Ready Capital Earnings 2019-09-30

RC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
CHCT	768	490	211	53	0	4	32	956	0%	29.8	1%
IRET	754	1,348	737	184	0	-2	105	1,426	0%	13.6	-0%
CPLG	705	2,395	1,186	860	0	-245	10	1,679	0%	167.9	-10%
APTS	660	4,981	3,196	324	0	32	291	2,945	0%	10.1	1%
RC	656	3,840	3,093	0	0	81	214	892		4.2	2%
HT	650	2,156	1,242	524	0	3	156	1,301	0%	8.4	0%
CMO	638	11,927	10,905	0	0	-54	200	459		2.3	-0%
SNR	580	2,215	1,941	470	0	-128	65	2,394	0%	36.8	-6%
OLP	556	798	503	82	0	19	62	538	0%	8.6	2%
UMH	538	915	385	139	126	-22	30	529	90%	17.5	-2%

10-Q 1 rc-20190930x10q.htm 10-Q rc_Current Folio_10Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

Commission File Number: 001‑35808

READY CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Maryland	90‑0729143
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

1251 Avenue of the Americas, 50th Floor, New York, NY 10020

(Address of Principal Executive Offices, Including Zip Code)

(212) 257-4600

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

7.00% Convertible Senior Notes due 2023

6.50% Senior Notes due 2021

6.20% Senior Notes due 2026

RCA

RCP

RCB

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

The Company has 45,097,886 shares of common stock, par value $0.0001 per share, outstanding as of October 31, 2019.

Table of Contents

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
Item 1A.	Forward-Looking Statements	60
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	89
Item 4.	Controls and Procedures	93
PART II.	OTHER INFORMATION	93
Item 1.	Legal Proceedings	93
Item 1A.	Risk Factors	93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 3.	Defaults Upon Senior Securities	93
Item 4.	Mine Safety Disclosures	93
Item 5.	Other Information	94
Item 6.	Exhibits	94
SIGNATURES		96
EXHIBIT 31.1 CERTIFICATIONS
EXHIBIT 31.2 CERTIFICATIONS
EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350
EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

READY CAPITAL CORPORATION

unaudited CONSOLIDATED BALANCE SHEETS


(In Thousands)	September 30, 2019		December 31, 2018
Assets
Cash and cash equivalents	$	52,727	$	54,406
Restricted cash		45,303		28,921
Loans, net (including $20,434 and $22,664 held at fair value)		1,380,359		1,193,392
Loans, held for sale, at fair value		203,110		115,258
Mortgage backed securities, at fair value		96,181		91,937
Loans eligible for repurchase from Ginnie Mae		71,528		74,180
Investment in unconsolidated joint ventures		55,663		33,438
Derivative instruments		4,181		2,070
Servicing rights (including $84,638 and $93,065 held at fair value)		114,480		120,062
Receivable from third parties		705		8,888
Real estate acquired in settlement of loans, held for sale		60,807		7,787
Other assets		76,848		55,447
Assets of consolidated VIEs		1,961,127		1,251,057
Total Assets	$	4,123,019	$	3,036,843
Liabilities
Secured borrowings		1,315,534		834,547
Securitized debt obligations of consolidated VIEs, net		1,465,539		905,367
Convertible notes, net		110,773		109,979
Senior secured notes, net		179,189		178,870
Corporate debt, net		104,441		48,457
Guaranteed loan financing		25,571		229,678
Liabilities for loans eligible for repurchase from Ginnie Mae		71,528		74,180
Derivative instruments		11,906		3,625
Dividends payable		18,292		13,346
Accounts payable and other accrued liabilities		81,235		74,719
Total Liabilities	$	3,384,008	$	2,472,768
Stockholders’ Equity
Common stock, $0.0001 par value, 500,000,000 shares authorized, 44,421,815 and 32,105,112 shares issued and outstanding, respectively		4		3
Additional paid-in capital		720,823		540,478
Retained earnings		9,173		5,272
Accumulated other comprehensive loss		(10,253)		(922)
Total Ready Capital Corporation equity		719,747		544,831
Non-controlling interests		19,264		19,244
Total Stockholders’ Equity	$	739,011	$	564,075
Total Liabilities and Stockholders’ Equity	$	4,123,019	$	3,036,843

