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What changed in Ready Capital Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Ready Capital Corp's 2022 and 2023 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 2023 report.

+463 added−542 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Ready Capital Corp's 2023 10-K

463 paragraphs added · 542 removed · 408 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

79 edited+15 added−36 removed22 unchanged
Biggest changeAs a result, we cannot predict the percentage of our equity that will be invested in any particular asset or strategy at any given time. ​ Our Loan Portfolio The table below presents a summary of the sourcing of our loan assets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in thousands) Segment UPB % of Total UPB Carrying Value % of Total Carrying Value Bridge SBC Lending and Acquisitions $ 7,381,963 70.2 % $ 7,334,872 70.4 % Fixed rate/CMBS SBC Lending and Acquisitions ​ 1,100,479 10.5 ​ ​ 1,099,311 10.6 ​ Construction SBC Lending and Acquisitions ​ 448,923 4.3 ​ ​ 445,814 4.2 ​ Freddie Mac SBC Lending and Acquisitions ​ 23,543 0.2 ​ ​ 23,831 0.2 ​ Other SBC Lending and Acquisitions ​ 598,137 5.7 ​ ​ 594,128 5.7 ​ Paycheck Protection Program loans Small Business Lending ​ 196,798 1.9 ​ ​ 186,985 1.8 ​ SBA 7(a) loans Small Business Lending ​ 622,250 5.9 ​ ​ 599,795 5.8 ​ Residential Agency loans Residential Mortgage Banking ​ 138,146 1.3 ​ ​ 139,153 1.3 ​ Total ​ $ 10,510,239 100.0 % $ 10,423,889 100.0 % ​ 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 SBC acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, or Construction categories. ● Real estate, held for sale loans and mortgage servicing rights (“MSR”) are excluded. ​ As noted above, prior to the fourth quarter of 2021, we reported our activities in the following four business segments: Acquisitions, SBC Originations, Small Business Lending and Residential Mortgage Banking.
Biggest changeSee “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.
We believe that Waterfall’s experience, reputation and ability to underwrite SBC 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 SBC loans on attractive terms. ​ Competition for SBC loan asset acquisitions has been limited due to the special servicing expertise required to manage SBC 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.
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.
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 SBC 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. ​ 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.
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 SBC loans, SBA loans, residential mortgage loans, construction loans, and to a lesser extent, MBS collateralized primarily by SBC loans, or other real estate-related investments.
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.
SBC loans represent a special category of commercial mortgage loans, sharing both commercial and residential mortgage loan characteristics. SBC loans are typically secured by first mortgages on commercial properties or other business assets, but because SBC 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 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.
Over the last several years, our Manager has developed relationships with many of these entities, primarily banks and their advisors. In many cases, we are able to acquire SBC loans through negotiated transactions, at times partnering with acquiring banks or private equity firms in bank acquisitions and recapitalizations.
Over the last several years, our Manager has developed relationships with many of these entities, primarily banks and their advisors. In many cases, we are able to acquire LMM loans through negotiated transactions, at times partnering with acquiring banks or private equity firms in bank acquisitions and recapitalizations.
SBC securitization structures are non-recourse and typically provide debt equal to 50% to 90% of the cost basis of the assets. Non-performing SBC ABS involve liquidating trusts with liquidation proceeds used to repay senior debt. Performing SBC ABS involve longer-duration trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches.
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.
We believe that increased demand, coupled with the fragmentation of the SBC lending market, provides us with opportunities to originate loans to borrowers with strong credit profiles and real estate collateral that supports ultimate repayment of the loans. ​ We expect to continue to source SBC loan originations through the following loan origination channels: ​ ● Direct and indirect lending relationships.
We believe that increased demand, coupled with the fragmentation of the LMM lending market, provides us with opportunities to originate loans to borrowers with strong credit profiles and real estate collateral that supports ultimate repayment of the loans. ​ We expect to continue to source LMM loan originations through the following loan origination channels: ​ ● Direct and indirect lending relationships.
Other sources of SBC loans include special servicers of large balance SBC 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 Companies originating loans under the SBA 504 program, GSEs, and state economic development authorities.
We finance the loans we originate primarily through securitization transactions, as well through other borrowings. ​ Waterfall’s extensive experience in securitization strategies across asset classes has enabled us to complete several securitizations of SBC and SBA Section 7(a) Program loan assets since January 2011.
We finance the loans we originate primarily through securitization transactions, as well through other borrowings. ​ Waterfall’s extensive experience in securitization strategies across asset classes has enabled us to complete several securitizations of LMM and SBA Section 7(a) Program loan assets since January 2011.
The lender initially pays the guaranty fee and has the option to pass the expense on to the borrower at closing. For loans with a maturity of 12 months or less, the upfront guaranty fees are: i) For loans of $500,000 or less: 0.00% ii) For loans greater than $500,000: 0.25% of the guaranteed portion.
The lender initially pays the guaranty fee and has the option to pass the expense on to the borrower at closing. For loans with a maturity of 12 months or less, the upfront guaranty fees are: i) For loans of $1,000,000 or less: 0.00% ii) For loans greater than $1,000,000: 0.25% of the guaranteed portion.
We seek to manage credit risk through our loan-level pre-origination or pre-acquisition due diligence and underwriting processes, which aims to mitigate the amount of potential realized losses. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face.
We seek to manage credit risk through our loan-level pre-origination or pre-acquisition due diligence and underwriting processes, which aims to mitigate the amount of potential realized losses. However, we may not be able to achieve our business goals or expectations due to competitive risks.
Specifically, we attempt to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates, and we intend to hedge our SBC loan originations from the date the interest rate is locked until the loan is included in a securitization.
Specifically, we attempt to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates, and we intend to hedge our LMM loan originations from the date the interest rate is locked until the loan is included in a securitization.
Most SBC 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.
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.
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. ​ 10 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. ​ 12 Table of Contents ● Other direct origination sources.
Capasse and Ross have worked together in the same organization for more than 30 years.
Messrs. Capasse and Ross have worked together in the same organization for more than 30 years.
The proprietary database on the causes of borrower default, loss severity, and market information that we developed from our SBC loan acquisition experience has served as the basis for the development of our SBC 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 SBA loan origination programs.
Formed in 2005, Waterfall specializes in acquiring, managing, servicing and financing SBC and residential mortgage loans, as well as asset backed securities (“ABS”) and MBS. Waterfall has extensive experience in performing and non-performing loan acquisition, resolution and financing strategies.
Formed in 2005, Waterfall specializes in acquiring, managing, servicing and financing LMM and residential mortgage loans, as well as asset backed securities (“ABS”) and MBS. Waterfall has extensive experience in performing and non-performing loan acquisition, resolution and financing strategies.
Waterfall uses the data and analytics developed through its experience as an owner of SBC loans and in implementing loss mitigation actions to support our origination activities and to develop our loan underwriting standards.
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.
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.
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.
Due to the special servicing expertise needed to effectively manage these assets, the small size of each loan, the uniqueness of the real properties that collateralize the loans and the need to bring residential mortgage credit analysis into the underwriting process, we expect a competitive demand for these assets to remain constrained.
Due to the special servicing expertise needed to effectively manage these assets, the small size of each loan, the uniqueness of the real properties that collateralize the loans and the need to bring residential mortgage credit analysis into the underwriting process, we expect a restrained competitive demand for these assets.
Capasse, 65 is our Chairman of the Board of Directors, 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, 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.
They are supported by a team of approximately 180 investment and other professionals with extensive experience in commercial mortgage credit underwriting, distressed asset acquisition and financing, SBC 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.
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.
We hold SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through proprietary loan reperformance programs.
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.
SBC 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. ​ SBC 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 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.
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. ​ 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. ​ 7 Table of Contents Our Manager We are externally managed and advised by Waterfall, an SEC registered investment adviser.
Where this is not possible , such as in the case of many non-performing loans, we seek to effect property resolution through the use of borrower based resolution alternatives to foreclosure. ​ Waterfall specializes in acquiring SBC 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.
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.
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. ​ 16 Table of Contents Jack J. Ross, 65 is our President and a member of our Board of Directors. 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. 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.
These Corporate Governance Guidelines include the composition of our board of directors, 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 of directors and committees.
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.
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.
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.
In accordance with NYSEs 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.
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., $35.0 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) liquid assets of the borrower and affiliates cannot exceed specified limits, (iii) the borrower must be a U.S. citizen or legal permanent resident and (iv) the maximum aggregate SBA loan guarantees to a borrower 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. ​ 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.
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 SBC loans. ​ SBC Acquisitions. Our SBC Lending and Acquisitions segment also includes our acquisition platform, representing our investments in acquired SBC 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. Our LMM Commercial Real Estate segment also includes our acquisition platform, representing our investments in acquired LMM loans.
The Audit, Nominating and Corporate Governance and Compensation Committees of our board of directors 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 15 Table of Contents 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. ​ 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.
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.
Requests should be directed to Jacques Cornet, ICR, Inc., at 685 Third Avenue, 2 nd Floor, New York, NY 10017. ​
Requests should be directed to Jacques Cornet, ICR, Inc., at 685 Third Avenue, 2 nd Floor, New York, NY 10017. ​ ​ ​ 18 Table of Contents
These factors have limited institutional investor participation in SBC loan acquisitions, which has allowed us to acquire SBC loans with attractive risk-adjusted return profiles. ​ Acquired SBC loans held in our portfolio had a UPB of $2.0 billion and a carrying value of $2.0 billion as of December 31, 2022.
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.
Our strategy includes continuing to finance our assets through the securitization market, which will allow us to match fund the SBC loans pledged as collateral in an effort to secure these securitizations on a long-term non-recourse basis. ​ 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 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.
Capitalizing on our experience in underwriting and managing commercial real estate loans, we have grown our SBC and SBA origination and acquisition capabilities and selectively complemented our SBC strategy with acquisitions of future receivables and residential agency mortgage originations.
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.
We sell qualifying loans to Freddie Mac, which, in turn, sells such loans to securitization structures. ​ The following table summarizes the loan features of ReadyCap Commercial’s product types. ​ ​ As of December 31, 2022, we have originated approximately $ 16.2 billion in SBC loans since Ready Capital’s inception.
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.
Our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer are dedicated exclusively to us, along with several of Waterfall’s accounting professionals and an information technology professional who are also dedicated primarily to us.
HUMAN CAPITAL MANAGEMENT We are managed by Waterfall pursuant to the management agreement. Our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer are dedicated exclusively to us, along with several of Waterfall’s accounting professionals and an information technology professional who are also dedicated primarily to us.
The loans are generally interest-only and have a typical initial maturity profile of two to four years. ​ ● Fixed rate loans . Loans for the acquisition or refinancing of stabilized properties secured by multifamily, office, retail, mixed use or warehouse properties. The loans are typically amortizing and have maturities of five to 20 years. ​ ● Construction loans.
Loans for the acquisition of properties requiring more substantial expenditures for stabilization, secured by multifamily, office, retail, mixed use or warehouse properties. The loans are generally interest-only and have a typical initial maturity profile of two to four years. ​ ● Fixed rate .
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.
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.
Zausmer began his career as a Management Associate within Citigroup’s Global Shared Services division and transitioned to the Residential Real Estate business as a Senior Credit Risk Analyst. Mr.
Prior to JPMorgan Chase, he was a Vice President on the Credit Risk Management team at Credit Suisse. Mr. Zausmer began his career as a Management Associate within Citigroup’s Global Shared Services division and transitioned to the Residential Real Estate business as a Senior Credit Risk Analyst. Mr.
Such loans represented approximately 18.9% of the UPB and 18.9% of the carrying value of our total loan portfolio. ​ The table below presents information on our acquired loan portfolio by delinquency status. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in thousands) UPB ​ % of Total ​ Carrying Value (1) ​ % of Total ​ Current and less than 30 days past due $ 1,881,850 ​ 94.8 % $ 1,873,321 ​ 95.0 % 30 - 59 days past due ​ 738 ​ 0.1 ​ ​ 698 ​ 0.1 ​ 60 + days past due ​ 97,954 ​ 4.9 ​ ​ 95,523 ​ 4.8 ​ Bankruptcy / Foreclosure ​ 3,573 ​ 0.2 ​ ​ 2,450 ​ 0.1 ​ Total $ 1,984,115 ​ 100.0 % $ 1,971,992 ​ 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, 2022 (in millions) Asset Class ​ Issuance ​ Bonds Issued ​ Weighted Average Debt Cost Outstanding Balance WVMT 2011-SBC1 SBC Acquired Loans - NPL ​ February 2011 $ 40.5 ​ 7.0 % $ — WVMT 2011-SBC2 SBC Acquired Loans ​ March 2011 ​ 97.7 ​ 5.1 ​ ​ — WVMT 2011-SBC3 SBC Acquired Loans - NPL ​ October 2011 ​ 143.4 ​ 6.4 ​ ​ — SCML 2015-SBC4 SBC Acquired Loans - NPL ​ August 2015 ​ 125.4 ​ 4.0 ​ ​ — SCMT 2017-SBC6 SBC Acquired Loans ​ August 2017 ​ 154.9 ​ 3.5 ​ ​ 22.6 SCMT 2018-SBC7 SBC Acquired Loans ​ November 2018 ​ 217.0 ​ 4.7 ​ ​ — SCMT 2019-SBC8 SBC Acquired Loans ​ June 2019 ​ 306.5 ​ 2.9 ​ ​ 151.9 SCMT 2020-SBC9 SBC Acquired Loans ​ June 2020 ​ 203.6 ​ 3.7 ​ ​ — SCMT 2021-SBC10 SBC Acquired Loans ​ May 2021 ​ 232.6 ​ 1.6 ​ ​ 137.8 Total ​ ​ ​ $ 1,521.6 ​ 3.8 % $ 312.3 ​ ​ 11 Table of Contents Small Business Lending We operate our SBA loan origination, acquisition, and servicing platforms through ReadyCap Lending.
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.
Capasse and Ross, who are co-founders of Waterfall, each have over 30 years of experience in managing and financing a range of financial assets, including having executed the first public securitization of SBC loans in 1993, through a variety of credit and interest rate environments. Messrs.
Capasse and Ross, who are co-founders of Waterfall, each have over 30 years of experience in managing and financing a range of financial assets, including having executed the first public commercial real estate asset-backed securitization for performing loans and liquidating trusts for non-performing loans purchased from the Resolution Trust Corporation in 1993, through a variety of credit and interest rate environments.
Waterfall Asset Management, LLC will continue to manage the combined company. ​ 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), 17 Table of Contents 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 of directors.
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.
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, then 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.
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.
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.
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.
We or Waterfall may in the future hire additional personnel that may be dedicated to our business however, other than our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer, Waterfall is not obligated under the management agreement to dedicate any of its personnel exclusively to our business, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business.
Waterfall is not obligated under the management agreement to dedicate any of its personnel exclusively to our business, other than our Chief Financial Officer and an accounting professional, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business.
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. ​ Thomas Buttacavoli , 46 was the Chief Investment Officer and Portfolio Manager of our SBC loan portfolio until November 2022.
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.
We report our activities in the following three operating segments: ​ ● SBC Lending and Acquisitions . We originate SBC loans across the full life-cycle of an SBC 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.
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.
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 SBC assets. ​ The table below presents information with respect to our three business segments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ (in thousands) ​ SBC Lending and Acquisitions ​ Small Business Lending ​ Residential Mortgage Banking ​ Coordinating Affiliate/ Manager ​ Waterfall, ReadyCap Commercial and Red Stone ​ ReadyCap Lending and Knight Capital ​ GMFS ​ Strategy ​ SBC loan originations and acquisitions ​ SBA loan originations, acquisitions and servicing ​ Residential mortgage originations and servicing ​ Gross Assets $ 10,197,876 $ 835,836 $ 422,773 ​ % Equity Allocation ​ 90.0 % 4.8 % 5.2 % Personnel ​ 139 ​ 228 ​ 215 ​ ​ ​ 7 Table of Contents The commercial mortgage market is largely bifurcated by loan size between “large balance” loans and “small balance” loans.
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.
