Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ready Capital Corp (RC, Financial) reported stabilization in the commercial real estate market, particularly in the multi-family sector, driven by rate cuts and strong occupant demand.
- The company's small business lending operations achieved record growth, with $440 million in quarterly originations, marking the highest earnings contribution from this platform in RC's history.
- RC's strategic portfolio initiatives have made significant progress, with 72% of portfolio repositioning efforts complete, generating $55 million in net proceeds.
- The company's small business lending segment has become a leading national non-bank lender, exceeding its $1 billion annual target for SBA 7(a) loans.
- RC's leverage position remains conservative, with a total leverage of 3.3x, below its long-term target of 4x, allowing for opportunities to optimize its capital structure.
Negative Points
- Ready Capital Corp (RC) reported a third-quarter GAAP loss per common share of $0.07 and a distributable earnings loss of $0.28, reflecting timing differences in valuation allowances and realized losses.
- The company's originated portfolio saw a 6% decline, with 60-day plus delinquencies increasing marginally, indicating ongoing challenges in credit migration.
- RC's M&A portfolio, although reduced by 17%, still has a high delinquency rate of 16%, highlighting ongoing risks in this segment.
- The company's exit from residential mortgage banking is still in progress, with remaining MSRs expected to generate $40 million in net proceeds, but the platform sale is pending agency approval.
- RC's book value per share decreased to $12.59 from $12.97 last quarter, primarily due to declines related to CECL reserves and net realized losses.
Q & A Highlights
Q: Can you provide more details on the loan sales in the quarter, including the total sale amount and the discount applied? Also, what is the remaining amount left to sell?
A: We settled a total of $331 million in the quarter, with pricing in line with last quarter at around $70 million. The sales generated approximately $55 million in proceeds, resulting in an EPS impact of a loss of $0.11. We have $218 million of loans remaining on the balance sheet that we anticipate selling, with increased valuation allowances of roughly $15 million, affecting EPS by $0.13. - Andrew Ahlborn, CFO
Q: How do you expect the trajectory of delinquencies or non-accrual assets in the originated portfolio to perform?
A: The majority of our originated portfolio is multi-family, which is stabilizing. Delinquency will remain volatile, but we believe it has peaked. The denominator effect, due to fewer new loans and $700 million in exits this year, impacts delinquency rates. We had about $50 million of new 60-day plus delinquencies in the quarter. - Adam Zausmer, Chief Credit Officer
Q: Is there any risk of write-down or impairment of deferred loan fees, accrued interest, or goodwill as you sell non-performing loans?
A: The deferred tax asset is regularly evaluated, and we don't expect impairment issues. Accrued interest is only recorded if recoverable, and goodwill is also regularly evaluated with no expected impairment. Goodwill does not relate to Broadmark or Mosaic as they were bargain purchase gains. - Andrew Ahlborn, CFO
Q: Can you discuss the CECL reserve build and its allocation between general and specific reserves? What assets drove the CECL reserve build this quarter?
A: The CECL reserve is a little over 1%, with 32% in the general bucket. The $50 million increase this quarter is almost entirely in the M&A portfolio across various property types, including office and industrial. - Adam Zausmer, Chief Credit Officer
Q: With $180 million in cash and more expected from sales, why not get aggressive with stock buybacks given the current discount?
A: We agree the stock is attractive for buybacks at this price, and you can expect to see buyback activity in the upcoming months. We are also exploring refinancing options for debt maturity, including unsecured issuance and using unencumbered assets for secured issuance. - Andrew Ahlborn, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