See Notes To Unaudited Consolidated Financial Statements

Table of Contents

READY CAPITAL CORPORATION

Unaudited CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except share data)	2019		2018		2019		2018
Interest income	$	59,723	$	44,287	$	165,510	$	123,295
Interest expense		(39,390)		(28,925)		(110,919)		(77,996)
Net interest income before provision for loan losses	$	20,333	$	15,362	$	54,591	$	45,299
Provision for loan losses		(693)		(800)		(2,559)		(571)
Net interest income after provision for loan losses	$	19,640	$	14,562	$	52,032	$	44,728
Non-interest income
Residential mortgage banking activities		29,013		17,011		64,621		48,290
Net realized gain on financial instruments and real estate owned		7,377		6,946		20,914		27,796
Net unrealized gain (loss) on financial instruments		(7,881)		8,500		(21,799)		15,964
Servicing income, net of amortization and impairment of $1,609 and $4,225 for the three and nine months ended September 30, 2019, and $1,425 and $5,252 for the three and nine months ended September 30, 2018, respectively		7,449		6,922		22,012		19,959
Other income		2,979		1,204		6,671		4,364
Income on unconsolidated joint ventures		1,047		2,178		6,059		9,420
Gain on bargain purchase		—		—		30,728		—
Total non-interest income	$	39,984	$	42,761	$	129,206	$	125,793
Non-interest expense
Employee compensation and benefits		(13,438)		(14,163)		(37,395)		(43,755)
Allocated employee compensation and benefits from related party		(1,500)		(1,200)		(3,603)		(3,600)
Variable expenses on residential mortgage banking activities		(17,318)		(8,337)		(39,995)		(18,120)
Professional fees		(2,030)		(2,294)		(5,445)		(7,343)
Management fees – related party		(2,495)		(2,070)		(6,987)		(6,118)
Incentive fees – related party		—		—		—		(676)
Loan servicing expense		(4,866)		(4,247)		(13,085)		(11,340)
Merger related expenses		(51)		—		(6,121)		—
Other operating expenses		(8,144)		(6,548)		(23,091)		(23,475)
Total non-interest expense	$	(49,842)	$	(38,859)	$	(135,722)	$	(114,427)
Income before provision for income taxes	$	9,782	$	18,464	$	45,516	$	56,094
Benefit (provision) for income taxes		2,645		(895)		8,604		(4,123)
Net income	$	12,427	$	17,569	$	54,120	$	51,971
Less: Net income attributable to non-controlling interest		323		638		1,580		1,890
Net income attributable to Ready Capital Corporation	$	12,104	$	16,931	$	52,540	$	50,081

Earnings per common share - basic	$	0.27	$	0.53	$	1.29	$	1.57
Earnings per common share - diluted	$	0.27	$	0.53	$	1.29	$	1.57

Weighted-average shares outstanding
Basic		44,438,652		32,109,642		40,517,231		32,073,665
Diluted		44,467,801		32,130,262		40,546,380		32,090,126

Dividends declared per share of common stock	$	0.40	$	0.40	$	1.20	$	1.17

See Notes To Unaudited Consolidated Financial Statements

Table of Contents

READY CAPITAL CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)		2019		2018		2019		2018
Net Income	$	12,427	$	17,569	$	54,120	$	51,971
Other comprehensive income (loss) - net change by component
Net change in hedging derivatives (cash flow hedges)	$	(2,614)	$	—	$	(9,611)	$	—
Other comprehensive income (loss)	$	(2,614)	$	—	$	(9,611)	$	—
Comprehensive income (loss)	$	9,813	$	17,569	$	44,509	$	51,971
Less: Comprehensive income attributable to non-controlling interests		(259)		(638)		(1,300)		(1,890)
Comprehensive income attributable to Ready Capital Corporation	$	9,554	$	16,931	$	43,209	$	50,081