We finance our SBC loans primarily through term-match securitizations. ​ The table below summarizes our originated SBC loan securitization activities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in millions) Asset Class Issuance ​ Bonds Issued Weighted Average Debt Cost Outstanding Balances RCMT 2014-1 SBC Originated Conventional September 2014 $ 181.7 3.2% $ — RCMT 2015-2 SBC Originated Conventional November 2015 ​ 218.8 4.0% ​ 30.3 FRESB 2016-SB11 Originated Agency Multi-family January 2016 ​ 110.0 2.8% ​ 15.4 FRESB 2016-SB18 Originated Agency Multi-family July 2016 ​ 118.0 2.2% ​ 14.5 RCMT 2016-3 SBC Originated Conventional November 2016 ​ 162.1 3.4% ​ 40.5 FRESB 2017-SB33 Originated Agency Multi-family June 2017 ​ 197.9 2.6% ​ 67.6 RCMF 2017-FL1 SBC Originated Bridge August 2017 ​ 198.8 L + 139 bps ​ — FRESB 2018-SB45 Originated Agency Multi-family January 2018 ​ 362.0 2.8% ​ 134.8 RCMT 2018-4 SBC Originated Conventional March 2018 ​ 165.0 3.8% ​ 74.4 RCMF 2018-FL2 SBC Originated Bridge June 2018 ​ 217.1 L + 121 bps ​ — FRESB 2018-SB52 Originated Agency Multi-family September 2018 ​ 505.0 2.9% ​ 336.5 FRESB 2018-SB56 Originated Agency Multi-family December 2018 ​ 507.3 3.6% ​ 310.6 RCMT 2019-5 SBC Originated Conventional January 2019 ​ 355.8 4.1% ​ 152.2 RCMF 2019-FL3 SBC Originated Bridge April 2019 ​ 320.2 L + 133 bps ​ 112.4 RCMT 2019-6 SBC Originated Conventional November 2019 ​ 430.7 3.2% ​ 261.7 RCMF 2020-FL4 SBC Originated Bridge June 2020 ​ 405.3 L + 290 bps ​ 274.4 KCMT 2020-S3 SBC Originated Conventional September 2020 ​ 263.2 5.3% ​ 202.2 RCMF 2021-FL5 SBC Originated Bridge March 2021 ​ 628.9 L + 140 bps ​ 533.1 RCMF 2021-FL6 SBC Originated Bridge August 2021 ​ 652.5 L + 120 bps ​ 611.5 RCMF 2021-FL7 SBC Originated Bridge November 2021 ​ 927.2 L + 150 bps ​ 917.7 RCMF 2022-FL8 SBC Originated Bridge March 2022 ​ 1,135.0 SOFR + 250 bps ​ 1,135.0 RCMT 2022-7 SBC Originated Conventional April 2022 ​ 276.8 4.1% ​ 274.9 RCMF 2022-FL9 SBC Originated Bridge June 2022 ​ 754.2 SOFR + 341 bps ​ 733.5 RCMF 2022-FL10 SBC Originated Bridge October 2022 ​ 860.1 SOFR + 326 bps ​ 859.4 Total ​ ​ $ 9,953.6 5.3% $ 7,092.6 ​ We believe that we have significant opportunity to originate SBC loans at attractive risk-adjusted returns compared to many banks that have restrictive credit guidelines for target assets.
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.
Our financing agreements require us to maintain a debt-to-equity leverage ratio at certain levels. The amount of leverage we may employ for particular assets will depend upon the availability of particular types of financing and Waterfall's 14 Table of Contents assessment of the credit, liquidity, price volatility and other risks of those assets and financing counterparties.
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.
In the face of this competition, we expect to have access to Waterfall’s professionals and their industry expertise, which may provide us with a competitive advantage in sourcing transactions and help it assess acquisition and origination risks and determine appropriate pricing for potential assets.
In the face of this competition, we expect Waterfall’s professionals and their industry expertise to provide us a competitive advantage in sourcing transactions and help us assess acquisition and origination risks and determine appropriate pricing for potential assets. Additionally, we believe that we are currently one of only a handful of active market participants in the secondary LMM loan market.
In addition, large banks are not focused on the SBC market and smaller banks only lend in specific geographies. 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.
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.
The chart below summarizes our annual SBC loan originations since 2019. 9 Table of Contents ​ Originated SBC loans held in our portfolio had a UPB of $ 7.6 billion and carrying value of $ 7.5 billion as of December 31, 2022.
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.
We originate owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through ReadyCap Lending’s license, one of only 14 licensed non-bank SBLCs.
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.
Lenders can require personal guarantees of owners with less than 20% ownership. 12 Table of Contents 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. ​ ​ We actively participated in the Paycheck Protection Program (“PPP”) through the United States Department of the Treasury and SBA, prior to the termination of the PPP in May 2021.
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.
We intend to use leverage for the primary purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates.
We believe that these target leverage ratios are conservative for these asset classes and exemplify the conservative levels of borrowings we intend to use over time. We intend to use leverage for the primary purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates.
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 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.
Our acquired and originated SBA loans held in our loan portfolio, excluding PPP loans, had a UPB of $622.3 million and a carrying value of $599.8 million as of December 31, 2022. ​ The table below presents our SBA Section 7(a) Program loan portfolio by delinquency status. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in thousands) UPB ​ % of Total ​ Carrying Value (1) ​ % of Total ​ Current and less than 30 days past due $ 606,962 ​ 97.5 % $ 586,125 ​ 97.7 % 30 - 59 days past due ​ 7,296 ​ 1.2 ​ ​ 6,946 ​ 1.2 ​ 60 + days past due ​ 7,992 ​ 1.3 ​ ​ 6,724 ​ 1.1 ​ Total $ 622,250 ​ 100.0 % $ 599,795 ​ 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 2020 ​ $ 51,964 $ 47,427 $ 4,537 9.6 % Q2 2020 ​ ​ 18,597 ​ 16,917 ​ 1,680 9.9 ​ Q3 2020 ​ ​ 44,367 ​ 39,635 ​ 4,732 11.9 ​ Q4 2020 ​ ​ 83,437 ​ 74,730 ​ 8,707 11.7 ​ 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 ​ Total ​ $ 963,716 $ 870,202 $ 93,514 10.7 % (1) Weighted average sales premiums are net after sharing any premiums above 10% with the SBA ​ ​ 13 Table of Contents The table below presents our securitization activities on the unguaranteed retained portion of our SBA Section 7(a) Program loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (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 L + 250 bps ​ 49.0 ​ Residential Mortgage Originations GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA and USDA through retail, correspondent and broker channels .
Our 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.
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 SBC loans that could adversely impact our ability to acquire loans at attractive prices and originate SBC loans at attractive risk-adjusted returns. ​ HUMAN CAPITAL MANAGEMENT We are managed by Waterfall pursuant to the management agreement.
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.
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, 2022, we had a recourse leverage ratio of 1.5x consisting of 0.8x on warehouse credit facilities and borrowings under repurchase agreements, excluding agency, 0.6x on corporate debt and 0.1x on agency secured borrowings. ​ 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.
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.
For loans with a maturity that exceeds 12 months, the upfront guaranty fees are: i) For loans of $500,000 or less: 0.00% ii) For loans of $500,001 to $700,000: 0.55% of the guaranteed portion iii) For loans of $700,001 to $1,000,000: 1.05% of the guaranteed portion iv) For loans of $1,000,001 to $5,000,000: 3.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion 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 up to and including $5,000,000: 0.55% of the guaranteed portion of the outstanding balance of the loan; ​ ● From December 27, 2020 to September 23, 2021, a temporary fee reduction was put in place by the SBA for all 7(a) loans for which an application was approved, as part of the Economic Aid Act.
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.
We typically acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) 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 its SBA Section 7(a) Program through our wholly-owned subsidiary, ReadyCap Lending, LLC (“ReadyCap Lending”).
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. We typically acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns. ​ ● Small Business Lending .
The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of SBC and SBA assets suitable for purchase, which may cause the price for such assets to rise.
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.
Ahlborn received a Bachelor of Science degree in Accounting from Fordham University's Gabelli School of Business and a Master of Business Administration through Columbia Business School. He is a licensed Certified Public Accountant in New York. ​ Gary T. Taylor , 63 is our Chief Operating Officer. Prior to joining our Company, 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.
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. Mr. Taylor received a Bachelor of Science degree, with Honors, in Business from Florida A&M University. ​ Adam Zausmer, 45 is our Chief Credit Officer.
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.
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. ​ ● Residential Mortgage Banking . We operate our residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS, LLC ("GMFS").
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.
Capasse to serve as the Chief Investment Officer of the Company. ​ Andrew Ahlborn, 39 is our Chief Financial Officer. Mr. Ahlborn joined Waterfall in 2010 and was previously our Controller. Prior to joining Waterfall, he worked in Ernst & Young, LLP's Financial Services Office. Mr.
Ahlborn joined Waterfall in 2010 and was previously our Controller. Prior to joining Waterfall, he worked in Ernst & Young, LLP's Financial Services Office. Mr. Ahlborn received a Bachelor of Science degree in Accounting from Fordham University's Gabelli School of Business and a Master of Business Administration through Columbia Business School.
These loans also earned an origination fee of 1% to 5%, depending on the loan size. ​ We have originated over $1.8 billion in SBA loans since our program’s inception in mid-2015, excluding PPP loans.
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.
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. ​ CORPORATE GOVERNANCE Our board of directors 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.
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.
We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“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 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.
Prior to joining Waterfall in 2013, Mr, Zausmer was a Senior Underwriter with JPMorgan Chase’s Commercial Term Lending business. Prior to JPMorgan Chase, he was a Vice President on the Credit Risk Management team at Credit Suisse. Mr.
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.
Our origination platform, which focuses on first mortgage loans, provides conventional SBC mortgage financing for the full life-cycle of SBC properties nationwide through the following programs: ​ ● Bridge loans . Loans for the acquisition of properties requiring more substantial expenditures for stabilization, secured by multifamily, office, retail, mixed use or warehouse properties.
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 .
So long as we qualify as a REIT, we are generally not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute dividends equal to at least 90% of our net taxable income to stockholders.
To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be required to pay regular U.S. federal corporate income tax on the undistributed amount.
We also offer construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone, which employs 23 professionals focused on originating and supporting the SBC loan origination business. ​ We originate SBC commercial loans generally ranging in initial principal amount of between $500,000 and $40 million, and typically with an average duration of approximately two to six years at origination.
Our conservative approach to credit has resulted in less than 5 basis points of losses incurred on new originations since our inception. ​ We originate LMM commercial loans generally ranging in initial principal amount of between $500,000 and $40 million, and typically with an average duration of approximately two to six years at origination.
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 On February 26, 2023, the Company entered into a definitive merger agreement with Broadmark Realty Capital Inc.
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.
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In addition, we acquire small balance commercial loans as part of our business strategy. We hold performing SBC loans to term and seek to maximize the value of the non-performing SBC loans acquired by us through borrower-based resolution strategies.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAct"), 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. ​ 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. ​ 41 Table of Contents 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 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.
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 the loan, whether or not the value of the property justifies such an appraised value.
However, if in the future we do not meet the conditions set forth in the No-Action Letter or the relief provided by the No-Action Letter becomes unavailable for any other reason and we are unable to obtain another exemption from registration, we may be required to reduce or eliminate our use of interest rate swaps or vary the manner in which we deploy interest rate swaps in our business and we or our directors may be required to register with the CFTC as CPOs and Waterfall may be required to register as a “commodity trading advisor” with the CFTC, which will require compliance with CFTC rules and subject us, our board of directors and Waterfall to regulation by the CFTC.
However, if in the future we do not meet the conditions set forth in the No-Action Letter or the relief provided by the No-Action Letter becomes unavailable for any other reason and we are unable to obtain another exemption from registration, we may be required to reduce or eliminate our use of interest rate swaps or vary the manner in which we deploy interest rate swaps in our business and we or our directors may be required to register with the CFTC as CPOs and Waterfall may be required to register as a “commodity trading advisor” with the CFTC, which will require compliance with CFTC rules and subject us, our Board and Waterfall to regulation by the CFTC.
In the event registration for our Company, our directors or Waterfall is required but is not obtained, we, our board of directors or Waterfall may be subject to fines, penalties and other civil or governmental actions or proceedings, any of which could have a material adverse effect on our business, financial condition and results of operations.
In the event registration for our Company, our directors or Waterfall is required but is not obtained, we, our Board or Waterfall may be subject to fines, penalties and other civil or governmental actions or proceedings, any of which could have a material adverse effect on our business, financial condition and results of operations.
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.
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 of directors, 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 of directors 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 of directors (including a majority of our directors who are not affiliates or associates of such person).
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).
This forum selection provision may limit the ability of stockholders of our Company to obtain a judicial forum that they find favorable for disputes with our Company or our directors, officers, employees, if any, or other stockholders. ​ General Risk Factors ​ Future offerings of debt or equity securities, which may rank senior to our common stock, may adversely affect the market price of the common stock. ​ If we decide to issue additional debt securities in the future, which may rank senior to our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
This forum selection provision may limit the ability of stockholders of our Company to obtain a judicial forum that they find favorable for disputes with our Company or our directors, officers, employees, if any, or other stockholders. ​ General Risk Factors ​ Future offerings of debt or equity securities, which may rank senior to our common stock, may adversely affect the market price of our common stock. ​ If we decide to issue additional debt securities in the future, which may rank senior to our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.
Moreover, the amount of financing we receive under our short-term borrowing arrangements will be directly related to the lenders’ valuation of our target assets that cover the outstanding borrowings. ​ An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution to our stockholders. ​ As our financings mature, we will be required either to enter into new borrowings or to sell certain of our assets.
Moreover, the amount of financing we receive under our short-term borrowing arrangements will be directly related to the lenders’ valuation of our target assets that cover the outstanding borrowings. ​ An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution to our stockholders. ​ As our financings mature, we will be required either to enter into new borrowings or sell certain of our assets.
Our failure to obtain or maintain licenses will restrict our options and ability to engage in desired activities, and could subject us to fines, suspensions, terminations and various other adverse actions if it is determined that we have engaged without the requisite approvals or licenses in activities that required an approval or license, which could have a material and adverse effect on our business, results of operation and financial condition. ​ Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operation and financial condition. ​ Our operations and activities include loans to small, privately owned businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties.
Our failure to obtain or maintain licenses will restrict our options and ability to engage in desired activities, and could subject us to fines, suspensions, terminations and various other adverse actions if it is determined that we have engaged without the requisite approvals or licenses in activities that required an approval or license, which could have a material and adverse effect on our business, results of operations and financial condition. ​ Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operations and financial condition. ​ Our operations and activities include loans to small, privately owned businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties.
None of these other funds or separate accounts focus on SBC loans as their primary business strategy. ​ To address certain potential conflicts arising from our relationship with Waterfall or its affiliates, Waterfall has agreed in a side letter agreement with us that, for so long as the management agreement is in effect, neither it nor any of its affiliates will (i) sponsor or manage any additional investment vehicle where we do not participate as an investor whose primary investment strategy will involve SBC mortgage loans, unless Waterfall obtains the prior approval of a majority of our board of directors (including a majority of our independent directors), or (ii) acquire a portfolio of assets, a majority of which (by value or UPB) are SBC mortgage loans on behalf of another investment vehicle (other than acquisitions of SBC ABS), unless we are first offered the investment opportunity and a majority of our board of directors (including a majority of our independent directors) decide not to acquire such assets. ​ The side letter agreement does not cover SBC ABS acquired in the market and non-real estate secured loans and we may compete with other existing clients of Waterfall and its affiliates, other funds managed by Waterfall that focus on a range of ABS and other credit strategies and separately managed accounts, and future clients of Waterfall and its affiliates in acquiring SBC ABS, non-real estate secured loans and portfolios of assets less than a majority of which (by value or UPB) are SBC loans, and in acquiring other target assets that do not involve SBC loans. ​ We will pay Waterfall substantial management fees regardless of the performance of our portfolio.
None of these other funds or separate accounts focus on LMM loans as their primary business strategy. ​ To address certain potential conflicts arising from our relationship with Waterfall or its affiliates, Waterfall has agreed in a side letter agreement with us that, for so long as the management agreement is in effect, neither it nor any of its affiliates will (i) sponsor or manage any additional investment vehicle where we do not participate as an investor whose primary investment strategy will involve LMM mortgage loans, unless Waterfall obtains the prior approval of a majority of our Board (including a majority of our independent directors), or (ii) acquire a portfolio of assets, a majority of which (by value or UPB) are LMM mortgage loans on behalf of another investment vehicle (other than acquisitions of LMM ABS), unless we are first offered the investment opportunity and a majority of our Board (including a majority of our independent directors) decide not to acquire such assets. ​ The side letter agreement does not cover LMM ABS acquired in the market and non-real estate secured loans and we may compete with other existing clients of Waterfall and its affiliates, other funds managed by Waterfall that focus on a range of ABS and other credit strategies and separately managed accounts, and future clients of Waterfall and its affiliates in acquiring LMM ABS, non-real estate secured loans and portfolios of assets less than a majority of which (by value or UPB) are LMM loans, and in acquiring other target assets that do not involve LMM loans. ​ We will pay Waterfall substantial management fees regardless of the performance of our portfolio.
Our board of directors 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 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.
To the extent that our portfolio is concentrated in any region, or by type of property, downturns relating generally to such region, type of borrower or security may result in defaults on a number of our assets within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders. ​ The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we intend to invest and could materially increase our cost of doing business. ​ Various bankruptcy legislation has been proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in us being held responsible for violations in the mortgage loan 24 Table of Contents origination process even where we were not the originators of the loan.
