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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number: 001-35808

READY CAPITAL CORPORATION

Graphic

(Exact name of registrant as specified in its charter)

Maryland

90-0729143

(State or other jurisdiction of incorporation or organization)

(I.R.S. 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 Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

RC

New York Stock Exchange

Preferred Stock, 6.25% Series C Cumulative Convertible, par value $0.0001 per share

RC PRC

New York Stock Exchange

Preferred Stock, 6.50% Series E Cumulative Redeemable, par value $0.0001 per share

RC PRE

New York Stock Exchange

6.20% Senior Notes due 2026

RCB

New York Stock Exchange

5.75% Senior Notes due 2026

RCC

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes    No 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  Yes    No 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes    No 

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

As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $1,801.2 million based on the closing sales price of the registrant’s common stock on June 30, 2023 as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: The registrant has 172,554,524 shares of common stock, par value $0.0001 per share, outstanding as of February 27, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the 2024 annual meeting of stockholders are incorporated by reference into Part III of this annual report on Form 10-K.

TABLE OF CONTENTS

Page

PART I

Item 1. Business

7

Item 1A. Risk Factors

19

Item 1B. Unresolved Staff Comments

69

Item 1C. Cybersecurity

70

Item 2. Properties

70

Item 3. Legal Proceedings

71

Item 4. Mine Safety Disclosures

71

PART II

71

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

71

Item 6. [Reserved]

73

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

74

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

92

Item 8. Financial Statements and Supplementary Data

96

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

160

Item 9A. Controls and Procedures

160

Item 9B. Other Information

161

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

161

PART III

161

Item 10. Directors, Executive Officers and Corporate Governance

161

Item 11. Executive Compensation

161

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

161

Item 13. Certain Relationships and Related Transactions and Director Independence

161

Item 14. Principal Accountant Fees and Services

161

PART IV

162

Item 15. Exhibits and Financial Statement Schedules

162

Item 16. Form 10-K Summary

166

SIGNATURES

167

FORWARD-LOOKING STATEMENTS

Except where the context suggests otherwise, the terms “Company,” “we,” “us” and “our” refer to Ready Capital Corporation and its subsidiaries. We make forward-looking statements in this annual report on Form 10-K within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such statements to be covered by the safe harbor provisions for forward-looking statements contained therein. Forward-looking statements contained in this annual report reflect our current views about future events and are inherently subject to substantial risks and uncertainties, many of which are difficult to predict and beyond our control, that may cause our actual results to materially differ. These forward-looking statements include information about possible or assumed future results of our operations, financial condition, liquidity, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may,” “potential” or other comparable terminology, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words. Statements regarding the following subjects, among others, may be forward-looking, and the occurrence of events impacting these subjects, or otherwise impacting our business, may cause our financial condition, liquidity and consolidated results of operations to vary materially from those expressed in, or implied by, any such forward-looking statements:

our investment objectives and business strategy;
our ability to borrow funds or otherwise raise capital on favorable terms;
our expected leverage;
our expected investments;
estimates or statements relating to, and our ability to make, future distributions;
projected capital and operating expenditures;
availability of qualified personnel;
prepayment rates;
projected default rates;
increased rates of default and/or decreased recovery rates on our investments;
changes in interest rates, interest rate spreads, the yield curve or prepayment rates;
the impact of inflation on our business;
changes in prepayments of our assets;
our ability to achieve the expected synergies, cost savings and other benefits from the acquisition of a group of privately-held real estate structured finance opportunities funds with a focus on construction lending (collectively, the “Mosaic Funds”);
our ability to achieve the expected synergies, cost savings and other benefits from the acquisition of Broadmark Realty Capital Inc. (“Broadmark”), a specialty real estate finance company that specialized in originating and servicing residential and commercial construction loans;
risks associated with achieving expected synergies, cost savings and other benefits from acquisitions and our increased scale;
risks related to integrating a construction lending platform into our existing operations and the origination and ownership of construction loans, which are subject to additional risks as compared to loans secured by existing structures or land, following the Broadmark Merger and the acquisition of the Mosaic Funds;
risks associated with the divestiture of our Residential Mortgage Banking segment, should we undertake such a sale;
market, industry and economic trends;
our ability to compete in the marketplace;