See Notes To Unaudited Consolidated Financial Statements

Table of Contents

READY CAPITAL CORPORATION

Unaudited CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	Nine Months Ended September 30, 2018
						Retained			Accumulated Other	Total
	Common Stock			Additional Paid-		Earnings			Comprehensive	Ready Capital		Non-controlling		Total Stockholders'
(in thousands, except share data)	Shares	Par Value		In Capital		(Deficit)			Loss	Corporation Equity		Interests		Equity
Balance at January 1, 2018	31,996,440	$	3	$	539,455	$	(3,385)	$	—	$	536,073	$	19,394	$	555,467
Dividend declared on common stock ($1.17 per share)	—		—		—		(37,702)		—		(37,702)		—		(37,702)
Dividend declared on OP units	—		—		—		—		—		—		(1,326)		(1,326)
Equity issuances	5,000		—		86		—		—		86		—		86
Offering costs	—		—		(10)		—		—		(10)		—		(10)
Equity component of 2017 convertible note issuance	—		—		(240)		—		—		(240)		(9)		(249)
Contributions, net	—		—		—		—		—		—		94		94
Stock-based compensation	8,617		—		367		—		—		367		—		367
Conversion of OP units into common stock	33,658		—		577		—		—		577		(577)		—
Manager incentive fee paid in stock	21,397		—		338		—		—		338		—		338
Net Income	—		—		—		50,081		—		50,081		1,890		51,971
Balance at September 30, 2018	32,065,112	$	3	$	540,573	$	8,994	$	—	$	549,570	$	19,466	$	569,036


	Nine Months Ended September 30, 2019
						Retained			Accumulated Other	Total
	Common Stock			Additional Paid-		Earnings			Comprehensive	Ready Capital		Non-controlling		Total Stockholders'
(in thousands, except share data)	Shares	Par Value		In Capital		(Deficit)			Loss	Corporation Equity		Interests		Equity
Balance at January 1, 2019	32,105,112	$	3	$	540,478	$	5,272	$	(922)	$	544,831	$	19,244	$	564,075
Dividend declared on common stock ($1.20 per share)	—		—		—		(48,639)		—		(48,639)		—		(48,639)
Dividend declared on OP units	—		—		—		—		—		—		(1,341)		(1,341)
Shares issued pursuant to ORM merger transaction	12,223,552		1		179,320		—		—		179,321		—		179,321
Offering costs	—		—		(73)		—		—		(73)		(2)		(75)
Contributions, net	—		—		—		—		—		—		70		70
Equity component of 2017 convertible note issuance	—		—		(261)		—		—		(261)		(7)		(268)
Stock-based compensation	78,212		—		1,126		—		—		1,126		—		1,126
Manager incentive fee paid in stock	14,939		—		233		—		—		233		—		233
Net Income	—		—		—		52,540		—		52,540		1,580		54,120
Other comprehensive loss	—		—		—		—		(9,331)		(9,331)		(280)		(9,611)
Balance at September 30, 2019	44,421,815	$	4	$	720,823	$	9,173	$	(10,253)	$	719,747	$	19,264	$	739,011


	Three Months Ended September 30, 2018
						Retained			Accumulated Other	Total
	Common Stock			Additional Paid-		Earnings			Comprehensive	Ready Capital		Non-controlling		Total Stockholders'
(in thousands, except share data)	Shares	Par Value		In Capital		(Deficit)			Loss	Corporation Equity		Interests		Equity
Balance at July 1, 2018	32,051,989	$	3	$	540,365	$	4,962	$	—	$	545,330	$	19,228	$	564,558
Dividend declared on common stock ($0.40 per share)	—		—		—		(12,899)		—		(12,899)		—		(12,899)
Dividend declared on OP units	—		—		—		—		—		—		(447)		(447)
Equity issuances	5,000		—		86		—		—		86		—		86
Offering costs	—		—		(10)		—		—		(10)		—		(10)
Equity component of 2017 convertible note issuance	—		—		(82)		—		—		(82)		(3)		(85)
Contributions, net	—		—		—		—		—		—		50		50
Stock-based compensation	—		—		80		—		—		80		—		80
Manager incentive fee paid in stock	8,123		—		134		—		—		134		—		134
Net Income	—		—		—		16,931		—		16,931		638		17,569
Balance at September 30, 2018	32,065,112	$	3	$	540,573	$	8,994	$	—	$	549,570	$	19,466	$	569,036