To the extent that our portfolio is concentrated in any region, or by type of property, downturns relating generally to such region, type of borrower or security may result in defaults on a number of our assets within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders. ​ The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we intend to invest and could materially increase our cost of doing business. ​ Various bankruptcy legislation has been proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted 25 Table of Contents mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in us being held responsible for violations in the mortgage loan origination process even where we were not the originators of the loan.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. ​ Our and Waterfall’s due diligence of potential SBC loans and ABS assets may not reveal all of the liabilities associated with and other combined weaknesses in such SBC loans and ABS assets, which could lead to investment losses. ​ Before making an investment, we and Waterfall calculate the level of risk associated with the SBC loan to be acquired or originated based on several factors which include the following: (i) a complete review of the seller’s data files, including data integrity, compliance review and custodial file review; (ii) rent rolls and other property operating data; (iii) personal credit reports of the borrower and owner and/or operator; (iv) property valuation review; (v) environmental review; and (vi) tax and title search.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. ​ Our and Waterfall’s due diligence of potential LMM loans and ABS assets may not reveal all of the liabilities associated with and other combined weaknesses in such LMM loans and ABS assets, which could lead to investment losses. ​ Before making an investment, we and Waterfall calculate the level of risk associated with the LMM loan to be acquired or originated based on several factors which include the following: (i) a complete review of the seller’s data files, including data integrity, compliance review and custodial file review; (ii) rent rolls and other property operating data; (iii) personal credit reports of the borrower and owner and/or operator; (iv) property valuation review; (v) environmental review; and (vi) tax and title search.
Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against us including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force us into a modification of the SBC loan or a favorable buy-out of the borrower’s position.
Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against us including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force us into a modification of the loan or a favorable buy-out of the borrower’s position.
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 of directors 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 of directors.
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.
Foreclosure may create a negative public perception of the related mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on an SBC loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the SBC loan, resulting in a loss to us.
Foreclosure may create a negative public perception of the related mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on an loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us.
Any reduction in distributions to our stockholders may cause the value of our common stock to decline. ​ We may not be able to successfully complete additional securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business. ​ We may use our existing credit facilities or repurchase agreements or, if we are successful in entering into definitive documentation in respect of our other potential financing facilities, other borrowings to finance the origination and/or acquisition of SBC loans until a sufficient quantity of eligible assets has been accumulated, at which time we would refinance these short-term facilities or repurchase agreements through the securitization market, which could include the creation of CMBS, collateralized debt obligations (“CDOs”), or the private placement of loan participations or other long-term financing.
Any reduction in distributions to our stockholders may cause the value of our common stock to decline. ​ We may not be able to successfully complete additional securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business. ​ We may use our existing credit facilities or repurchase agreements or, if we are successful in entering into definitive documentation in respect of our other potential financing facilities, other borrowings to finance the origination and/or acquisition of LMM loans until a sufficient quantity of eligible assets has been accumulated, at which time we would refinance these short-term facilities or repurchase agreements through the securitization market, which could include the creation of CMBS, collateralized debt obligations (“CDOs”), or the private placement of loan participations or other long-term financing.
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 the Senior Secured Notes, Convertible Notes and the 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 or ReadyCap Holdings, LLC (“ReadyCap Holdings”) may be required to offer to repurchase all of our senior secured notes and corporate debt.
Although there are other measures we can take in such circumstances in 55 Table of Contents order to remain in compliance, there can be no assurance that we will be able to comply with both of these tests in all market conditions. ​ Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, which could reduce returns on our assets and adversely affect returns to our stockholders. ​ To qualify as a REIT, we must generally ensure that at least 75% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources, and at least 95% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources and passive income such as dividends and interest.
Although there are other measures we can take in such circumstances in order to remain in compliance, there can be no assurance that we will be able to comply with both of these tests in all market conditions. ​ 57 Table of Contents Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, which could reduce returns on our assets and adversely affect returns to our stockholders. ​ To qualify as a REIT, we must generally ensure that at least 75% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources, and at least 95% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property-related sources and passive income such as dividends and interest.
These requirements may increase the costs of hedging and induce us to change or reduce our use of hedging transactions. ​ 53 Table of Contents Regulation as a commodity pool operator could subject us to additional regulation and compliance requirements, which could materially adversely affect our business and financial condition. ​ The Dodd-Frank Act extended the reach of commodity regulations for the first time to include not just traditional futures contracts but also derivative contracts referred to as “swaps.” As a consequence of this change, any investment fund that trades in swaps may be considered a “commodity pool,” which would cause its operator to be regulated as a commodity pool operator (“CPO”).
These requirements may increase the costs of hedging and induce us to change or reduce our use of hedging transactions. ​ Regulation as a commodity pool operator could subject us to additional regulation and compliance requirements, which could materially adversely affect our business and financial condition. ​ The Dodd-Frank Act extended the reach of commodity regulations for the first time to include not just traditional futures contracts but also derivative contracts referred to as “swaps.” As a consequence of this change, any investment fund that 55 Table of Contents trades in swaps may be considered a “commodity pool,” which would cause its operator to be regulated as a commodity pool operator (“CPO”).
Reductions in stockholders’ equity decrease the amounts we may borrow to originate or purchase additional target assets, which could restrict our ability to increase our net income. ​ Because the assets we will hold and expect to acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell SBC loans and ABS assets at an opportune time. ​ We bear the risk of being unable to dispose of our assets at advantageous times or in a timely manner because SBC loans and ABS assets generally experience periods of illiquidity, including the recent period of delinquencies and defaults with respect to residential mortgage loans.
Reductions in stockholders’ equity decrease the amounts we may borrow to originate or purchase additional target assets, which could restrict our ability to increase our net income. ​ Because the assets we will hold and expect to acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell LMM loans and ABS assets at an opportune time. ​ We bear the risk of being unable to dispose of our assets at advantageous times or in a timely manner because LMM loans and ABS assets generally experience periods of illiquidity, including the recent period of delinquencies and defaults with respect to residential mortgage loans.
All distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, debt covenants, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and other factors as our board of directors may deem relevant from time to time.
All distributions will be made at the discretion of our Board and will depend on our earnings, financial condition, debt covenants, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and other factors as our Board may deem relevant from time to time.
In the event that Waterfall underestimates the losses relative to the price we pay for a particular SBC or SBC ABS investment, we may experience losses with respect to such investment. ​ Waterfall utilizes analytical models and data in connection with the valuation of our SBC loans and SBC ABS, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks. ​ As part of the risk management process, Waterfall uses detailed proprietary models, including loan-level non-performing loan models, to evaluate collateral liquidation timelines and price changes by region, along with the impact of different loss mitigation plans.
In the event that Waterfall underestimates the losses relative to the price we pay for a particular LMM or LMM ABS investment, we may experience losses with respect to such investment. ​ Waterfall utilizes analytical models and data in connection with the valuation of our LMM loans and LMM ABS, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks. ​ As part of the risk management process, Waterfall uses detailed proprietary models, including loan-level non-performing loan models, to evaluate collateral liquidation timelines and price changes by region, along with the impact of different loss mitigation plans.
If we fail to adequately collect amounts owing in respect of the working capital advances, as a result of the loss of direct debiting or otherwise, then payments to us may be delayed or reduced and our revenue and operating results may be harmed. ​ Risks Related to Our Company ​ Any disruption in the availability and/or functionality of our technology infrastructure and systems could adversely impact our business. ​ Our ability to acquire and originate SBC loans and manage any related interest rate risks and credit risks is critical to our success and is highly dependent upon the efficient and uninterrupted operation of our computer and communications hardware and software systems.
If we fail to adequately collect amounts owing in respect of the working capital advances, as a result of the loss of direct debiting or otherwise, then payments to us may be delayed or reduced and our revenue and operating results may be harmed. ​ Risks Related to Our Company ​ Any disruption in the availability and/or functionality of our technology infrastructure and systems could adversely impact our business. ​ Our ability to acquire and originate LMM loans and manage any related interest rate risks and credit risks is critical to our success and is highly dependent upon the efficient and uninterrupted operation of our computer and communications hardware and software systems.
If our estimates prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayments, we may incur losses that could materially and adversely affect our financial condition, results of operations and our ability to make distributions to our stockholders. ​ Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss. ​ In the future, it is possible that we may find it necessary or desirable to foreclose on certain SBC loans we acquire or originate, and the foreclosure process may be lengthy and expensive.
If our estimates prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayments, we may incur losses that could materially and adversely affect our financial condition, results of operations and our ability to make distributions to our stockholders. ​ Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss. ​ It is possible that we may find it necessary or desirable to foreclose on certain loans we acquire or originate, and the foreclosure process may be lengthy and expensive.
Our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer, who are employed by Waterfall, are dedicated exclusively to our business, along with several of Waterfall’s accounting professionals who are also dedicated exclusively to our business. In addition, Waterfall or our Company may in the future hire additional personnel that may be dedicated to our business.
Our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer, who are employed by Waterfall, are dedicated exclusively to our business, along with several of Waterfall’s accounting professionals. In addition, Waterfall or our Company may in the future hire additional personnel that may be dedicated to our business.
Our charter also provides that, unless exempted by our board of directors, no person may own more than 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of our common stock, or 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of all classes and series of our capital stock.
Our charter also provides that, unless exempted by our Board, no person may own more than 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of our common stock, or 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of all classes and series of our capital stock.
If the rating agencies take adverse action with respect to the rating of our SBC loans and ABS assets or if our unrated assets are illiquid, the value of these SBC loans and ABS assets could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us. ​ The receivables underlying the ABS we may acquire are subject to credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks, which could result in losses to us. ​ We may acquire ABS securities, where the underlying pool of assets consists primarily of SBC loans.
If the rating agencies take adverse action with respect to the rating of our LMM loans and ABS assets or if our unrated assets are illiquid, the value of these LMM loans and ABS assets could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us. ​ The receivables underlying the ABS we may acquire are subject to credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks, which could result in losses to us. ​ We may acquire ABS securities, where the underlying pool of assets consists primarily of LMM loans.
Any failure to effectively manage our future growth, including a failure to successfully expand our SBC loan origination activities could have a material and adverse effect on our business, financial condition and results of operations. ​ Declines in the fair market values of our assets may adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders. ​ Our SBC loans held-for-sale and SBC ABS are carried at fair value and future mortgage related assets may also be carried at fair value.
Any failure to effectively manage our future growth, including a failure to successfully expand our LMM loan origination activities could have a material and adverse effect on our business, financial condition and results of operations. ​ Declines in the fair market values of our assets may adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders. ​ Our LMM loans held-for-sale and LMM ABS are carried at fair value and future mortgage related assets may also be carried at fair value.
As a result, such subordinated interests generally are not actively traded and may not provide holders thereof with liquid investments. ​ In certain cases we may not control the special servicing of the mortgage loans included in the securities in which we may invest in, and in such cases, the special servicer may take actions that could adversely affect our interests. ​ With respect to the SBC ABS in which we expect to invest, overall control over the special servicing of the related underlying mortgage loans will be held by a directing certificate holder, which is appointed by the holders of the most subordinate class of securities in such series.
As a result, such subordinated interests generally are not actively traded and may not provide holders thereof with liquid investments. ​ In certain cases we may not control the special servicing of the mortgage loans included in the securities in which we may invest in, and in such cases, the special servicer may take actions that could adversely affect our interests. ​ With respect to the LMM ABS in which we expect to invest, overall control over the special servicing of the related underlying mortgage loans will be held by a directing certificate holder, which is appointed by the holders of the most subordinate class of securities in such series.
We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation. ​ The tax basis that we use to compute taxable income with respect to certain interests in loans that were held by our operating partnership at the time of the REIT formation transaction could be subject to challenge. ​ Prior to the REIT formation transactions, our operating partnership had accounted for its interest in certain SBC securitizations as an interest in a single debt instrument for U.S. federal income tax purposes.
We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation. ​ The tax basis that we use to compute taxable income with respect to certain interests in loans that were held by our operating partnership at the time of the REIT formation transaction could be subject to challenge. ​ Prior to the REIT formation transactions, our operating partnership had accounted for its interest in certain LMM securitizations as an interest in a single debt instrument for U.S. federal income tax purposes.
While we would in general 57 Table of Contents ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the loss would likely be treated as a capital loss, and the utility of that loss would therefore depend on our having capital gain in that later year or thereafter. ​ We may hold excess MSRs, which means the portion of an MSR that exceeds the arm’s-length fee for services performed by the mortgage servicer.
While we would in general ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the loss would likely be treated as a capital loss, and the utility of that loss would therefore depend on our having capital gain in that later year or thereafter. 59 Table of Contents We may hold excess MSRs, which means the portion of an MSR that exceeds the arm’s-length fee for services performed by the mortgage servicer.
Our board of directors periodically reviews our investment guidelines and investment portfolio but does not, and is not required to, review all of our proposed investments. These investment guidelines may be changed from time to time by our board of directors without the approval of our stockholders.
Our Board periodically reviews our investment guidelines and investment portfolio but does not, and is not required to, review all of our proposed investments. These investment guidelines may be changed from time to time by our Board without the approval of our stockholders.
Further, when loan servicing is transferred, loan servicing fees may increase, which may have an adverse effect on the credit support of assets held by us. ​ Effectively servicing our portfolio of SBC loans is critical to our success, particularly given our strategy of maximizing the value of our portfolio with our loan modifications, loss mitigation, restructuring and other special servicing activities, and therefore, if one of our servicers fails to effectively service the portfolio of mortgage loans, it could have a material and adverse effect on our business, results of operations and financial condition. ​ The bankruptcy of a third-party servicer would adversely affect our business, results of operation and financial condition. ​ Depending on the provisions of the agreement with the servicer of any of our SBC loans, the servicer may be allowed to commingle collections on the mortgage loans owned by us with its own funds for certain periods of time (usually a few business days) after the servicer receives them.
Further, when loan servicing is transferred, loan servicing fees may increase, which may have an adverse effect on the credit support of assets held by us. ​ Effectively servicing our portfolio of LMM loans is critical to our success, particularly given our strategy of maximizing the value of our portfolio with our loan modifications, loss mitigation, restructuring and other special servicing activities, and therefore, if one of our servicers fails to effectively service the portfolio of mortgage loans, it could have a material and adverse effect on our business, results of operations and financial condition. ​ The bankruptcy of a third-party servicer would adversely affect our business, results of operations and financial condition. ​ Depending on the provisions of the agreement with the servicer of any of our LMM loans, the servicer may be allowed to commingle collections on the mortgage loans owned by us with its own funds for certain periods of time (usually a few business days) after the servicer receives them.
Our financial condition and results of operations could be negatively impacted to the extent we rely on information that is misleading, inaccurate or incomplete. ​ ​ The use of underwriting guideline exceptions in the SBC loan origination process may result in increased delinquencies and defaults. ​ Although SBC loan originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators, including the Company, will make exceptions to these guidelines.
Our financial condition and results of operations could be negatively impacted to the extent we rely on information that is misleading, inaccurate or incomplete. ​ The use of underwriting guideline exceptions in the LMM loan origination process may result in increased delinquencies and defaults. ​ Although LMM loan originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators, including the Company, will make exceptions to these guidelines.
The change of control provisions in the Senior Secured Notes, Convertible Notes and Corporate Debt and the related indentures could make it more difficult or more expensive for a third-party to acquire our Company.
The change of control provisions in our senior secured notes, corporate debt and related indentures could make it more difficult or more expensive for a third-party to acquire our Company.
Hedging may fail to protect or could adversely affect us because, among other things: ​ ● interest rate, currency and/or credit hedging can be expensive and may result in us receiving less interest income; ​ ● available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; ​ ● the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value and any downward adjustments or “mark-to-market” losses would reduce earnings or stockholders’ equity; ​ ● the market value of derivatives used for hedging may decrease from time to time, which may require us to deliver additional margin to our counterparties; ​ ● the amount of income that a REIT may earn from non-qualifying hedging transactions (other than through TRSs) to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; ​ ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; ​ ● the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; and ​ ● the duration of the hedge may not match the duration of the related liability. ​ In general, when we acquire an SBC loan or ABS asset, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that effectively fixes our borrowing costs for a period close to the anticipated 52 Table of Contents average life of the fixed-rate portion of the related assets.
Hedging may fail to protect or could adversely affect us because, among other things: ● interest rate, currency and/or credit hedging can be expensive and may result in us receiving less interest income; ● available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; ● the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value and any downward adjustments or “mark-to-market” losses would reduce earnings or stockholders’ equity; ● the market value of derivatives used for hedging may decrease from time to time, which may require us to deliver additional margin to our counterparties; ● the amount of income that a REIT may earn from non-qualifying hedging transactions (other than through TRSs) to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; ● the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; ● the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; and ● the duration of the hedge may not match the duration of the related liability. ​ In general, when we acquire an LMM loan or ABS asset, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that effectively fixes our borrowing costs for a period close to the anticipated average life of the fixed-rate portion of the related assets.
In addition, our board of directors may, without common stockholder approval, amend our charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have the authority to issue.
In addition, our Board may, without common stockholder approval, amend our charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have the authority to issue.
Fair market values of our SBC loans and ABS assets may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those SBC loans and ABS assets that are subject to prepayment risk or widening of credit spreads. ​ In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and our financing costs.
Fair market values of our LMM loans and ABS assets may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those LMM loans and ABS assets that are subject to prepayment risk or widening of credit spreads. ​ In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and our financing costs.