3

the availability of attractive risk-adjusted investment opportunities in lower-to-middle-market commercial real estate loans (“LMM”), loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its Section 7(a) loan program (the “SBA Section 7(a) Program”), mortgage backed securities (“MBS”), residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies; 
general volatility of the capital markets;
changes in our investment objectives and business strategy;
the availability, terms and deployment of capital;
the availability of suitable investment opportunities;
market developments and actions recently taken and which may be taken by the U.S. Government, the U.S. Department of the Treasury (“Treasury”) and the Board of Governors of the Federal Reserve System, the Federal Depositary Insurance Corporation, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Government National Mortgage Association (“Ginnie Mae”), Federal Housing Administration (“FHA”) Mortgagee, U.S. Department of Agriculture (“USDA”), U.S. Department of Veterans Affairs (“VA”) and the U.S. Securities and Exchange Commission (“SEC”);
applicable regulatory changes;
changes in our assets, interest rates or the general economy;
mortgage loan modification programs and future legislative actions;
our ability to maintain our qualification as a real estate investment trust (“REIT”) and limitations on our business as a result of our qualifications as a REIT;
our ability to maintain our exemption from qualification under the Investment Company Act of 1940, as amended (the “1940 Act”);
factors described in this annual report on Form 10-K, including those set forth under the captions “Risk Factors” and “Business”;
our dependence on our external advisor, Waterfall Asset Management, LLC (“Waterfall” or the “Manager”), and our ability to find a suitable replacement if we or Waterfall were to terminate the management agreement we have entered into with Waterfall (the “management agreement”);
the degree and nature of our competition, including competition for LMM loans, MBS, residential mortgage loans, construction loans and other real estate-related investments that satisfy our investment objectives and strategies;
geopolitical events such as acts of terrorism, war or other military conflict, and the related impact on macroeconomic conditions;
the impact of the coronavirus (“COVID-19”) pandemic and the emergence and severity of COVID-19 variants on our business and operations, financial condition, results of operations, liquidity and capital resources; and
the impact of pandemics or epidemics on our borrowers, the real estate industry and global markets.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and we caution readers not to place undue reliance on any forward-looking statements. These forward-looking statements apply only as of the date of this annual report on Form 10-K. We are not obligated, and do not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. See Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report on Form 10-K.

4

RISK FACTOR SUMMARY

We are subject to a variety of risks that are inherent to our business, including risks that may prevent us from achieving our business objectives or may adversely affect our financial condition, results of operations and liquidity. The following list of risks and uncertainties is only a summary of some of the most important factors and is not intended to be exhaustive. The risk factor summary should be read together with the more detailed discussion of risks and uncertainties set forth in Item 1A. “Risk Factors” of this annual report on Form 10-K.

We depend on Waterfall and its key personnel for our success and we may not find a suitable replacement for Waterfall if the management agreement with Waterfall is terminated, or if key personnel leave the employment of Waterfall or otherwise become unavailable to us;

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;

The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, including in the case of termination for unsatisfactory performance, which may adversely affect our inclination to end our relationship with Waterfall;

The COVID-19 pandemic caused severe disruptions in the U.S. and global economy and a resurgence of COVID-19, or outbreaks of other highly infectious diseases, may have an adverse impact on our performance, financial condition and results of operations;

The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets;

We anticipate a significant portion of our investments will be in the form of LMM loans that are subject to risks, such as credit risk;

Some of the mortgage loans we will originate or acquire are loans made to self-employed borrowers who have a higher risk of delinquency and default, which could have a material and adverse effect on our business, results of operations and financial condition;

New entrants in the market for LMM loans could adversely impact our ability to acquire such loans at attractive prices and originate such loans at attractive risk-adjusted returns;

We cannot predict the unintended consequences and market distortions that may stem from far-ranging interventions in the financial system and oversight of financial markets;

Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock;

Inflation in the U.S. is expected to continue at an elevated level in the near- to medium-term, which may have an adverse impact on the valuation of our investments;

Maintenance of our 1940 Act exception imposes limits on our operations;

Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions and changes in such rules, accounting interpretations or our assumptions could adversely impact our ability to timely and accurately prepare our consolidated financial statements;

Provisions for credit losses under the Current Expected Credit Loss (“CECL”) model are difficult to estimate;

Cybersecurity risk and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of the security, confidentiality, or integrity of our Company, employee, customer, or third-party confidential information and/or damage to our reputation or business relationships, any of which could negatively impact our financial results;

We may seek to sell one of our business segments in an effort to maximize shareholder value, which may adversely affect our Company, our reputation, our results of operations and financial position or our stock price;

Our board of directors (“Board”) will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines;

5

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, and our Board may change our leverage policy without stockholder consent;

We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition;

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;

The percentage of our assets represented by taxable REIT subsidiaries (“TRSs”) and the amount of our income that we can receive in the form of TRS dividends and interest are subject to statutory limitations that could jeopardize our REIT qualification and could limit our ability to acquire or force us to liquidate otherwise attractive investments; and

Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.

