVID-19 pandemic which remain uncertain and difficult to predict. We continue to monitor the impact and effect of these risks in our operations. ​ Market risk.
Many of these risks have been augmented due to the continuing economic disruptions caused by inflationary pressures, rising energy costs, heightened geopolitical tensions, and the impact of pandemics and epidemics which remain uncertain and difficult to predict. We continue to monitor the impact and effect of these risks in our operations. Market risk.
Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. ​ Our operating results will depend, in part, on differences between the income from our investments and our financing costs.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Our operating results will depend, in part, on differences between the income from our investments and our financing costs.
We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other financing arrangements.
We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other financing arrangements.
In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income.
In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets. LMM loan and ABS extension risk.
In some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses. ​ Real estate risk .
This could have a negative impact on our results of operations. In some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses. 98 Real estate risk.
See “Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in this annual report on Form 10-K for a discussion on interest rate sensitivity. ​ ​ 95 Table of Contents
Refer to “Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in this Form 10-K for a discussion on interest rate sensitivity. 100
We further mitigate our risk of potential losses while managing and servicing our loans by performing various workout and loss mitigation strategies with delinquent borrowers.
We further mitigate our risk of potential losses while managing and servicing our loans by performing various workout and loss mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit losses could occur which could adversely impact operating results. Interest rate risk.
Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for us making payments based on a fixed interest rate over the life of the swap contract. ​ Certain of our subsidiaries have entered into over-the-counter (“OTC”) interest rate swap agreements to hedge risks associated with movements in interest rates.
We enter into derivative instruments, such as interest rate swaps, to mitigate these risks. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for us making payments based on a fixed interest rate over the life of the swap contract.
If prepayment rates decrease in a rising interest rate environment or extension options are exercised, the life of the fixed-rate assets could extend beyond the term of the secured debt agreements. This could have a negative impact on our results of operations.
Our Manager computes the projected weighted-average life of our assets based on assumptions regarding the rate at which the borrowers will prepay the mortgages or extend. If prepayment rates decrease in a rising interest rate environment or extension options are exercised, the life of the fixed-rate assets could extend beyond the term of the secured debt agreements.
Therefore, upon a default by an interest rate swap agreement counterparty, the interest rate swap would no longer mitigate the impact of changes in interest rates as intended. 94 Table of Contents The table below presents information with respect to any counterparty for repurchase agreements for which our Company had greater than 5% of stockholders’ equity at risk in the aggregate. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) ​ Counterparty Rating Amount of Risk ​ Weighted Average Months to Maturity for Agreement ​ Percentage of Stockholders’ Equity JPMorgan Chase Bank, N.A. ​ A+/Aa2 $ 516,261 ​ 29 ​ 19.6% Wells Fargo Bank, N.A. ​ A+/Aa2 $ 147,722 ​ 30 ​ 5.6% ​ In the table above, ● The counterparty ratings presented are the long-term issuer credit rating as rated by S&P and Moody’s, respectively. ​ ● The amount at risk reflects the difference between the amount loaned through repurchase agreements, including interest payable, and the cash and fair value of the assets pledged as collateral, including accrued interest receivable. ​ Capital market risk.
Therefore, upon a default by an interest rate swap agreement counterparty, the interest rate swap would no longer mitigate the impact of changes in interest rates as intended. The table below presents information with respect to any counterparty for repurchase agreements for which our Company had greater than 5% of stockholders’ equity at risk in the aggregate.
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Nevertheless, unanticipated credit losses could occur which could adversely impact operating results. ​ The COVID-19 pandemic has adversely impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in property renovations currently planned or underway.
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It also includes risk stemming from PIK interest loans and loan modifications we may grant to borrowers which are intended to minimize our economic loss and to avoid foreclosure or repossession of collateral.
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These negative conditions may persist into the future and impair borrower’s ability to pay principal and interest due under our loan agreements.
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Such modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than- insignificant payment delay, which may impact our ability to meet potential cash requirements and make us more reliant on financing strategies.
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We maintain robust asset management relationships with our borrowers and have leveraged these relationships to address the potential impact of the COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure, most significantly hospitality and retail assets.
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Certain of our subsidiaries have entered into over-the-counter (“OTC”) interest rate swap agreements to hedge risks associated with movements in interest rates.
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Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences and have requested temporary interest deferral or forbearance, or other modifications of their loans.
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December 31, 2024 (in thousands) Counterparty Rating Amount of Risk Weighted Average Months to Maturity for Agreement Percentage of Stockholders’ Equity JPMorgan Chase Bank, N.A. AA-/Aa2 $ 526,490 19 27.2 % Morgan Stanley Bank, N.A.
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Accordingly, we have discussed with our borrowers potential near-term defensive loan modifications, which could include repurposing of reserves, temporary deferrals of interest, or performance test or covenant waivers on loans collateralized by assets directly impacted by the COVID-19 pandemic, and which would typically be coupled with an additional equity commitment and/or guaranty from sponsors.
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A+/Aa3 $ 125,979 5 6.5 % In the table above, 99 • The counterparty ratings presented are the long-term issuer credit rating as rated by S&P and Moody’s, respectively. • The amount at risk reflects the difference between the amount loaned through repurchase agreements, including interest payable, and the cash and fair value of the assets pledged as collateral, including accrued interest receivable.
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As of December 92 Table of Contents 31, 2023, less than 0.1% of the loans in our commercial real estate portfolio are in forbearance plans.
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Capital market risk. We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock or other equity instruments.
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While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments. ​ Interest rate risk.
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In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets. ​ LMM loan and ABS extension risk. Our Manager computes the projected weighted-average life of our assets based on assumptions regarding the rate at which the borrowers will prepay the mortgages or extend.
Removed
We enter into derivative instruments, such as interest rate swaps, to mitigate these risks.

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