To the extent that there are significant amounts of advances that need to be funded in respect of loans where we own the servicing right, it could have a material adverse effect on our business and financial results. ​ While we believe that the sellers and servicers would be in violation of their servicing contracts to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive and time consuming for us to enforce our contractual rights. ​ We will continue to monitor and review the issues raised by the alleged improper foreclosure practices.
To the extent that there are significant amounts of advances that need to be funded in respect of loans where we own the servicing right, it could have a material adverse effect on our business and financial results. ​ While we believe that the sellers and servicers would be in violation of their servicing contracts to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or 45 Table of Contents do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive and time consuming for us to enforce our contractual rights. ​ We will continue to monitor and review the issues raised by the alleged improper foreclosure practices.
A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders. ​ Our investments may include subordinated tranches of ABS which are subordinate in right of payment to more senior securities. ​ Our investments may include subordinated tranches of ABS which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of SBC loans and, accordingly, are the first or among the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest and principal.
A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders. ​ Our investments may include subordinated tranches of ABS which are subordinate in right of payment to more senior securities. ​ Our investments may include subordinated tranches of ABS which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of LMM loans and, accordingly, are the first or among the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest and principal.
Loans originated with exceptions may result in a higher number of delinquencies and defaults. ​ 45 Table of Contents Losses could occur due to a counterparty that sold loans to GMFS or our other subsidiaries refusing to or being unable to repurchase that loan or pay damages related to breaches of representations made by the seller. ​ Losses could occur due to a counterparty that sold loans or other assets to GMFS or our other subsidiaries refusing to or being unable to (e.g., due to its financial condition) repurchase loans or pay damages if it is determined subsequent to purchase that one or more of the representations or warranties made to GMFS or our other subsidiaries in connection with the sale was inaccurate. ​ Even if GMFS or another of our subsidiaries obtains representations and warranties from the loan seller counterparties they may not parallel the representations and warranties GMFS or our other subsidiaries make to subsequent purchasers of the loans or may otherwise not protect the seller from losses, including, for example, due to the counterparty being insolvent or otherwise unable to make payments arising out of damages for a breach of representation or warranty.
Loans originated with exceptions may result in a higher number of delinquencies and defaults. ​ Losses could occur due to a counterparty that sold loans to GMFS or our other subsidiaries refusing to or being unable to repurchase that loan or pay damages related to breaches of representations made by the seller. ​ Losses could occur due to a counterparty that sold loans or other assets to GMFS or our other subsidiaries refusing to or being unable to (e.g., due to its financial condition) repurchase loans or pay damages if it is determined subsequent to purchase that one or more of the representations or warranties made to GMFS or our other subsidiaries in connection with the sale was inaccurate. ​ Even if GMFS or another of our subsidiaries obtains representations and warranties from the loan seller counterparties they may not parallel the representations and warranties GMFS or our other subsidiaries make to subsequent purchasers of the loans or may otherwise not protect the seller from losses, including, for example, due to the counterparty being insolvent or otherwise unable to make payments arising out of damages for a breach of representation or warranty.
The Bankruptcy Code also prevents the removal of the servicer as servicer and the appointment of a successor without the permission of the bankruptcy court or the consent of the servicer. ​ New entrants in the market for SBC loan acquisitions and originations could adversely impact our ability to acquire SBC loans at attractive prices and originate SBC loans at attractive risk-adjusted returns. ​ Although we believe that we are currently one of only a handful of active market participants in the secondary SBC loan market, new entrants in this market could adversely impact our ability to acquire and originate SBC loans at attractive prices.
The Bankruptcy Code also prevents the removal of the servicer as servicer and the appointment of a successor without the permission of the bankruptcy court or the consent of the servicer. ​ New entrants in the market for LMM loan acquisitions and originations could adversely impact our ability to acquire LMM loans at attractive prices and originate LMM loans at attractive risk-adjusted returns. ​ Although we believe that we are currently one of only a handful of active market participants in the secondary LMM loan market, new entrants in this market could adversely impact our ability to acquire and originate LMM loans at attractive prices.
Our failure to comply, or the failure of the servicer to comply, with the laws, rules or regulations to which we or the servicer are subject by virtue of ownership of MSRs, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our business, financial condition, consolidated results of operations or cash flows. ​ GMFS originates residential mortgage loans which have risks of losses due to mortgage loan defaults or fraud. ​ GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, VA and USDA through retail, correspondent and broker channels.
Our failure to comply, or the failure of the servicer to comply, with the laws, rules or regulations to which we or the servicer are subject by virtue of ownership of MSRs, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our business, financial condition, consolidated results of operations or cash flows. ​ 46 Table of Contents GMFS originates residential mortgage loans which have risks of losses due to mortgage loan defaults or fraud. ​ GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, VA and USDA through retail, correspondent and broker channels.
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.
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.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of SBC loans and ABS assets and establish more relationships than us. ​ We cannot assure you that the competitive pressures we may face will not have a material adverse effect on our business, financial condition and results of operations.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of LMM loans and ABS assets and establish more relationships than us. ​ We cannot assure you that the competitive pressures we may face will not have a material adverse effect on our business, financial condition and results of operations.
Additionally, SBC loans are also often accompanied by personal guarantees. Often, there is little or no publicly available information about these businesses. Accordingly, we must rely on our own due diligence to obtain information in connection with our investment decisions. Our borrowers may not meet net income, cash flow and other coverage tests typically imposed by banks.
Additionally, LMM loans are also often accompanied by personal guarantees. Often, there is little or no publicly available information about these businesses. Accordingly, we must rely on our own due diligence to obtain information in connection with our investment decisions. Our borrowers may not meet net income, cash flow and other coverage tests typically imposed by banks.
As a result, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS, which could increase the cost of our hedging activities or result in greater risks associated with interest rate or other changes than we would otherwise incur. ​ 61 Table of Contents Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow. ​ Even if we qualify as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of foreclosures, and state or local income, franchise, property and transfer taxes, including mortgage-related taxes.
As a result, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS, which could increase the cost of our hedging activities or result in greater risks associated with interest rate or other changes than we would otherwise incur. ​ Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow. ​ Even if we qualify as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of foreclosures, and state or local income, franchise, property and transfer taxes, including mortgage-related taxes.
Significant repurchase activity could harm our cash flow, results of operations, financial condition and business prospects. ​ Certain financing arrangements restrict our operations and expose us to additional risk. ​ Our existing financing arrangements, including the Senior Secured Notes, Corporate Debt, Convertible Notes, and our future financing arrangements are or will be governed by a credit agreement, indenture or other instrument containing covenants restricting our operating flexibility.
Significant repurchase activity could harm our cash flow, results of operations, financial condition and business prospects. ​ Certain financing arrangements restrict our operations and expose us to additional risk. ​ Our existing financing arrangements, including our senior secured notes, corporate debt, and our future financing arrangements are or will be governed by a credit agreement, indenture or other instrument containing covenants restricting our operating flexibility.
As a result, our obligations under the Senior Secured Notes, Convertible Notes and the Corporate Debt could increase the cost of acquiring our Company or otherwise discourage a third party from acquiring our Company.
As a result, our obligations under our senior secured notes and corporate debt could increase the cost of acquiring our Company or otherwise discourage a third party from acquiring our Company.
The settlement does not prohibit the states, the federal government, individuals or investors in RMBS from pursuing additional actions against the banks and servicers in the future. ​ The integrity of the servicing and foreclosure processes are critical to the value of the residential mortgage loans and the RMBS collateralized by residential mortgage loans in which we will invest, and our financial results could be adversely affected by deficiencies in the conduct of those processes.
The settlement does not prohibit the states, the federal government, individuals or investors in residential MBS from pursuing additional actions against the banks and servicers in the future. ​ The integrity of the servicing and foreclosure processes are critical to the value of the residential mortgage loans and the residential MBS collateralized by residential mortgage loans in which we will invest, and our financial results could be adversely affected by deficiencies in the conduct of those processes.
Furthermore, any costs or delays involved in the completion of a foreclosure of the SBC loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
Furthermore, any costs or delays involved in the completion of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
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.
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.
Although SEC staff no-action letters have not specifically addressed the categorization of these 33 Table of Contents types of assets, we will also treat as qualifying assets for this purpose bridge loans wholly-secured by first priority liens on real estate that provide interim financing to borrowers seeking short-term capital (with terms of generally up to three years), MBS representing ownership of an entire pool of mortgage loans, and real estate-owned properties that may be acquired in connection with mortgage loan foreclosures.
Although SEC staff no-action letters have not specifically addressed the categorization of these types of assets, we will also treat as qualifying assets for this purpose bridge loans wholly-secured by first priority liens on real estate that provide interim financing to borrowers seeking short-term capital (with terms of generally up to three years), MBS representing ownership of an entire pool of mortgage loans, and real estate-owned properties that may be acquired in connection with mortgage loan foreclosures.
While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect 43 Table of Contents our business, there can be no assurance that these matters will not have an adverse impact on our consolidated results of operations and financial condition. ​ Our MSRs will expose us to significant risks. ​ Fannie Mae, Freddie Mac and Ginnie Mae generally require mortgage servicers to be paid a minimum servicing fee that significantly exceeds the amount a servicer would charge in an arm’s-length transaction.
While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect our business, there can be no assurance that these matters will not have an adverse impact on our consolidated results of operations and financial condition. ​ Our MSRs will expose us to significant risks. ​ Fannie Mae, Freddie Mac and Ginnie Mae generally require mortgage servicers to be paid a minimum servicing fee that significantly exceeds the amount a servicer would charge in an arm’s-length transaction.
Non-performing SBC loans are serviced either through an approved SBC primary servicer providing both primary and special servicing or providing only primary servicing with special servicing contracted to smaller regionally-focused SBC operators and servicers. Servicers’ responsibilities include providing collection activities, loan workouts, modifications and refinancings, foreclosures, short sales, sales of foreclosed real estate and financings to facilitate such sales.
Non-performing LMM loans are serviced either through an approved LMM primary servicer providing both primary and special servicing or providing only primary servicing with special servicing contracted to smaller regionally-focused LMM operators and servicers. Servicers’ responsibilities include providing collection activities, loan workouts, modifications and refinancings, foreclosures, short sales, sales of foreclosed real estate and financings to facilitate such sales.
This strategy is designed to protect us from rising interest rates, because the borrowing costs are fixed for the duration of the fixed-rate portion of the related SBC loan or ABS asset. ​ However, if prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument.
This strategy is designed to protect us from rising interest rates, because the borrowing costs are fixed for the duration of the fixed-rate portion of the related LMM loan or ABS asset. ​ However, if prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument.
If the management agreement is terminated and no suitable replacement is found to manage the Company, we may not be able to execute our business plan. ​ 37 Table of Contents Should one or more of Waterfall’s key personnel leave the employment of Waterfall or otherwise become unavailable to us, Waterfall may not be able to find a suitable replacement and we may not be able to execute certain aspects of our business plan. ​ There are various conflicts of interest in our relationship with Waterfall which could result in decisions that are not in the best interests of our stockholders. ​ We are subject to conflicts of interest arising out of our relationship with Waterfall and its affiliates.
If the management agreement is terminated and no suitable replacement is found to manage the Company, we may not be able to execute our business plan. ​ Should one or more of Waterfall’s key personnel leave the employment of Waterfall or otherwise become unavailable to us, Waterfall may not be able to find a suitable replacement and we may not be able to execute certain aspects of our business plan. ​ There are various conflicts of interest in our relationship with Waterfall which could result in decisions that are not in the best interests of our stockholders. ​ We are subject to conflicts of interest arising out of our relationship with Waterfall and its affiliates.
In connection with the expanded HARP program, the IRS issued guidance providing that, among other things, if a REIT holds a regular interest in an “eligible REMIC,” or a residual interest in an “eligible REMIC” that informs the REIT that at least 80% of the REMIC’s assets constitute real estate assets, then (i) the REIT may treat 80% of the value of the interest in the REMIC as a real estate asset for the purpose of the REIT asset tests and (ii) the REIT may treat 80% of the gross income received with respect to the interest in the REMIC as interest on an obligation secured by a mortgage 58 Table of Contents on real property for the purpose of the 75% gross income test.
In connection with the expanded HARP program, the IRS issued guidance providing that, among other things, if a REIT holds a regular interest in an “eligible REMIC,” or a residual interest in an “eligible REMIC” that informs the REIT that at least 80% of the REMIC’s assets constitute real estate assets, then (i) the REIT may treat 80% of the value of the interest in the REMIC as a real estate asset for the purpose of the REIT asset tests and (ii) the REIT may treat 80% of the gross income received with respect to the interest in the REMIC as interest on an obligation secured by a mortgage on real property for the purpose of the 75% gross income test.
For example, our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our SBC loans, the likelihood of repayment in full at the maturity of a loan, potential for an SBC loan refinancing opportunity in the future and expected market discount rates for varying property types.
For example, our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our LMM loans, the likelihood of repayment in full at the maturity of a loan, potential for an LMM loan refinancing opportunity in the future and expected market discount rates for varying property types.
A government shutdown may adversely affect our SBA loan program acquisitions and originations and our results of operations. ​ 47 Table of Contents Risks Related to Financing and Hedging ​ We use leverage as part of our investment strategy, but we do not have a formal policy limiting the amount of debt we may incur.
A government shutdown may adversely affect our SBA loan program acquisitions and originations and our results of operations. 49 Table of Contents Risks Related to Financing and Hedging ​ We use leverage as part of our investment strategy, but we do not have a formal policy limiting the amount of debt we may incur.
An increase in short-term interest rates at the time that we seek to enter into new borrowings would reduce the spread between the returns on our assets and the cost of our borrowings. This would adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution to our stockholders. ​ Item 1B.
An increase in short-term interest rates at the time that we seek to enter into new borrowings would reduce the spread between the returns on our assets and the cost of our borrowings. This would adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution to our stockholders. ​
Any shortfall resulting from the bankruptcy of one or more of our tenants could adversely affect our cash flow and results of operations. ​ Any mezzanine loan assets we may purchase or originate may involve greater risks of loss than senior loans secured by income-producing properties. ​ We may originate or acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property.
Any shortfall resulting from the bankruptcy of one or more of our tenants could adversely affect our cash flow and results of operations. ​ 22 Table of Contents Any mezzanine loan assets we may purchase or originate may involve greater risks of loss than senior loans secured by income-producing properties. ​ We may originate or acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property.
Consequently, any modification of our business plan could have a material adverse effect on us. ​ 34 Table of Contents Further, if the SEC determined that we were an unregistered investment company, we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, we would potentially be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period for which it was established that we were an unregistered investment company.
Consequently, any modification of our business plan could have a material adverse effect on us. ​ Further, if the SEC determined that we were an unregistered investment company, we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, we would potentially be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period for which it was established that we were an unregistered investment company.
Any credit ratings on our SBC loans and ABS assets are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
Any credit ratings on our LMM loans and ABS assets are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
We consider a loan to be non-performing if the borrower does not meet the criteria of a performing loan. Non-performing SBC loans are subject to increased risks of credit loss for a variety of reasons, including, the underlying property is too highly-leveraged or the borrower has experienced financial distress.
We consider a loan to be non-performing if the borrower does not meet the criteria of a performing loan. Non-performing LMM loans are subject to increased risks of credit loss for a variety of reasons, including, the underlying property is too highly-leveraged or the borrower has experienced financial distress.
To the extent there are problems with 49 Table of Contents the manner in which title and lien priority rights were established or transferred, securitization transactions that we may sponsor and third-party sponsored securitizations that we hold investments in may experience losses, which could expose us to losses and could damage our ability to engage in future securitization transactions. ​ Our potential securitization activities could expose us to litigation, adversely affecting our business and financial results. ​ Through certain of our subsidiaries we may engage in or participate in securitization transactions relating to mortgage loans.
To the extent there are problems with the manner in which title and lien priority rights were established or transferred, securitization transactions that we may sponsor and third-party sponsored securitizations that we hold investments in may experience losses, which could expose us to losses and could damage our ability to engage in future securitization transactions. ​ Our potential securitization activities could expose us to litigation, adversely affecting our business and financial results. ​ Through certain of our subsidiaries we may engage in or participate in securitization transactions relating to mortgage loans.
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.
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.
Because we expect that our SBC loans and ABS assets generally will bear, on average, interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income and the fair market value of our net assets.
Because we expect that our LMM loans and ABS assets generally will bear, on average, interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income and the fair market value of our net assets.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC or violations of applicable stock exchange listing rules. ​ There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may 68 Table of Contents cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC or violations of applicable stock exchange listing rules. ​ There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
Stockholders are urged to consult with their tax advisors with respect to the impact of these legislative changes on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. ​ There may be tax consequences to any modifications to our borrowings, our hedging transactions and other contracts to replace references to LIBOR. ​ Many of our debt and interest rate hedge agreements are linked to U.S. dollar LIBOR.
Stockholders are urged to consult with their tax advisors with respect to the impact of these legislative changes on their investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. ​ There may be tax consequences to any modifications to our hedging transactions and other contracts to replace references to LIBOR. ​ Many of our interest rate hedge agreements were linked to U.S. dollar LIBOR.