Three Months Ended September 30, 2019

Retained

Accumulated Other

Total

Common Stock

Additional Paid-

Earnings

Comprehensive

Ready Capital

Non-controlling

Total Stockholders'

(in thousands, except share data)

Par Value

In Capital

(Deficit)

Loss

Corporation Equity

Interests

Equity

Balance at July 1, 2019

44,415,479

720,812

14,914

(7,703)

728,027

19,379

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	44	$656

10-Q	2019-11-07	Quarter: 2019-09-30
10-Q	2019-08-08	Quarter: 2019-06-30
10-Q	2019-05-09	Quarter: 2019-03-31
10-K	2019-03-13	Annual: 2018-12-31
10-Q	2018-11-08	Quarter: 2018-09-30
10-Q	2018-08-08	Quarter: 2018-06-30
10-Q	2018-05-10	Quarter: 2018-03-31
10-K	2018-03-16	Annual: 2017-12-31
10-Q	2017-11-09	Quarter: 2017-09-30
10-Q	2017-08-03	Quarter: 2017-06-30
10-Q	2017-05-10	Quarter: 2017-03-31
10-K	2017-03-15	Annual: 2016-12-31
10-Q	2016-10-25	Quarter: 2016-09-30
10-Q	2016-08-09	Quarter: 2016-06-30
10-Q	2016-05-10	Quarter: 2016-03-31
10-K	2016-03-10	Annual: 2015-12-31
10-Q	2015-11-05	Quarter: 2015-09-30
10-Q	2015-08-06	Quarter: 2015-06-30
10-Q	2015-05-11	Quarter: 2015-03-31
10-K	2015-03-16	Annual: 2014-12-31
10-Q	2014-11-13	Quarter: 2014-09-30
10-Q	2014-08-12	Quarter: 2014-06-30
10-Q	2014-05-14	Quarter: 2014-03-31
10-K	2014-03-13	Annual: 2013-12-31
10-Q	2013-11-12	Quarter: 2013-09-30
10-Q	2013-08-13	Quarter: 2013-06-30
10-Q	2013-05-15	Quarter: 2013-03-31

8-K	2019-12-04	Enter Agreement, Exhibits
8-K	2019-11-25	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-11-06	Earnings, Exhibits
8-K	2019-10-25	Sale of Shares, Exhibits
8-K	2019-09-03	Enter Agreement, Exhibits
8-K	2019-08-07	Earnings, Exhibits
8-K	2019-07-18	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-07-10	Shareholder Vote
8-K	2019-05-08	Earnings, Exhibits
8-K	2019-04-03	Officers, Other Events, Exhibits
8-K	2019-03-29	M&A, Officers, Regulation FD, Exhibits
8-K	2019-03-21	Shareholder Vote, Other Events, Exhibits
8-K	2019-03-12	Earnings, Exhibits
8-K	2019-03-11	Officers, Other Events, Exhibits
8-K	2019-02-22	Other Events, Exhibits
8-K	2019-02-15	Other Events, Exhibits
8-K	2019-02-11	Officers, Other Events, Exhibits
8-K	2019-02-08	Other Events, Exhibits
8-K	2019-01-04	Other Events, Exhibits
8-K	2018-11-09	Enter Agreement, Exhibits
8-K	2018-11-07	Earnings, Exhibits
8-K	2018-11-07	Regulation FD, Other Events, Regulation FD, Exhibits
8-K	2018-09-25	Amend Bylaw, Exhibits
8-K	2018-08-31	Enter Agreement, Exhibits
8-K	2018-08-07	Earnings, Exhibits
8-K	2018-06-13	Shareholder Vote
8-K	2018-05-08	Earnings, Exhibits
8-K	2018-04-25	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-03-14	Earnings, Exhibits
8-K	2018-01-30	Off-BS Arrangement

EX-31.1	rc-20190930ex31181e106.htm
EX-31.2	rc-20190930ex312afc473.htm
EX-32.1	rc-20190930ex321cc8b64.htm
EX-32.2	rc-20190930ex322cfe18d.htm