Ready Capital (RC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for Q2 2025 show a net loss and a decrease in total assets to $9.3 billion Consolidated Balance Sheets Total assets decreased to $9.31 billion by June 30, 2025, primarily due to reduced VIE assets, while liabilities also declined Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $9,308,797 | $10,141,921 | | Cash and cash equivalents | $162,935 | $143,803 | | Loans, net | $5,066,694 | $3,378,149 | | Assets of consolidated VIEs | $2,395,398 | $5,175,295 | | Total Liabilities | $7,374,774 | $8,197,818 | | Secured borrowings | $3,506,670 | $2,035,176 | | Securitized debt obligations of consolidated VIEs, net | $1,513,297 | $3,580,513 | | Total Stockholders' Equity | $1,925,662 | $1,935,742 | Consolidated Statements of Operations The company reported a Q2 2025 net loss of $53.7 million, but a six-month net income of $28.3 million due to loan loss recovery Key Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $16,898 | $50,952 | $31,399 | $99,501 | | (Provision for) recovery of loan losses | ($8,640) | $18,871 | $100,928 | $45,415 | | Net income (loss) from continuing operations | ($48,751) | ($31,427) | $33,659 | ($107,009) | | Net income (loss) | ($53,677) | ($34,201) | $28,288 | ($108,368) | | Total earnings per common share - diluted | ($0.34) | ($0.23) | $0.12 | ($0.68) | | Dividends declared per share of common stock | $0.125 | $0.30 | $0.25 | $0.60 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $8.2 million for the six months ended June 30, 2025, with a net increase in cash of $9.9 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,202 | $24,507 | | Net cash provided by investing activities | $789,020 | $624,996 | | Net cash used for financing activities | ($787,307) | ($626,874) | | Net increase in cash, cash equivalents, and restricted cash | $9,915 | $22,629 | Notes to the Consolidated Financial Statements The notes detail the company's organization, accounting policies, recent acquisitions, loan portfolio performance, and discontinued operations - The company is a multi-strategy real estate finance company focused on originating, acquiring, financing, and servicing lower-to-middle-market (LMM) commercial real estate loans, SBA loans, and other related investments, externally managed by Waterfall Asset Management, LLC[23][24] - On March 13, 2025, the company acquired United Development Funding IV (UDF IV), a real estate investment trust, resulting in an updated bargain purchase gain of $88.1 million[26][27][132] - The company completed the disposition of its Residential Mortgage Banking segment effective June 30, 2025, with its results now presented as discontinued operations for all periods[221] Loan Portfolio Carrying Value (in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Loans, net | $5,066,694 | $3,378,149 | | Bridge | $2,769,324 | $1,246,725 | | SBA - 7(a) | $1,073,576 | $1,043,120 | | Construction | $885,016 | $733,276 | | Loans, held for sale | $632,784 | $241,626 | Loan Delinquency Status (Carrying Value, in thousands) | Delinquency Status | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current | $6,111,778 | $7,787,647 | | 30 - 59 days past due | $292,232 | $131,288 | | 60+ days past due | $780,902 | $389,275 | | Total Loans, net | $7,184,912 | $8,308,210 | | Non-Accrual Loans | $824,915 | $526,761 | Allowance for Loan Losses Activity (in thousands) | Period | Beginning Balance | Provision for (Recoveries of) Loan Losses | Charge-offs and Sales | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Six Months Ended June 30, 2025 | $339,939 | ($105,648) | ($11,510) | $232,579 | | Six Months Ended June 30, 2024 | $101,605 | ($45,278) | ($11,699) | $44,832 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business strategy, recent acquisitions, and the Q2 2025 distributable loss of $19.8 million, noting macroeconomic impacts - The company's core focus is on LMM commercial real estate lending and small business loans, operating through two segments: LMM Commercial Real Estate and Small Business Lending[389] - Macroeconomic concerns, including global market volatility, inflation, and elevated interest rates, persist and may adversely impact financial condition and results[401] Key Financial Metrics | ($ in thousands, except per share data) | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (loss) from continuing operations | $(48,751) | $(31,427) | $33,659 | $(107,009) | | Distributable earnings | $(19,792) | $16,631 | $(31,176) | $70,607 | | Distributable earnings per common share - diluted | $(0.14) | $0.07 | $(0.23) | $0.37 | | Dividends declared per common share | $0.125 | $0.30 | $0.25 | $0.60 | | Book value per common share | $10.44 | $12.97 | $10.44 | $12.97 | Loan Originations (in thousands) | Loan Type | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | LMM loans | $173,356 | $256,485 | $252,013 | $516,161 | | SBL loans | $358,751 | $217,258 | $746,139 | $414,417 | | Total loan investment activity | $532,107 | $473,743 | $998,152 | $930,578 | - As of June 30, 2025, the company had a total leverage ratio of 3.5x and a recourse leverage ratio of 1.5x[447] Quantitative and Qualitative Disclosures About Market Risk The company faces market, credit, interest rate, liquidity, and counterparty risks, with a 100 basis point rate increase potentially boosting net interest income by $7.5 million - The company is exposed to market, credit, interest rate, liquidity, prepayment, real estate, fair value, and counterparty risks, which are heightened by current economic conditions[503][504][505] 12-Month Pretax Net Interest Income Sensitivity to Interest Rate Changes (in thousands) | Instantaneous Change in Rates | Total Net Impact to Net Interest Income | | :--- | :--- | | +100 basis points | $7,457 | | +50 basis points | $3,567 | | -50 basis points | ($2,544) | | -100 basis points | ($3,440) | - The company has significant counterparty risk with JPMorgan Chase Bank, N.A., representing an exposure of $1.1 billion, or 56.8% of stockholders' equity, as of June 30, 2025[521] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[524] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[525] PART II. OTHER INFORMATION Legal Proceedings The company is involved in multiple legal proceedings, including class action lawsuits related to mergers and securities disclosures - The company is subject to class action lawsuits related to its mergers with Broadmark and UDF IV, alleging breaches of fiduciary duty by the former boards of those companies[528][530] - The company and certain executives are defendants in putative stockholder class action and derivative lawsuits alleging violations of the Exchange Act related to disclosures about its commercial real estate loan portfolio[531][532] - As a result of the UDF IV Merger, the company assumed outstanding litigation against UDF IV, including the "Megatel Action" which alleges RICO violations and fraud[538][539] Risk Factors No material changes to risk factors were reported for the period, referencing prior disclosures in the Form 10-K - No material changes to risk factors were reported for the period, referencing the disclosures in the company's Form 10-K[542] Unregistered Sales of Equity Securities and Use of Proceeds The company has a $150.0 million share repurchase program, with 8.5 million shares repurchased in Q2 2025 and $95.2 million remaining - On January 16, 2025, the Board approved a new share repurchase program authorizing up to $150.0 million of common stock[543] Share Repurchases for Q2 2025 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 2,000,000 | $4.65 | | May | 6,515,274 | $4.33 | | June | 3,190 | $4.41 | | Total | 8,518,464 | $4.41 | - As of the end of Q2 2025, approximately $95.2 million remained available for purchase under the share repurchase program[545]