A deterioration of the SBC or SBC ABS markets or the broader financial markets may cause us to experience losses related to our assets and to sell assets at a loss. Our profitability may be materially adversely affected if we are unable to obtain cost effective financing.
A deterioration of the LMM or LMM ABS markets or the broader financial markets may cause us to experience losses related to our assets and to sell assets at a loss. Our profitability may be materially adversely affected if we are unable to obtain cost effective financing.
Additionally, to the extent cash flows from SBC loans and ABS assets that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new SBC loans and ABS assets and available borrowing rates may decline, which would likely decrease our net income.
Additionally, to the extent cash flows from LMM loans and ABS assets that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new LMM loans and ABS assets and available borrowing rates may decline, which would likely decrease our net income.
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.
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.
As a result, no assurance can be provided that we will not be subject to prohibited transaction tax. ​ 60 Table of Contents Characterization of our repurchase agreements entered into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT. ​ We enter into repurchase agreements with counterparties to achieve our desired amount of leverage for the assets in which we invest.
As a result, no assurance can be provided that we will not be subject to prohibited transaction tax. ​ Characterization of our repurchase agreements entered into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT. ​ We enter into repurchase agreements with counterparties to achieve our desired amount of leverage for the assets in which we invest.
Servicer quality is of prime importance in the default performance of SBC loans and SBC ABS assets. Should we have to transfer loan servicing to another servicer, the transfer of loans to a new servicer could result in more loans becoming delinquent because of confusion or lack of attention.
Servicer quality is of prime importance in the default performance of LMM loans and LMM ABS assets. Should we have to transfer loan servicing to another servicer, the transfer of loans to a new servicer could result in more loans becoming delinquent because of confusion or lack of attention.
Additionally, origination of SBC loans by our competitors may increase the availability of SBC loans which may result in a reduction of interest rates on SBC loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us.
Additionally, origination of LMM loans by our competitors may increase the availability of LMM loans which may result in a reduction of interest rates on LMM loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us.
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.
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.
Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in the Company. ​ We cannot assure our ability to pay distributions in the future. ​ To maintain our qualification as a REIT and generally not be subject to U.S. federal income tax, we intend to make regular quarterly distributions to holders of our common stock out of legally available funds.
Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in the Company. ​ ​ 67 Table of Contents We cannot assure our ability to pay distributions in the future. ​ To maintain our qualification as a REIT and generally not be subject to U.S. federal income tax, we intend to make regular quarterly distributions to holders of our common stock out of legally available funds.
Loans originated with exceptions may result in a higher number of delinquencies and defaults, which could have a material and adverse effect on our business, results of operations and financial condition. 19 Table of Contents ​ Deficiencies in appraisal quality in the mortgage loan origination and acquisition process may result in increased principal loss severity. ​ During the mortgage loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective mortgage.
Loans originated with exceptions may result in a higher number of delinquencies and defaults, which could have a material and adverse effect on our business, results of operations and financial condition. ​ Deficiencies in appraisal quality in the mortgage loan origination and acquisition process may result in increased principal loss severity. ​ During the mortgage loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective mortgage.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe use the offices of ReadyCap Lending located at 200 Connell Drive, Suite 4000, Berkeley Heights, New Jersey, 07922; ReadyCap Commercial, LLC, located at 1320 Greenway Drive, Suite 560, 67 Table of Contents Irving, Texas, 75038; and Knight Capital LLC, located at 110 Southeast 6 th Street, Suite 700, Fort Lauderdale, FL 33301.
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.
We use 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. ​
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.
Item 2. Properties ​ Our principal executive offices are located at 1251 Avenue of the Americas, 50 th Floor, New York, New York 10020, and our telephone number is (212) 257-4600.
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.
Removed
We use the offices of GMFS located at 7389 Florida Blvd, Suite 200A, Baton Rouge, Louisiana, 70806 for our residential mortgage banking operations. GMFS also has various branch locations located primarily throughout the southeastern United States.
Added
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

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe 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. The settlement is subject to both preliminary and final approval by the California Superior Court.
Biggest changeThe 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.
The 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 Merger, agreeing to purportedly unreasonable deal protections in connection with the Merger, and authorizing the issuance of the Form 424B3 filed on February 9, 2021, which allegedly contained materially misleading information.
The 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.
The California State Court Actions seek, among other things, rescissory damages and an award of attorneys’ and experts’ fees. On May 26, 2021, the California State Court 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.
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.
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, 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 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.
McAdams, et al., No. 21STCV08413 (the “Gigli Action,” and together with the Baker Action and the Bundick Action, the “Anworth Merger Actions”). The California State Court Actions were filed against the former members of Anworth’s Board of Directors (the “Anworth Board”).
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”).
Removed
On March 10, 2022, CAIS Capital, LLC (“CAIS”) filed a lawsuit in the Superior Court of California, styled CAIS Capital LLC v. MREC Management, LLC, et al., No. 22STCV08807 (the “CAIS Action”) against the Mosaic Manager, Mosaic Real Estate Credit Offshore, LP, the Mosaic Funds, Mosaic Special Member, LLC, the Company and the Manager.
Added
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 ​
Removed
The lawsuit concerns the Mosaic Manager’s relationship with CAIS, an alternative investment platform for financial advisors.
Removed
CAIS asserts claims under California law and seeks, among other things, attachment of the Mosaic Manager’s obligations to the Company, damages in the amount of the fee payments allegedly owed to CAIS, compensatory damages for intentional tortious interference with contract, specific performance requiring the Company to continue making fee payments, and attorney’s fees.
Removed
On April 13, 2022, the Mosaic Manager, Mosaic Real Estate Credit Offshore, LP, Mosaic Special Member, LLC and the Mosaic Funds (together, the “Mosaic Defendants”) filed a Demurrer seeking to dismiss the complaint. On May 6, 2022, the Company, RC Mosaic Sub, LLC, and the Manager filed a Demurrer seeking to dismiss the complaint.
Removed
On May 12, 2022, the California Superior Court denied-in-part and granted-in-part the Mosaic Defendants’ Demurrer, and on June 2, 2022, the California Superior Court denied the Demurrer filed by the Company, RC Mosaic Sub, LLC, and the Manager.
Removed
The Mosaic Defendants filed their Answer on May 26, 2022, and the Company, RC Mosaic Sub, LLC, and the Manager filed their Answer on June 13, 2022. ​ On August 31, 2022, the Company and CAIS reached an agreement to settle the litigation and, on September 15, 2022, CAIS filed a request for dismissal, which dismissed the entire case with prejudice. ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+1 added−0 removed6 unchanged
Biggest changeThe timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. ​ The table below presents purchases of our common stock during the quarter. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Shares Purchased ​ ​ Average Price Paid per Share ​ Total Number of Shares Purchased as Part of Publicly Announced Program ​ ​ Maximum Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Program October ​ 3,619,855 ​ $ 10.36 ​ 3,573,670 ​ $ — November ​ 129 ​ ​ 13.29 ​ — ​ ​ — December ​ — ​ ​ — ​ — ​ ​ — Total ​ 3,619,984 (1) ​ $ 10.36 (2) ​ 3,573,670 ​ $ — (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.
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.
Dividends are declared and paid at the discretion of our board of directors and depend on cash available for distribution, financial condition, our ability to maintain our qualification as a REIT, and such other factors that our board of directors may deem relevant.
Dividends are declared and paid at the discretion of our Board and depend on cash available for distribution, financial condition, our ability to maintain our qualification as a REIT, and such other factors that our Board may deem relevant.
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, 2022. 69 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of the period ended As of December 31, ​ Index October 31, 2016 2016 2017 2018 2019 2020 2021 2022 RC 100.0 100.4 124.9 125.8 155.3 147.0 206.5 165.3 S&P 500 100.0 105.3 125.7 117.9 152.0 176.7 224.2 180.6 Competitor Composite Average 100.0 100.6 115.0 125.3 169.9 160.7 203.5 165.4 ​ 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 2022, 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.
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.
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. ​ 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 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”.
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.
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.
Repurchases under the stock repurchase program 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 the Company 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 plans, which permit stock repurchases at times when we might otherwise be precluded from doing so.
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, 2023, we had 738 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”. ​ Holders As of February 27, 2024, we had 895 registered holders of our common stock.
(2) The price paid per share is based on the price of our common stock as of the date of the withholding. ​ ​ ​ ​ 70 Table of Contents
(2) The price paid per share is based on the price of our common stock as of the date of the withholding. ​ ​
(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. ​ Recent Sales of Unregistered Equity Securities; Use of Proceeds from Registered Securities None. ​ Recent Purchases of Equity Securities On March 6, 2018, our Board of Directors approved a share repurchase program authorizing, but not obligating, the repurchase of its common stock, and on September 29, 2022, our Board of Directors approved an increase to the size of the share repurchase program bringing the total authorized repurchases thereunder to $50.0 million.
(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.
(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
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.

Item 7. Management's Discussion & Analysis

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

86 edited+15 added−74 removed72 unchanged
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 ​ Year Ended December 31, (in thousands) ​ ​ December 31, 2022 ​ 2022 ​ 2021 ​ 2020 Loan originations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SBC loans ​ $ 890,610 ​ $ 4,520,385 ​ $ 5,271,916 ​ $ 1,160,294 SBA loans ​ ​ 136,901 ​ ​ 499,599 ​ ​ 480,760 ​ ​ 216,556 Residential agency mortgage loans ​ ​ 326,553 ​ ​ 2,377,121 ​ ​ 4,208,582 ​ ​ 4,246,367 Total loan originations ​ $ 1,354,064 ​ $ 7,397,105 ​ $ 9,961,258 ​ $ 5,623,217 Total loan acquisitions ​ $ — ​ $ 659,636 ​ $ 196,992 ​ $ 212,644 Total loan investment activity ​ $ 1,354,064 ​ $ 8,056,741 ​ $ 10,158,250 ​ $ 5,835,861 ​ 77 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: ​ ​ ​ SBC loans ​ $ 1,303,008 SBA loans ​ ​ 357,166 Residential agency mortgage loans ​ ​ 240,529 Total loan originations ​ $ 1,900,703 Total loan acquisitions ​ $ 10,000 Total loan investment pipeline (1) ​ $ 1,910,703 (1) Includes 2023 fundings ​ Balance Sheet Analysis and Metrics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2022 ​ December 31, 2021 ​ ​ $ Change ​ % Change Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 163,041 ​ $ 229,531 ​ ​ $ (66,490) ​ (29.0) % Restricted cash ​ 55,927 ​ 51,569 ​ ​ ​ 4,358 ​ 8.5 ​ Loans, net (including $9,786 and $10,766 held at fair value) ​ 3,576,310 ​ 2,915,446 ​ ​ ​ 660,864 ​ 22.7 ​ Loans, held for sale, at fair value ​ 258,377 ​ 552,935 ​ ​ ​ (294,558) ​ (53.3) ​ Paycheck Protection Program loans (including $576 and $3,243 held at fair value) ​ 186,985 ​ 870,352 ​ ​ ​ (683,367) ​ (78.5) ​ Mortgage-backed securities, at fair value ​ 32,041 ​ ​ 99,496 ​ ​ ​ (67,455) ​ (67.8) ​ Loans eligible for repurchase from Ginnie Mae ​ ​ 66,193 ​ ​ 94,111 ​ ​ ​ (27,918) ​ (29.7) ​ Investment in unconsolidated joint ventures (including $8,094 and $8,894 held at fair value) ​ ​ 118,641 ​ ​ 141,148 ​ ​ ​ (22,507) ​ (15.9) ​ Investments held to maturity ​ ​ 3,306 ​ ​ — ​ ​ ​ 3,306 ​ 100.0 ​ Purchased future receivables, net ​ ​ 8,246 ​ ​ 7,872 ​ ​ ​ 374 ​ 4.8 ​ Derivative instruments ​ ​ 12,963 ​ ​ 7,022 ​ ​ ​ 5,941 ​ 84.6 ​ Servicing rights (including $192,203 and $120,142 held at fair value) ​ ​ 279,320 ​ ​ 204,599 ​ ​ ​ 74,721 ​ 36.5 ​ Real estate owned, held for sale ​ ​ 117,098 ​ ​ 42,288 ​ ​ ​ 74,810 ​ 176.9 ​ Other assets ​ ​ 189,769 ​ ​ 172,098 ​ ​ ​ 17,671 ​ 10.3 ​ Assets of consolidated VIEs ​ ​ 6,552,760 ​ ​ 4,145,564 ​ ​ ​ 2,407,196 ​ 58.1 ​ Total Assets ​ $ 11,620,977 ​ $ 9,534,031 ​ ​ $ 2,086,946 ​ 21.9 % Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secured borrowings ​ ​ 2,846,293 ​ ​ 2,517,600 ​ ​ ​ 328,693 ​ 13.1 ​ Paycheck Protection Program Liquidity Facility (PPPLF) borrowings ​ ​ 201,011 ​ ​ 941,505 ​ ​ ​ (740,494) ​ (78.7) ​ Securitized debt obligations of consolidated VIEs, net ​ ​ 4,903,350 ​ ​ 3,214,303 ​ ​ ​ 1,689,047 ​ 52.5 ​ Convertible notes, net ​ ​ 114,397 ​ ​ 113,247 ​ ​ ​ 1,150 ​ 1.0 ​ Senior secured notes, net ​ ​ 343,355 ​ ​ 342,035 ​ ​ ​ 1,320 ​ 0.4 ​ Corporate debt, net ​ ​ 662,665 ​ ​ 441,817 ​ ​ ​ 220,848 ​ 50.0 ​ Guaranteed loan financing ​ ​ 264,889 ​ ​ 345,217 ​ ​ ​ (80,328) ​ (23.3) ​ Contingent consideration ​ ​ 28,500 ​ ​ 16,400 ​ ​ ​ 12,100 ​ 73.8 ​ Liabilities for loans eligible for repurchase from Ginnie Mae ​ ​ 66,193 ​ ​ 94,111 ​ ​ ​ (27,918) ​ (29.7) ​ Derivative instruments ​ ​ 1,586 ​ ​ 410 ​ ​ ​ 1,176 ​ 286.8 ​ Dividends payable ​ ​ 47,177 ​ ​ 34,348 ​ ​ ​ 12,829 ​ 37.4 ​ Loan participations sold ​ ​ 54,641 ​ ​ — ​ ​ ​ 54,641 ​ 100.0 ​ Due to third parties ​ ​ 11,805 ​ ​ 668 ​ ​ ​ 11,137 ​ 1,667.2 ​ Accounts payable and other accrued liabilities ​ ​ 176,520 ​ ​ 183,411 ​ ​ ​ (6,891) ​ (3.8) ​ Total Liabilities ​ $ 9,722,382 ​ $ 8,245,072 ​ ​ $ 1,477,310 ​ 17.9 % 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, 110,523,641 and 75,838,050 shares issued and outstanding, respectively ​ ​ 11 ​ 8 ​ ​ ​ 3 ​ 37.5 ​ Additional paid-in capital ​ ​ 1,684,074 ​ ​ 1,161,853 ​ ​ ​ 522,221 ​ 44.9 ​ Retained earnings ​ ​ 4,994 ​ ​ 8,598 ​ ​ ​ (3,604) ​ (41.9) ​ Accumulated other comprehensive loss ​ ​ (9,369) ​ ​ (5,733) ​ ​ ​ (3,636) ​ 63.4 ​ Total Ready Capital Corporation equity ​ ​ 1,791,088 ​ 1,276,104 ​ ​ ​ 514,984 ​ 40.4 ​ Non-controlling interests ​ ​ 99,146 ​ 4,494 ​ ​ ​ 94,652 ​ 2,106.2 ​ Total Stockholders’ Equity ​ $ 1,890,234 ​ $ 1,280,598 ​ ​ $ 609,636 ​ 47.6 % Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity ​ $ 11,620,977 ​ $ 9,534,031 ​ ​ $ 2,086,946 ​ 21.9 % ​ As of December 2022, total assets in our consolidated balance sheet were $11.6 billion, an increase of $2.1 billion from December 2021, primarily reflecting an increase in Assets of consolidated VIEs and Loans, net, partially offset by a decrease in PPP loans.
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.
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”). ​ 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 “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.
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 convertible notes, 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.
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.
We believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made, based upon information available to us at that time. The following discussion describes the critical accounting estimates that apply to our operations and require complex management judgment.
We believe that all of the decisions and assessments upon which our consolidated financial statements are based were reasonable at the time made, based upon information available to us at that time. The following discussion describes the critical accounting estimates that apply to our operations and require complex management judgment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ Introduction Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ Introduction Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.
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. ​ ​ 92 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. ​ 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.
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 .
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”).
Additionally, other factors such as the credit rating of the borrower, the rate of property value appreciation or depreciation, financial market conditions, foreclosures and lender competition, none of which can be predicted with any certainty, may affect prepayment speeds on loans. ​ 75 Table of Contents Credit Spreads. Our investment portfolio may be subject to changes in credit spreads.