6

PART I

Item 1. 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. Our loans range in original principal amounts generally up to $40 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders primarily through dividends, as well as through capital appreciation. 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. Accordingly, as of December 31, 2023, our Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of income, and excluded from continuing operations for all periods presented in this annual report on Form 10-K. Item 1. “Business” in this annual report on Form 10-K has been adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two operating segments:

LMM Commercial Real Estate. 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. 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. 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. 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. These originated loans are either held-for-investment, placed into securitization structures or sold. 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. 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 are organized in a traditional umbrella partnership REIT (“UpREIT”) format pursuant to which we serve as the general partner of, and conduct substantially all of our business through, Sutherland Partners, LP (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.

7

Our Manager

We are externally managed and advised by Waterfall, an SEC registered investment adviser. 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’s investment committee is chaired by Thomas Capasse, who serves as our Chief Executive Officer and Chief Investment Officer, and Jack Ross, who serves as our President. 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. Messrs. Capasse and Ross have worked together in the same organization for more than 30 years. 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. 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. 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.  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. This is reflected in the growth of our balance sheet over the last five years; our book value grew from $536 million as of December 31, 2017 to approximately $2.6 billion as of December 31, 2023 and our total assets grew at a 30% compound annual growth rate (“CAGR”) between 2017 and 2023. As such, we have become a full-service real estate finance platform and we believe that the breadth of our business allows us to adapt to market conditions and deploy capital in our asset classes with the most attractive risk-adjusted returns.

Our acquisition strategy complements our origination strategy by increasing our market intelligence in potential origination geographies, providing additional data to support our underwriting criteria and offering securitization market insight for various product offerings. 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. 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. Large balance commercial loans typically include those loans with original principal balances of at least $40 million and are primarily financed by insurance companies and commercial mortgage backed securities (“CMBS”) conduits.  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

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. 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. 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. As a result, we cannot predict the percentage of our equity that will be invested in any particular asset or strategy at any given time.

The table below presents our historical pre-tax income growth, net income to assets, distributable earnings and return on equity for each of the years ended December 31, 2021, 2022 and 2023.  See “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.

Graphic

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

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. 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.

LMM Commercial Real Estate

As noted above, our LMM Commercial Real Estate segment (formerly our SBC Lending and Acquisitions segment) consists of our LMM loan origination and acquisition platforms.

LMM Originations. 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. We also offer construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone. 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. 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. 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. 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.

Freddie Mac. Origination of loans in initial principal amounts ranging from $1 million to $7.5 million secured by multifamily properties under the Freddie Mac SBL program and loans for developers/owners of multi-family affordable rental housing utilizing streamlined tax-exempt and taxable financing solutions. We sell qualifying loans to Freddie Mac, which, in turn, sells such loans to securitization structures.

10

The following table summarizes the loan features by product types.

Graphic

As of December 31, 2023, we have originated approximately $17.9 billion in LMM loans since Ready Capital’s inception. 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.

Graphic

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. 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

The below chart presents our loan losses by vintage as a percentage of carrying value.

Graphic

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. In addition, large banks are not focused on the LMM market and smaller banks only lend in specific geographies. We believe this fragmented market, combined with the portfolio expertise required to manage these loans, provides attractive origination and acquisition opportunities and limits competition. 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 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. We generate loan origination leads directly through our relationships with commercial real estate brokers, bank loan officers and mortgage brokers that refer leads to our loan officers. 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.

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Other direct origination sources.  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. 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. 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. 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. 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. 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. 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. 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. 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. We believe investor demand for pass-through securities backed by the guaranteed portions of SBA Section 7(a) Program loans has been strong because the principal and interest payments are guaranteed by the full faith and credit of the U.S. Government. 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.

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The SBA was created out of the Small Business Act in 1953. The SBA’s function is to protect the interests of small businesses. The SBA classifies a small business as a business that is organized for profit and is independently owned and operating primarily within the United States with less than $15 million in tangible net worth and not more than $5 million in average after-tax net income. The SBA supports small businesses by administering several programs that provide loan guarantees against default on qualified loans made to eligible small businesses.

The SBA Section 7(a) Program is the SBA’s primary program for providing financing for start-up and existing small businesses. The SBA typically guarantees 75% of qualified loans over $150,000. 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;