Ready Capital (US:RC)2025-03-04 01:51Financial Data and Key Metrics Changes - The fourth quarter GAAP losses per common share were $1.90, while distributable earnings showed a loss of $0.03. Excluding realized losses on asset sales, distributable earnings were $0.23 per common share, representing a 7.1% return on average stockholders' equity [32] - Book value per share decreased to $10.61 from $12.59 in the prior quarter, primarily due to an increase in combined CECL and valuation allowances and a shortfall on dividend coverage from earnings [40] - The combined provision for loan loss and valuation allowance increased by $253.8 million, with an additional $242.7 million in CECL reserves primarily due to non-core assets [38] Business Line Data and Key Metrics Changes - The small business lending segment experienced significant growth, with fourth quarter originations of $350 million, capping a record year of $1.2 billion, including $1.1 billion of SBA loans [21][22] - The core portfolio contracted by $1.3 billion, with new production limited to $485 million, resulting in an 840 basis points contribution to distributable ROE before realized losses [15] Market Data and Key Metrics Changes - The CRE loan portfolio totaled $7.2 billion, split into 83% core and 17% non-core assets, with a contractual yield of 8% and a 93% pay rate [13] - 60-day plus delinquencies in the core portfolio were only 2%, with an average risk rating of 2.2% [14] Company Strategy and Development Direction - The company has implemented aggressive actions to reset the balance sheet, including a $284 million combined CECL and valuation allowances, marking 100% of non-performing loans to current values [9] - The strategy involves bifurcating the CRE portfolio into core and non-core assets to enhance transparency and track asset management strategies [12] - The company expects to originate between $1 billion and $1.5 billion of new production in lower middle market CRE loans in 2025 [15] Management's Comments on Operating Environment and Future Outlook - Management indicated that the fourth quarter concluded a year of mixed results, with expectations for recovery in net interest margins and ROE in 2025 [8][29] - The company anticipates that the recovery to a 10% stabilized core return will be supported by the liquidation of the non-core portfolio and growth in the small business lending segment [23][28] Other Important Information - The company has a $150 million share repurchase program to enhance shareholder returns [11] - Liquidity remains strong with $185 million of unrestricted cash, expected to improve with upcoming liquidity events [41] Q&A Session Summary Question: Will cash earnings cover the new dividend level? - Management expects to cover the dividend approximately 1.5 times over the course of the year, with earnings ramping up as the year progresses [46] Question: What is the rationale behind the UDF acquisition? - The acquisition is viewed as highly accretive on an EPS basis, with confidence in the credit profile of the acquired assets [78] Question: How does the company plan to address upcoming maturities? - The company plans to use projected cash flow and liquidity to address maturities, with a preference to access markets for larger debt issuances [73] Question: What are the credit trends in the SBA business? - The company has seen strong credit trends, with 60-plus delinquencies at a moderate level of 2.8% [89]