Additionally, other factors such as the credit rating of the borrower, the rate of property value appreciation or depreciation, financial market conditions, foreclosures and lender competition, none of which can be predicted with any certainty, may affect prepayment speeds on loans. ​ 76 Table of Contents Credit Spreads. Our investment portfolio may be subject to changes in credit spreads.
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 ​ Mosaic.
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.
Refer to “Notes to Consolidated Financial Statements, Note 20 – 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, residential MSRs, 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.
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.
By contributing these SBC and SBA assets to the various securitizations, these transactions created capacity for us to fund other investments. ​ ​ 90 Table of Contents 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) SBC Acquired loans February 2011 Collapsed ​ $ 40.5 Waterfall Victoria Mortgage Trust 2011-3 (SBC3) SBC Acquired loans October 2011 Collapsed ​ ​ 143.4 Sutherland Commercial Mortgage Trust 2015-4 (SBC4) SBC Acquired loans August 2015 Collapsed ​ ​ 125.4 Sutherland Commercial Mortgage Trust 2018 (SBC7) SBC 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 ​ ​ ​ ​ ​ ​ ​ Real Estate Mortgage Investment Conduits (REMICs) ​ ​ ​ ​ ​ ​ ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1) SBC Originated conventional September 2014 Collapsed ​ $ 181.7 ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2) SBC Originated conventional November 2015 Active ​ ​ 218.8 ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3) SBC Originated conventional November 2016 Active ​ ​ 162.1 ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4) SBC Originated conventional March 2018 Active ​ ​ 165.0 Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5) SBC Originated conventional January 2019 Active ​ ​ 355.8 Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6) SBC Originated conventional November 2019 Active ​ ​ 430.7 Ready Capital Mortgage Trust 2022-7 (RCMT 2022-7) SBC Originated conventional April 2022 Active ​ ​ 276.8 Waterfall Victoria Mortgage Trust 2011-2 (SBC2) SBC Acquired loans March 2011 Collapsed ​ ​ 97.6 Sutherland Commercial Mortgage Trust 2018 (SBC6) SBC Acquired loans August 2017 Active ​ ​ 154.9 Sutherland Commercial Mortgage Trust 2019 (SBC8) SBC Acquired loans June 2019 Active ​ ​ 306.5 Sutherland Commercial Mortgage Trust 2020 (SBC9) SBC Acquired loans June 2020 Collapsed ​ ​ 203.6 Sutherland Commercial Mortgage Trust 2021 (SBC10) SBC Acquired loans May 2021 Active ​ ​ 232.6 ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations (CLOs) ​ ​ ​ ​ ​ ​ Ready Capital Mortgage Financing 2017 – FL1 SBC Originated bridge August 2017 Collapsed ​ $ 198.8 Ready Capital Mortgage Financing 2018 – FL2 SBC Originated bridge June 2018 Collapsed ​ ​ 217.1 Ready Capital Mortgage Financing 2019 – FL3 SBC Originated bridge April 2019 Active ​ ​ 320.2 Ready Capital Mortgage Financing 2020 – FL4 SBC Originated bridge June 2020 Active ​ ​ 405.3 Ready Capital Mortgage Financing 2021 – FL5 SBC Originated bridge March 2021 Active ​ ​ 628.9 Ready Capital Mortgage Financing 2021 – FL6 SBC Originated bridge August 2021 Active ​ ​ 652.5 Ready Capital Mortgage Financing 2021 – FL7 SBC Originated bridge November 2021 Active ​ ​ 927.2 Ready Capital Mortgage Financing 2022 – FL8 SBC Originated bridge March 2022 Active ​ ​ 1,135.0 Ready Capital Mortgage Financing 2022 – FL9 SBC Originated bridge June 2022 Active ​ ​ 754.2 Ready Capital Mortgage Financing 2022 – FL10 SBC Originated bridge October 2022 Active ​ ​ 860.1 ​ ​ ​ ​ ​ ​ ​ 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) SBC Originated conventional September 2020 Active ​ ​ 263.2 (1) Contributed portion of assets into trust ​ ​ ​ ​ ​ ​ ​ We used the proceeds from the sale of the tranches issued to purchase and originate SBC and SBA loans.
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.
We hold an SBA license as one of only 14 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 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.
The Agent is not required to sell any specific number of the notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between the Agent and us.
The Agent is not required to sell any specific number of the notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between the Agent and the Company.
Refer to “Notes to Consolidated Financial Statements, Note 9 – 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– Recently Issued 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 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. ​
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 SBC loans, SBC 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 86 Table of Contents 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. ​ 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.
These securitizations allow us to match fund the SBC 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.
We use significant cash to purchase SBC loans and other target assets, originate new SBC loans, pay dividends, repay principal and interest on our borrowings, fund our operations and meet other general business needs.
We use significant cash to purchase LMM loans and other target assets, originate new LMM loans, pay dividends, repay principal and interest on our borrowings, fund our operations and meet other general business needs.
In calculating distributable earnings, we do not exclude realized gains or losses on either 82 Table of Contents commercial MSRs or residential MSRs, held at fair value, as servicing income is a fundamental part of our business and an indicator of the ongoing performance. ​ 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.
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.
Riley Securities, Inc. (the “Agent”), pursuant to which we 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.
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.
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 SBC loans, SBA loans, residential mortgage loans, construction loans, and to a lesser extent, MBS collateralized primarily by SBC loans, or other real estate-related investments.
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.
The price of shares of our common stock for purposes of determining the number of shares payable as part of the incentive distribution is the closing price of such shares on the last trading day prior to the approval by our board of the incentive distribution. ​ For purposes of determining the incentive distribution payable to our Manager, distributable earnings (which is referred to as core earnings in the partnership agreement of our operating partnership) is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of distributable earnings described above under "Non-GAAP Financial Measures" but with the following additional adjustments which (i) further exclude: (a) the incentive distribution, (b) non-cash equity compensation expense, if any, (c) unrealized gains or losses on SBC loans (not just MBS and MSRs), (d) depreciation and amortization (to the extent we foreclose on any property), and (e) one-time events pursuant to changes in U.S.
The price of shares of our common stock for purposes of determining the number of shares payable as part of the incentive distribution is the closing price of such shares on the last trading day prior to the approval by our Board of the incentive distribution. ​ For purposes of determining the incentive distribution payable to our Manager, distributable earnings (which is referred to as core earnings in the partnership agreement of our operating partnership) is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of distributable earnings described above under "Non-GAAP Financial Measures" but with the following additional adjustments which (i) further exclude: (a) the incentive distribution, (b) unrealized gains or losses on LMM loans (not just MBS and MSRs), (c) depreciation and amortization (to the extent we foreclose on any property), and (d) one-time events pursuant to changes in U.S.
We own and expect to acquire or originate fixed rate mortgages (“FRMs”) and ARMs with maturities ranging from two to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon payments due in two to 10 years.
We own and expect to acquire or originate fixed rate mortgages and floating rate mortgages with maturities ranging from two to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon payments due in two to 10 years.
(8) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year.
(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.
The CECL forecasting methods used by the Company include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan database with historical loan losses and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data.
The Current Expected Credit Loss (“CECL”) forecasting methods used by the Company include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan database with historical loan losses and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data.
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”).
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”).
ARM 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 Secured Overnight Financing Rate (“SOFR”), which typically resets monthly.
The expectation of changes in real estate prices is a key determinant for the value of loans and ABS. This factor is beyond our control. ​ Prepayment Speeds. Prepayment speeds on loans vary according to interest rates, the type of investment, conditions in the financial markets, competition, foreclosures and other factors that cannot be predicted with any certainty.
The expectation of changes in real estate prices is a key determinant for the value of loans and ABS. ​ Prepayment Speeds. Prepayment speeds on loans vary according to interest rates, the type of investment, conditions in the financial markets, competition, foreclosures and other factors that cannot be predicted with any certainty.
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 iv) any unrealized current non-cash provision for credit losses on accrual loans v) any unrealized gains or losses on de-designated cash flow hedges vi) any non-cash compensation expense related to stock-based incentive plan vii) 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.
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.
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) add back 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". ​ ​ 84 Table of Contents Liquidity and Capital Resources Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements.
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.
FRM 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 FRMs. As of December 31, 2022, 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, 2023, 72% of fixed rate loans are match funded in securitization.
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, 2022.
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.
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 and residential loans with secured borrowings until the loans are sold, generally within 30 days. ​ As of December 31, 2022, we had a total leverage ratio of 5.1x and recourse leverage ratio of 1.5x.
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.
No such sales through the Debt ATM Program were made during the three months ended December 31, 2022. ​ Securitization transactions Our Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled us to complete several securitizations of SBC and SBA loan assets since January 2011.
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.
As of December 31, 2022, approximately 86% of the loans in our portfolio were ARMs, and 14% were FRMs, based on UPB. ​ With respect to our business operations, increases in interest rates may generally over time cause the interest expense associated with our variable-rate borrowings to increase, the value of fixed-rate loans, MBS and other real estate-related assets to decline, coupons on variable-rate loans and MBS to reset to higher interest rates, and prepayments on loans and MBS to slowdown.
As of December 31, 2023, approximately 81% of the loans in our portfolio were floating rate mortgages, and 19% were fixed rate mortgages, based on UPB. ​ With respect to our business operations, increases in interest rates may generally over time cause the interest expense associated with our variable-rate borrowings to increase, the value of fixed-rate loans, MBS and other real estate-related assets to decline, coupons on variable-rate loans and MBS to reset to higher interest rates, and prepayments on loans and MBS to slowdown.
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.
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.
Cash and cash equivalents decreased by $26.3 million to $297.0 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 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.
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.
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.
Upon conversion, holders will receive, at our discretion, cash, shares of our common stock or a combination thereof. ​ We may redeem all or any portion of the Convertible Notes on or after August 15, 2021, if the last reported sale price of our common stock has been at least 120% of the conversion price in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.
Bank National Association, as trustee, we could redeem all or any portion of the Convertible Notes on or after August 15, 2021, if the last reported sale price of our common stock was at least 120% of the conversion price in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provided notice of redemption, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.
Concerns and uncertainties about the economic outlook may adversely impact our financial condition, results of operations and cash flows. ​ ​ ​ 76 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, and net book value per share.
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.
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.
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.
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 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.
As of December 31, 2022, we had $201.0 million outstanding under this credit facility . ​ Senior Secured Notes, Convertible Notes and Corporate Debt, Net The table below presents information about senior secured notes, convertible notes and corporate debt issued through public and private transactions. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Coupon Rate ​ Maturity Date December 31, 2022 Senior secured notes principal amount (1) ​ 4.50 % ​ 10/20/2026 ​ $ 350,000 Unamortized deferred financing costs - Senior secured notes ​ ​ ​ ​ ​ ​ ​ (6,645) Total Senior secured notes, net ​ ​ ​ ​ ​ ​ $ 343,355 Convertible notes principal amount (2) ​ 7.00 % 8/15/2023 ​ 115,000 Unamortized discount - Convertible notes (3) ​ ​ ​ ​ ​ ​ ​ (194) Unamortized deferred financing costs - Convertible notes ​ ​ ​ ​ ​ ​ ​ (409) Total Convertible notes, net ​ ​ ​ ​ ​ ​ $ 114,397 Corporate debt principal amount (4) ​ 5.50 % ​ 12/30/2028 ​ ​ 110,000 Corporate debt principal amount (5) ​ 6.20 % ​ 7/30/2026 ​ ​ 104,613 Corporate debt principal amount (5) ​ 5.75 % ​ 2/15/2026 ​ ​ 206,270 Corporate debt principal amount (6) ​ 6.125 % ​ 4/30/2025 ​ ​ 120,000 Corporate debt principal amount (7) ​ 7.375 % ​ 7/31/2027 ​ ​ 100,000 Unamortized discount - corporate debt ​ ​ ​ ​ ​ ​ ​ (9,771) Unamortized deferred financing costs - corporate debt ​ ​ ​ ​ ​ ​ ​ (4,697) Junior subordinated notes principal amount (8) ​ 3ML + 3.10 % ​ 3/30/2035 ​ ​ 15,000 Junior subordinated notes principal amount (9) ​ 3ML + 3.10 % ​ 4/30/2035 ​ ​ 21,250 Total corporate debt, net ​ ​ ​ ​ ​ ​ $ 662,665 Total carrying amount of debt ​ ​ ​ ​ ​ ​ $ 1,120,417 Total carrying amount of conversion option of equity components recorded in equity ​ ​ ​ ​ ​ ​ $ 194 (1) Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.
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.
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.
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.
Cash and cash equivalents increased by $72.5 million to $200.5 million at the end of 2020, primarily due to net cash provided by operating and financing activities, partially offset by net cash used for investing activities.
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.
(9) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year. ​ ​ 88 Table of Contents The table below presents the contractual maturities for senior secured notes, convertible notes and corporate debt. ​ ​ ​ ​ (in thousands) December 31, 2022 2023 $ 115,000 2024 ​ — 2025 ​ 120,000 2026 ​ 660,883 2027 ​ ​ 100,000 Thereafter ​ 146,250 Total contractual amounts ​ $ 1,142,133 Unamortized deferred financing costs, discounts, and premiums, net ​ ​ (21,716) Total carrying amount of debt ​ $ 1,120,417 ​ ReadyCap Holdings 4.50% senior secured notes due 2026.
(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.
See “—Non-GAAP Financial Measures” below for a reconciliation of net income to distributable earnings. ​ The table below sets forth certain information on our operating results. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, Year Ended December 31, ($ in thousands, except share data) 2022 2022 ​ 2021 ​ 2020 Net Income $ 13,682 ​ $ 203,163 ​ $ 159,974 ​ $ 46,069 ​ Earnings per common share - basic $ 0.08 ​ $ 1.73 ​ $ 2.17 ​ $ 0.81 ​ Earnings per common share - diluted $ 0.09 ​ $ 1.66 ​ $ 2.17 ​ $ 0.81 ​ Distributable earnings $ 51,581 ​ $ 218,732 ​ $ 168,036 ​ $ 101,379 ​ Distributable earnings per common share - basic $ 0.42 ​ $ 1.87 ​ $ 2.29 ​ $ 1.82 ​ Distributable earnings per common share - diluted $ 0.40 ​ $ 1.79 ​ $ 2.29 ​ $ 1.82 ​ Dividends declared per common share $ 0.40 ​ $ 1.66 ​ $ 1.66 ​ $ 1.30 ​ Dividend yield ​ 14.4 % ​ 12.3 % ​ 11.2 % ​ 10.4 % Return on equity ​ 2.7 % ​ 11.9 % ​ 14.6 % ​ 5.6 % Distributable return on equity ​ 11.4 % ​ 12.8 % ​ 15.4 % ​ 12.3 % Book value per common share $ 15.20 ​ $ 15.20 ​ $ 15.36 ​ $ 15.00 ​ Adjusted net book value per common share $ 15.20 ​ $ 15.20 ​ $ 15.35 ​ $ 14.98 ​ In the table above, ● Dividend yield is based on the respective period end closing share price. ● Adjusted net book value per common share excludes the equity component of our 2017 convertible note issuance. ​ Our Loan Pipeline We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our investment process.
See “—Non-GAAP Financial Measures” below for a reconciliation of net income to distributable earnings. ​ The table below sets forth certain information on our operating results. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, ​ Year Ended December 31, ($ in thousands, except share data) 2023 ​ 2023 ​ 2022 ​ Net Income from continuing operations $ 24,574 ​ $ 351,245 ​ $ 159,551 ​ Earnings per common share from continuing operations - basic $ 0.12 ​ $ 2.27 ​ $ 1.32 ​ Earnings per common share from continuing operations - diluted $ 0.12 ​ $ 2.24 ​ $ 1.28 ​ Distributable earnings $ 48,524 ​ $ 190,120 ​ $ 218,732 ​ Distributable earnings per common share - basic $ 0.26 ​ $ 1.18 ​ $ 1.87 ​ Distributable earnings per common share - diluted $ 0.26 ​ $ 1.17 ​ $ 1.79 ​ Dividends declared per common share $ 0.30 ​ $ 1.46 ​ $ 1.66 ​ Dividend yield ​ 11.7 % ​ 13.5 % ​ 12.3 % Return on equity from continuing operations ​ 3.7 % ​ 17.2 % ​ 10.1 % Distributable return on equity ​ 7.5 % ​ 8.6 % ​ 12.8 % Book value per common share $ 14.10 ​ $ 14.10 ​ $ 15.20 ​ Adjusted net book value per common share $ 14.10 ​ $ 14.10 ​ $ 15.20 ​ In the table above, ● Dividend yield is based on the respective period end closing share price. ● Adjusted net book value per common share excludes the equity component of our 2017 convertible note issuance. ​ Our Loan Pipeline We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our investment process.
Refer to Note 5, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K, for assets acquired and liabilities assumed in the merger. ​ Red Stone.
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.
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.
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.
Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. ​ 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 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 the 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.
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.
The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns. ​ 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.
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.
Non-interest expense of $56.0 million for 2021 represented an increase of $18.8 million from the prior year, primarily due to one-time transaction expenses and allocated employee compensation, partially offset by other professional fees, management fees and incentive fees. ​ 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-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.
Other than the Temporary Fee Reduction set forth in the Amendment, the terms of the Management Agreement remain the same. ​ For additional information on our business, refer to Part I, Item 1, “Business” in this Annual Report on Form 10-K. ​ ​ ​ 74 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, SBC loans, SBA loans, residential 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.
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.
PPPLF borrowings decreased $740 million due to PPP principal forgiveness. ​ As of December 2022, total stockholders’ equity was $1.9 billion, an increase of $610 million from December 2021, primarily due to equity raised in connection with the Mosaic Mergers, the issuance of common equity through an underwritten public offering and the issuance of common equity through the at-the-market program, partially offset by common stock repurchased through the Company’s share repurchase program. ​ Selected Balance Sheet Information by Business Segment.
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.
(5) Interest on the corporate debt is payable quarterly on January 30, April 30, July 30, and October 30 of each year. (6) Interest on the corporate debt is payable semiannually on April 30 and October 30 of each year. (7) Interest on the corporate debt is payable semiannually on January 31 and July 31 of each year.
(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.
The Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of our common stock is greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of our common stock during any five consecutive trading day period, (3) we issue certain equity instruments at less than the 10 day average closing market price of our common stock or the per-share value of certain distributions exceeds the market price of our common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occur. ​ ​ 89 Table of Contents Corporate debt We issue senior unsecured notes in public and private transactions.
Additionally, upon the occurrence of certain corporate transactions, holders could have required us to purchase the Convertible Notes for cash at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest. ​ The Convertible Notes were convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of our common stock was greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes was less than 98% of the product of (i) the conversion rate and (ii) the closing price of our common stock during any five consecutive trading day period, (3) we issued certain equity instruments at less than the 10 day average closing market price of our common stock or the per-share value of certain distributions exceeded the market price of our common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occurred. ​ On August 15, 2023, the Company’s outstanding Convertible Notes were repaid in full. ​ Corporate debt.
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, then 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.
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.
On August 9, 2017, we closed an underwritten public sale of $115.0 million aggregate principal amount of our 7.00% convertible senior notes due 2023 (the “Convertible Notes”).
On August 9, 2017, we closed an underwritten public sale of $115.0 million aggregate principal amount of our 7.00% convertible senior notes due 2023 (the “Convertible Notes”). Pursuant to the terms of the base indenture, dated August 9, 2017, as supplemented by the first supplemental indenture, dated August 9, 2017, between us and U.S.
We report our activities in the following three operating segments: ​ ● SBC Lending and Acquisitions . We originate SBC loans across the full life-cycle of an SBC 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.
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.
Servicing rights relating to our small business commercial business are accounted for under ASC 860, Transfer and Servicing , while our residential MSRs are accounted for under the fair value option under ASC 825, Financial Instruments .
Servicing rights relating to our small business commercial business are accounted for under ASC 860, Transfer and Servicing .
The net cash provided by financing activities primarily reflected net proceeds from issuances of securitized debt and net proceeds from PPPLF borrowings due to timing of funds designated for PPP originations, partially offset by paydowns of secured borrowings. The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns.
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.
We also acquire purchased future receivables through Knight Capital, which is a technology-driven platform that provides working capital to small and medium sized businesses across the U.S. ​ ● Residential Mortgage Banking . We operate our residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS.
We also acquire purchased future receivables through Knight Capital, which is a technology-driven platform that provides working capital to small and medium sized businesses across the U.S. ​ We are organized and conduct our operations to qualify as a REIT under the Code.
We have elected the fair value option on our residential MSRs, which are not subject to impairment. ​ 93 Table of Contents 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.
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.
In addition, we acquire small balance commercial loans as part of our business strategy. We hold performing SBC loans to term and seek to maximize the value of the non-performing SBC loans acquired by us through borrower-based resolution strategies.
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.
Additionally, the Mosaic Mergers added $763 million of assets. ​ As of December 2022, total liabilities in our consolidated balance sheet were $9.7 billion, an increase of $1.5 billion from December 2021, primarily reflecting an increase in Securitized debt obligations of consolidated VIEs, net and Secured borrowings, partially offset by a decrease in Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings.
The Broadmark Merger added $845 million of assets. ​ 79 Table of Contents As of December 31, 2023, total liabilities in our consolidated balance sheet were $9.8 billion, an increase of $72 million from December 31, 2022, primarily reflecting an increase in Guaranteed loan financing and Securitized debt obligations of consolidated VIEs, net, partially offset by a decrease in Secured borrowings and PPPLF borrowings.
We implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its loan portfolio.
The allowance for credit losses increases through provisions charged to earnings and reduced by charge-offs, net of recoveries. ​ We utilize loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its loan portfolio.
We are the primary beneficiary of all firm sponsored securitizations, therefore they are consolidated in our financial statements. ​ Contractual Obligations and Off-Balance Sheet Arrangements ​ The table below provides a summary of our contractual obligations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in thousands) ​ Total ​ ​ 1 to 3 years ​ 3 to 5 years ​ > 5 years Borrowings under credit facilities ​ $ 517,023 ​ $ 481,671 ​ $ 13,611 ​ $ 21,741 ​ $ — Borrowings under repurchase agreements ​ ​ 2,329,270 ​ ​ 514,653 ​ ​ 1,528,959 ​ ​ 285,658 ​ ​ — Guaranteed loan financing ​ ​ 264,889 ​ ​ 234 ​ ​ 2,420 ​ ​ 17,077 ​ ​ 245,158 Senior secured notes ​ ​ 350,000 ​ ​ — ​ ​ — ​ ​ 350,000 ​ ​ — Convertible notes ​ ​ 115,000 ​ ​ 115,000 ​ ​ — ​ ​ — ​ ​ — Corporate debt ​ ​ 677,133 ​ ​ — ​ ​ 120,000 ​ ​ 410,883 ​ ​ 146,250 Loan funding commitments ​ ​ 903,212 ​ ​ 451,606 ​ ​ 451,606 ​ ​ — ​ ​ — Future operating lease commitments ​ ​ 3,960 ​ ​ 1,733 ​ ​ 1,939 ​ ​ 288 ​ ​ — Total ​ $ 5,160,487 ​ $ 1,564,897 ​ $ 2,118,535 ​ $ 1,085,647 ​ $ 391,408 ​ The table above does not include amounts due under our management agreement or derivative agreements as those contracts do not have fixed and determinable payments. ​ ​ 91 Table of Contents Critical Accounting Estimates ​ Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We are the primary beneficiary of all firm sponsored securitizations, therefore they are consolidated in our financial statements. ​ Contractual Obligations and Off-Balance Sheet Arrangements ​ The table below provides a summary of our contractual obligations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) ​ Total ​ ​ 1 to 3 years ​ 3 to 5 years ​ > 5 years Borrowings under credit facilities ​ $ 149,923 ​ $ 57,832 ​ $ 92,091 ​ $ — ​ $ — Borrowings under repurchase agreements ​ ​ 1,952,152 ​ ​ 591,817 ​ ​ 1,360,335 ​ ​ — ​ ​ — Guaranteed loan financing ​ ​ 844,540 ​ ​ 329 ​ ​ 12,459 ​ ​ 10,202 ​ ​ 821,550 Senior secured notes ​ ​ 350,000 ​ ​ — ​ ​ 350,000 ​ ​ — ​ ​ — Corporate debt ​ ​ 777,134 ​ ​ — ​ ​ 630,884 ​ ​ 110,000 ​ ​ 36,250 Loan funding commitments ​ ​ 765,545 ​ ​ 382,772 ​ ​ 382,773 ​ ​ — ​ ​ — Future operating lease commitments ​ ​ 11,108 ​ ​ 2,280 ​ ​ 4,034 ​ ​ 2,277 ​ ​ 2,517 Total ​ $ 4,850,402 ​ $ 1,035,030 ​ $ 2,832,576 ​ $ 122,479 ​ $ 860,317 ​ The table above does not include amounts due under our management agreement or derivative agreements as those contracts do not have fixed and determinable payments. ​ Critical Accounting Estimates ​ Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Consolidated net income of $203.2 million for 2022 represented an increase of $43.2 million from the prior year, primarily due to an increase in net interest income after provision for loan losses driven by higher loan volumes and increases in interest rates.
Interest expense of $65.8 million for 2023 represented an increase of $38.5 million from the prior year, driven by an increase in interest rates and the closing of RCLT 2023-3. Provision for loan losses of $5.8 million for 2023 represented an increase of $2.9 million from the prior year, primarily due to an increase in specific loan reserves.
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. ​ The Debt ATM Agreement On May 20, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.
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.
So long as we qualify as a REIT, we are generally not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute substantially all of our net taxable income to stockholders.
To qualify as a REIT, we are required to annually distribute substantially all of our net taxable income, excluding capital gain, to stockholders.
Consolidated distributable earnings of $168.0 million for 2021 represented an increase of $66.7 million from the prior year, primarily due to unrealized gains on residential MSRs and the impact of the adoption of ASU 2016-13 on accrual loans, partially offset by merger transaction costs. ​ The table below presents a quarterly reconciliation of net income to distributable earnings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, ​ ​ ​ ​ (in thousands) 2022 ​ 2021 ​ Change ​ Net Income $ 13,682 ​ $ 53,588 ​ $ (39,906) ​ Reconciling items: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (gain) loss on MSR ​ 3,167 ​ ​ (6,119) ​ ​ 9,286 ​ Impact of CECL on accrual loans ​ 30,735 ​ ​ 845 ​ ​ 29,890 ​ Non-recurring REO recovery ​ — ​ ​ (1,441) ​ ​ 1,441 ​ Non-cash compensation ​ 1,345 ​ ​ 956 ​ ​ 389 ​ Merger transaction costs and other non-recurring expenses ​ 5,827 ​ ​ 4,080 ​ ​ 1,747 ​ Total reconciling items $ 41,074 ​ $ (1,679) ​ $ 42,753 ​ Income tax adjustments ​ (3,175) ​ ​ 626 ​ ​ (3,801) ​ Distributable earnings $ 51,581 ​ $ 52,535 ​ $ (954) ​ Less: Distributable earnings attributable to non-controlling interests ​ 2,711 ​ ​ 364 ​ ​ 2,347 ​ Less: Income attributable to participating shares ​ 2,330 ​ ​ 2,376 ​ ​ (46) ​ Distributable earnings attributable to common stockholders $ 46,540 ​ $ 49,795 ​ $ (3,255) ​ Distributable earnings per common share - basic $ 0.42 ​ $ 0.67 ​ $ (0.25) ​ Distributable earnings per common share - diluted $ 0.40 ​ $ 0.67 ​ $ (0.27) ​ ​ ​ 83 Table of Contents QTD 2022 versus QTD 2021.
Consolidated distributable earnings of $190.1 million for 2023 represented a decrease of $28.6 million from the prior year, primarily due to the bargain purchase gain, partially offset by an increase in net income. ​ The table below presents a quarterly reconciliation of net income to distributable earnings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, ​ ​ ​ (in thousands) 2023 ​ 2022 ​ Change Net Income $ 10,881 ​ $ 13,682 ​ $ (2,801) Reconciling items: ​ ​ ​ ​ ​ ​ ​ ​ Unrealized loss on MSR – discontinued operations ​ 20,715 ​ ​ 3,167 ​ ​ 17,548 Unrealized loss on joint ventures ​ 2,124 ​ ​ — ​ ​ 2,124 Unrealized loss on foreign exchange hedges ​ 1,582 ​ ​ — ​ ​ 1,582 Increase in CECL reserve ​ 3,195 ​ ​ 30,735 ​ ​ (27,540) Non-cash compensation ​ 1,360 ​ ​ 1,345 ​ ​ 15 Merger transaction costs and other non-recurring expenses ​ 7,361 ​ ​ 5,827 ​ ​ 1,534 Loss on bargain purchase ​ 7,060 ​ ​ — ​ ​ 7,060 Total reconciling items $ 43,397 ​ $ 41,074 ​ $ 2,323 Income tax adjustments ​ (5,754) ​ ​ (3,175) ​ ​ (2,579) Distributable earnings $ 48,524 ​ $ 51,581 ​ $ (3,057) Less: Distributable earnings attributable to non-controlling interests ​ 1,358 ​ ​ 2,711 ​ ​ (1,353) Less: Income attributable to participating shares ​ 2,206 ​ ​ 2,330 ​ ​ (124) Distributable earnings attributable to common stockholders $ 44,960 ​ $ 46,540 ​ $ (1,580) Distributable earnings per common share - basic $ 0.26 ​ $ 0.42 ​ $ (0.16) Distributable earnings per common share - diluted $ 0.26 ​ $ 0.40 ​ $ (0.14) ​ Consolidated net income of $10.9 million for the three months ended December 31, 2023 represented a decrease of $2.8 million from the prior year respective period, primarily due to losses from discontinued operations, partially offset by an increase in net interest income.
Interest income of $8.0 million for 2022 represented a decrease of $0.3 million from the prior year, due to a decrease in loan originations, partially offset by an increase in interest rates. Interest expense of $8.4 million for 2022 represented a decrease of $0.8 million from the prior year, due to a decrease in loan originations.
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.
The net cash provided by financing activities primarily reflected proceeds from issuances of securitized debt and net proceeds from secured borrowings as a result of an increase in our origination and acquisition activities, partially offset by paydowns of secured debt and dividend payments.
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.
Non-interest expense of $63.5 million for 2021 represented an increase of $13.3 million from the prior year, primarily due to an increase in compensation and operating expenses, driven by an increase in SBC loan originations. ​ Small Business Lending Segment Results. ​ 2022 versus 2021.
Non-interest expense of $103.8 million for 2023 represented an increase of $12.5 million from the prior year, primarily due to an increase in loan servicing expense and employee compensation and benefits. ​ ​ 81 Table of Contents Small Business Lending Segment Results. ​ Interest income of $98.6 million for 2023 represented an increase of $0.5 million from the prior year, due to the closing of RCLT 2023-3, partially offset by a decrease in PPP interest income.
Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs. ​ The table below presents certain characteristics of our repurchase agreements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pledged Assets Carrying Value December 31, Lenders (1) Asset Class Current Maturity Pricing (2) Facility Size Carrying Value 2022 2021 7 SBC loans November 2023 – March 2026 1 MT + 2.00% SOFR + 2.40% $ 3,713,000 $ 2,562,896 $ 1,905,358 $ 1,717,890 1 Residential loans Matured L + 3.00% ​ — ​ — ​ — ​ 27,058 6 MBS March 2023 – April 2023 6.18% ​ 423,912 ​ 780,114 ​ 423,912 ​ 300,769 Total borrowings under repurchase agreements $ 4,136,912 $ 3,343,010 $ 2,329,270 $ 2,045,717 (1) Represents the total number of facility lenders (2) Asset class pricing is determined using an index rate plus a weighted average spread. ​ Collateralized borrowings under repurchase agreements The table below presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end of each quarter, the average amount of collateralized borrowings outstanding under repurchase agreements during the quarter and the highest balance of any month end during the quarter. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Quarter End Balance ​ Average Balance in Quarter ​ Highest Month End Balance in Quarter Q1 2020 ​ ​ 1,159,357 ​ ​ 984,273 ​ ​ 1,159,357 Q2 2020 ​ ​ 714,162 ​ ​ 936,760 ​ ​ 1,057,522 Q3 2020 ​ ​ 624,549 ​ ​ 669,356 ​ ​ 831,200 Q4 2020 ​ ​ 827,569 ​ ​ 726,059 ​ ​ 827,569 Q1 2021 ​ ​ 1,320,644 ​ ​ 1,785,656 ​ ​ 2,481,436 Q2 2021 ​ ​ 1,223,527 ​ ​ 1,145,354 ​ ​ 1,223,527 Q3 2021 ​ ​ 1,552,135 ​ ​ 1,497,324 ​ ​ 1,552,135 Q4 2021 ​ ​ 2,045,717 ​ ​ 1,824,260 ​ ​ 2,045,717 Q1 2022 ​ ​ 2,771,038 ​ ​ 2,835,212 ​ ​ 3,065,412 Q2 2022 ​ ​ 2,701,180 ​ ​ 2,805,935 ​ ​ 3,009,961 Q3 2022 ​ ​ 2,870,807 ​ ​ 2,887,318 ​ ​ 2,940,474 Q4 2022 ​ ​ 2,329,270 ​ ​ 2,295,348 ​ ​ 2,329,270 ​ Year Ended December 31, 2022.
Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs. ​ The table below presents certain characteristics of our repurchase agreements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pledged Assets Carrying Value December 31, Lenders (1) Asset Class Current Maturity (2) Pricing (3) Facility Size Carrying Value 2023 2022 9 LMM loans March 2024 - November 2026 1 MT + 2.00% SOFR + 3.00% $ 4,295,500 $ 2,670,899 $ 1,677,885 $ 1,905,358 1 LMM loans - Non-USD (4) January 2025 EURIBOR + 3.00% ​ 220,784 ​ 59,630 ​ 45,031 ​ — 5 MBS January 2024 - February 2024 7.15% ​ 229,236 ​ 377,542 ​ 229,236 ​ 423,912 Total borrowings under repurchase agreements $ 4,745,520 $ 3,108,071 $ 1,952,152 $ 2,329,270 (1) Represents the total number of facility lenders. ​ ​ ​ ​ (2) Current maturity does not reflect extension options available beyond original commitment terms. ​ ​ ​ ​ (3) Asset class pricing is determined using an index rate plus a weighted average spread. ​ ​ ​ ​ (4) Non-USD denominated repurchase agreements have been converted into USD for purposes of this disclosure. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 86 Table of Contents Collateralized borrowings under repurchase agreements The table below presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end of each quarter, the average amount of collateralized borrowings outstanding under repurchase agreements during the quarter and the highest balance of any month end during the quarter. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Quarter End Balance ​ Average Balance in Quarter ​ Highest Month End Balance in Quarter Q1 2022 ​ ​ 2,771,038 ​ ​ 2,835,212 ​ ​ 3,065,412 Q2 2022 ​ ​ 2,701,180 ​ ​ 2,805,935 ​ ​ 3,009,961 Q3 2022 ​ ​ 2,870,807 ​ ​ 2,887,318 ​ ​ 2,940,474 Q4 2022 ​ ​ 2,329,270 ​ ​ 2,295,348 ​ ​ 2,329,270 Q1 2023 ​ ​ 1,959,888 ​ ​ 2,094,621 ​ ​ 2,371,413 Q2 2023 ​ ​ 1,792,366 ​ ​ 1,945,290 ​ ​ 2,022,433 Q3 2023 ​ ​ 1,915,878 ​ ​ 1,876,204 ​ ​ 1,915,879 Q4 2023 ​ ​ 1,952,152 ​ ​ 1,889,494 ​ ​ 1,952,152 ​ Year Ended December 31, 2023.
Our operating segments have different levels of recourse debt according to the differentiated nature of each segment. Our SBC Lending and Acquisitions, Small Business Lending and Residential Mortgage Banking segments have recourse leverage ratios of 0.4x, 1.5x and 1.2x, respectively.
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.
These agreements often contain customary negative covenants and financial covenants, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and current ratio and limitations on capital expenditures, indebtedness, distributions, transactions with affiliates and maintenance of positive net income. ​ The table below presents certain characteristics of our credit facilities and other financing arrangements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pledged Assets Carrying Value December 31, Lenders (1) Asset Class Current Maturity (2) Pricing (3) Facility Size Carrying Value 2022 2021 2 SBA loans October 2023 SOFR + 2.875% Prime - 0.821% to + 0.00% $ 200,000 $ 223,067 $ 160,903 $ 112,786 2 SBC loans - USD June 2023 – February 2024 1 ML + 7.00% SOFR + 1.35% ​ 360,000 ​ 338,267 ​ 111,966 ​ 41,864 2 SBC loan - Non-USD (4) June 2026 SONIA + 3.25% Euribor + 2.69% ​ 334,930 ​ 78,908 ​ 61,596 ​ 40,373 5 Residential loans March 2023 – November 2023 Variable Pricing ​ 440,000 ​ 137,389 ​ 132,658 ​ 226,460 1 Residential MSRs September 2023 1 ML + 2.50% ​ 50,000 ​ 133,122 ​ 49,900 ​ 49,400 1 Purchased future receivables October 2023 1 ML + 4.50% ​ 50,000 ​ — ​ — ​ 1,000 Total borrowings under credit facilities and other financing agreements ​ $ 1,434,930 $ 910,753 $ 517,023 $ 471,883 (1) Represents the total number of facility lenders.
These agreements often contain customary negative covenants and financial covenants, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and current ratio and limitations on capital expenditures, indebtedness, distributions, transactions with affiliates and maintenance of positive net income. ​ The table below presents certain characteristics of our credit facilities and other financing arrangements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pledged Assets Carrying Value December 31, Lenders (1) Asset Class Current Maturity (2) Pricing (3) Facility Size Carrying Value 2023 2022 3 SBA loans October 2024 - March 2025 SOFR + 2.82% Prime - 0.82% $ 250,000 $ 160,360 $ 117,115 $ 160,903 1 LMM loans - USD February 2025 SOFR + 1.35% ​ 80,000 ​ 20,956 ​ 20,729 ​ 111,966 1 LMM loans - Non-USD (4) June 2026 SONIA + 3.75% ​ 127,318 ​ 31,196 ​ 12,079 ​ 61,596 Total borrowings under credit facilities and other financing agreements $ 457,318 $ 212,512 $ 149,923 $ 334,465 (1) Represents the total number of facility lenders. ​ ​ ​ ​ ​ ​ ​ ​ (2) Current maturity does not reflect extension options available beyond original commitment terms. ​ ​ ​ ​ ​ ​ ​ ​ (3) Asset class pricing is determined using an index rate plus a weighted average spread. ​ ​ ​ ​ ​ ​ ​ ​ (4) Non-USD denominated credit facilities have been converted into USD for purposes of this disclosure. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 85 Table of Contents Repurchase Agreements.
On March 16, 2022, pursuant to the terms of that certain Merger Agreement, dated as of November 3, 2021, as amended on February 7, 2022, the Company acquired, in a series of mergers (collectively, the “Mosaic Mergers”), a group of privately held, real estate structured finance opportunities funds, with a focus on construction lending (collectively, the “Mosaic Funds”), managed by MREC Management, LLC (“the “Mosaic Manager”). ​ As consideration for the Mosaic Mergers, each former investor was entitled to receive an equal number of shares of each of Class B-1 Common Stock, $0.0001 par value per share (the “Class B-1 Common Stock”), Class B-2 Common Stock, $0.0001 par value per share (the “Class B-2 Common Stock”) Class B-3 Common Stock, $0.0001 par value per share (the “Class B-3 Common Stock”), and Class B-4 Common Stock, $0.0001 par value per share (the “Class B-4 Common Stock” and, together with the Class B-1 Common Stock, the Class B-2 Common Stock and the Class B-3 Common Stock, the “Class B Common Stock”), of Ready Capital, contingent equity rights (“CERs”) representing the potential right to receive shares of common stock, par value $0.0001 per share (“Common Stock”), as of the end of the three-year period following the closing date of the Mosaic Mergers based upon the performance of the assets acquired by Ready Capital pursuant to the Mosaic Mergers, and cash consideration in lieu of any fractional shares of Class B Common Stock. ​ The Class B Common Stock ranked equally with the Common Stock, except that the shares of Class B Common Stock were not listed on the New York Stock Exchange.
On March 16, 2022, pursuant to the terms of that certain Merger Agreement, dated as of November 3, 2021, as amended on February 7, 2022, the Company acquired, in a series of mergers (collectively, the “Mosaic Mergers”), a group of privately held, real estate structured finance opportunities funds, with a focus on construction lending (collectively, the “Mosaic Funds”), managed by MREC Management, LLC (“the “Mosaic Manager”).
Provision for loan losses of $7.4 million for 2021 represented a decrease of $19.5 million from the prior year, due to loan payoffs and stabilizing economic assumptions. Non-interest income of $67.3 million for 2021 represented an increase of $50.8 million from the prior year, primarily due to net realized and unrealized gains on financial instruments.
Non-interest income of $86.0 million for 2023 represented a decrease of $5.0 million from the prior year, primarily driven by ­­­ decreases in net unrealized gains on financial instruments and losses from unconsolidated joint ventures, partially offset by increases in net realized gains on financial instruments.
These differences may result in certain items that are recognized in the current period’s calculation of distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution requirement, until future years. ​ The table below presents an annual reconciliation of net income to distributable earnings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change (in thousands) 2022 ​ 2021 ​ 2020 ​ 2022 vs. 2021 2021 vs. 2020 Net Income $ 203,163 ​ $ 159,974 ​ $ 46,069 ​ $ 43,189 $ 113,905 Reconciling items: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (gain) loss on MSR ​ (46,065) ​ ​ (16,923) ​ ​ 37,258 ​ ​ (29,142) ​ (54,181) Impact of CECL on accrual loans ​ 33,055 ​ ​ 3,522 ​ ​ 19,527 ​ ​ 29,533 ​ (16,005) Non-recurring REO impairment (recovery) ​ 2,267 ​ ​ (941) ​ ​ 3,406 ​ ​ 3,208 ​ (4,347) Non-cash compensation ​ 4,769 ​ ​ 3,833 ​ ​ 3,833 ​ ​ 936 ​ — Merger transaction costs and other non-recurring expenses ​ 15,233 ​ ​ 16,922 ​ ​ 710 ​ ​ (1,689) ​ 16,212 Unrealized loss on MBS ​ — ​ ​ — ​ ​ 185 ​ ​ — ​ (185) Unrealized loss on de-designated cash flow hedges ​ — ​ ​ — ​ ​ 2,118 ​ ​ — ​ (2,118) Total reconciling items $ 9,259 ​ $ 6,413 ​ $ 67,037 ​ $ 2,846 $ (60,624) Income tax adjustments ​ 6,310 ​ ​ 1,649 ​ ​ (11,727) ​ ​ 4,661 ​ 13,376 Distributable earnings $ 218,732 ​ $ 168,036 ​ $ 101,379 ​ $ 50,696 $ 66,657 Less: Distributable earnings attributable to non-controlling interests ​ 8,884 ​ ​ 2,324 ​ ​ 2,351 ​ ​ 6,560 ​ (27) Less: Income attributable to participating shares ​ 9,561 ​ ​ 9,093 ​ ​ 1,392 ​ ​ 468 ​ 7,701 Distributable earnings attributable to common stockholders $ 200,287 ​ $ 156,619 ​ $ 97,636 ​ $ 43,668 $ 58,983 Distributable earnings per common share - basic $ 1.87 ​ $ 2.29 ​ $ 1.82 ​ $ (0.42) $ 0.47 Distributable earnings per common share - diluted $ 1.79 ​ $ 2.29 ​ $ 1.82 ​ $ (0.50) $ 0.47 ​ 2022 versus 2021.
These differences may result in certain items that are recognized in the current period’s calculation of distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution requirement, until future years. ​ The table below presents an annual reconciliation of net income to distributable earnings. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ (in thousands) 2023 ​ 2022 ​ $ Change Net Income $ 348,411 ​ $ 203,163 ​ $ 145,248 Reconciling items: ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (gain) loss on MSR - discontinued operations ​ 15,427 ​ ​ (46,065) ​ ​ 61,492 Unrealized loss on joint ventures ​ 2,124 ​ ​ — ​ ​ 2,124 Unrealized loss on foreign exchange hedges ​ 1,582 ​ ​ — ​ ​ 1,582 Increase in CECL reserve ​ 3,133 ​ ​ 33,055 ​ ​ (29,922) Non-recurring REO impairment ​ — ​ ​ 2,267 ​ ​ (2,267) Non-cash compensation ​ 7,550 ​ ​ 4,769 ​ ​ 2,781 Merger transaction costs and other non-recurring expenses ​ 25,807 ​ ​ 15,233 ​ ​ 10,574 Bargain purchase gain ​ (207,972) ​ ​ — ​ ​ (207,972) Total reconciling items $ (152,349) ​ $ 9,259 ​ $ (161,608) Income tax adjustments ​ (5,942) ​ ​ 6,310 ​ ​ (12,252) Distributable earnings $ 190,120 ​ $ 218,732 ​ $ (28,612) Less: Distributable earnings attributable to non-controlling interests ​ 7,180 ​ ​ 8,884 ​ ​ (1,704) Less: Income attributable to participating shares ​ 9,284 ​ ​ 9,561 ​ ​ (277) Distributable earnings attributable to common stockholders $ 173,656 ​ $ 200,287 ​ $ (26,631) Distributable earnings per common share - basic $ 1.18 ​ $ 1.87 ​ $ (0.69) Distributable earnings per common share - diluted $ 1.17 ​ $ 1.79 ​ $ (0.62) ​ Consolidated net income of $348.4 million for 2023 represented an increase of $145.2 million from the prior year, primarily due to the bargain purchase gain in connection with the Broadmark Merger, partially offset by a decrease in net interest income.
The net increase in the outstanding balances during 2022 was primarily due to increased borrowings to fund SBC originations and acquisitions volumes. ​ Year Ended December 31, 2021. The net increase in the outstanding balances during 2021 was primarily due to increased borrowings to fund SBC originations and acquisitions volumes. ​ Year Ended December 31, 2020.
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.

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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 SBC 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, 2022, 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 $ 20,561 $ 41,123 $ 61,687 $ 82,251 $ (20,561) $ (41,120) $ (61,655) $ (82,158) Interest rate swap hedges ​ 1,206 ​ 2,413 ​ 3,619 ​ 4,825 ​ (1,206) ​ (2,413) ​ (3,619) ​ (4,825) Total $ 21,767 $ 43,536 $ 65,306 $ 87,076 $ (21,767) $ (43,533) $ (65,274) $ (86,983) Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recourse debt $ (6,750) $ (13,500) $ (20,250) $ (27,000) $ 6,750 $ 13,500 $ 20,250 $ 27,000 Non-recourse debt ​ (10,306) ​ (20,613) ​ (30,919) ​ (41,225) ​ 10,306 ​ 20,613 ​ 30,919 ​ 41,225 Total $ (17,056) $ (34,113) $ (51,169) $ (68,225) $ 17,056 $ 34,113 $ 51,169 $ 68,225 Total Net Impact to Net Interest Income (Expense) $ 4,711 $ 9,423 $ 14,137 $ 18,851 $ (4,711) $ (9,420) $ (14,105) $ (18,758) ​ 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. ​ 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.
The market values of residential and commercial assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, construction cost, age and design; demographic factors; and retroactive changes to building or similar codes.
The market values of commercial assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, construction cost, age and design; demographic factors; and retroactive changes to building or similar codes.
We finance the acquisition of a significant portion of our commercial and residential mortgage loans, MBS and other assets with our repurchase agreements, credit facilities, and other financing agreements. In connection with these financing arrangements, we pledge our mortgage loans and securities as collateral to secure the borrowings.
We finance the acquisition of a significant portion of our commercial mortgage loans, MBS and other assets with our repurchase agreements, credit facilities, and other financing agreements. In connection with these financing arrangements, we pledge our mortgage loans and securities as collateral to secure the borrowings.
The general impact of changing interest rates are discussed above under “— Factors Impacting Operating Results — Changes in Market Interest Rates.” In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.
The general impact of changing interest rates is discussed above under “— Factors Impacting Operating Results — Changes in Market Interest Rates.” In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.
In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets. ​ SBC 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.
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.
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 SBC loans, ABS and other financial instruments.
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.
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. ​ 95 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. ​ 93 Table of Contents Prepayment risk .
Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and interest-bearing liabilities. ​ Additionally, non-performing SBC loans are not as interest rate sensitive as performing loans, as earnings on non-performing loans are often generated from restructuring the assets through loss mitigation strategies and opportunistically disposing of them.
Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and interest-bearing liabilities. ​ Additionally, non-performing LMM loans are not as interest rate sensitive as performing loans, as earnings on non-performing loans are often generated from restructuring the assets through loss mitigation strategies and opportunistically disposing of them.
We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest-bearing securities and equity securities. ​ Credit risk. We are subject to credit risk in connection with our investments in SBC loans and SBC ABS and other target assets we may acquire in the future.
We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest-bearing securities and equity securities. ​ Credit risk. We are subject to credit risk in connection with our investments in LMM loans and LMM ABS and other target assets we may acquire in the future.
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 94 Table of Contents which would typically be coupled with an additional equity commitment and/or guaranty from sponsors.
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.
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. ​ ​ 97 Table of Contents
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
We enter into derivative instruments, such as interest rate swaps and credit default swaps (“CDS”), to mitigate these risks.
We enter into derivative instruments, such as interest rate swaps, to mitigate these risks.
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. 96 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, 2022 (in thousands) ​ Counterparty Rating Amount of Risk ​ Weighted Average Months to Maturity for Agreement ​ Percentage of Stockholders’ Equity Credit Suisse AG ​ BBB-/Baa2 $ 363,924 ​ 8 ​ 19.3% JPMorgan Chase Bank, N.A. ​ A+ / Aa2 $ 319,755 ​ 22 ​ 16.9% Citibank ​ A+/Aa3 $ 96,169 ​ 5 ​ 5.1% ​ 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. 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.
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.
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 continue to monitor the impact of the pandemic and the effect of these risks in our operations. ​ Market risk. Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments.
Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments.
As of December 31, 2022, approximately 0.1% of the loans in our commercial real estate portfolio are in forbearance plans. 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.
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.
These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off-balance sheet risk and prepayment risk. Many of these risks have been augmented due to the continuing economic disruptions caused by the COVID-19 pandemic which remain uncertain and difficult to predict.
These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off-balance sheet risk and prepayment risk.
Removed
CDSs are executed in order to mitigate the risk of deterioration in the current credit health of the commercial mortgage market. ​ Certain of our subsidiaries have entered into over-the-counter (“OTC”) interest rate swap agreements to hedge risks associated with movements in interest rates.
Added
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.
Added
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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