rc-20250930
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, 2025
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 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 |
9.00% Senior Notes due 2029 | RCD | 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 162,126,276 shares of common stock, par value $0.0001 per share, outstanding as of November 6, 2025.
2
TABLE OF CONTENTS
Page |
3
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands) | September 30, 2025 | December 31, 2024 | |
Assets | |||
Cash and cash equivalents | $147,505 | $143,803 | |
Restricted cash | 44,491 | 30,560 | |
Loans, net (including $1,088 and $3,533 held at fair value) | 4,360,501 | 3,378,149 | |
Loans, held for sale (including $143,819 and $128,531 held at fair value and net of valuation allowance of $53,937 and $97,620) | 163,792 | 241,626 | |
Mortgage-backed securities | 33,105 | 31,006 | |
Investment in unconsolidated joint ventures (including $5,952 and $6,577 held at fair value) | 178,840 | 161,561 | |
Derivative instruments | 5,295 | 7,963 | |
Servicing rights | 126,966 | 128,440 | |
Real estate owned | 632,985 | 193,437 | |
Other assets | 472,516 | 362,486 | |
Assets of consolidated VIEs | 2,166,105 | 5,175,295 | |
Assets held for sale (refer to Note 9) | — | 287,595 | |
Total Assets | $8,332,101 | $10,141,921 | |
Liabilities | |||
Secured borrowings | 2,879,172 | 2,035,176 | |
Securitized debt obligations of consolidated VIEs, net | 1,293,778 | 3,580,513 | |
Senior secured notes, net | 721,151 | 437,847 | |
Corporate debt, net | 666,624 | 895,265 | |
Guaranteed loan financing | 565,883 | 691,118 | |
Contingent consideration | 18,385 | 573 | |
Derivative instruments | 1,627 | 352 | |
Dividends payable | 22,602 | 43,168 | |
Loan participations sold | 102,987 | 95,578 | |
Due to third parties | 9,927 | 1,442 | |
Accounts payable and other accrued liabilities | 166,406 | 188,051 | |
Liabilities held for sale (refer to Note 9) | — | 228,735 | |
Total Liabilities | $6,448,542 | $8,197,818 | |
Preferred stock Series C, liquidation preference $25.00 per share (refer to Note 20) | 8,361 | 8,361 | |
Commitments & contingencies (refer to Note 24) | |||
Stockholders’ Equity | |||
Preferred stock Series E, liquidation preference $25.00 per share (refer to Note 20) | 111,378 | 111,378 | |
Common stock, $0.0001 par value, 500,000,000 shares authorized, 161,834,837 and 162,792,372 shares issued and outstanding, respectively | 17 | 17 | |
Additional paid-in capital | 2,257,078 | 2,250,291 | |
Retained earnings (deficit) | (569,709) | (505,089) | |
Accumulated other comprehensive loss | (24,096) | (18,552) | |
Total Ready Capital Corporation equity | 1,774,668 | 1,838,045 | |
Non-controlling interests | 100,530 | 97,697 | |
Total Stockholders’ Equity | $1,875,198 | $1,935,742 | |
Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity | $8,332,101 | $10,141,921 |
See Notes To Unaudited Consolidated Financial Statements
5
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands, except share data) | 2025 | 2024 | 2025 | 2024 | |||
Interest income | $137,491 | $226,537 | $445,193 | $693,010 | |||
Interest expense | (126,971) | (175,572) | (403,274) | (542,544) | |||
Net interest income before (provision for) recovery of loan losses | $10,520 | $50,965 | $41,919 | $150,466 | |||
(Provision for) recovery of loan losses | (37,977) | (53,166) | 62,951 | (7,751) | |||
Net interest income after (provision for) recovery of loan losses | $(27,457) | $(2,201) | $104,870 | $142,715 | |||
Non-interest income | |||||||
Net realized gain (loss) on financial instruments and real estate owned | (160,396) | (69,184) | (131,513) | (43,066) | |||
Net unrealized gain (loss) on financial instruments | 2,914 | (1,241) | (450) | 2,034 | |||
Valuation recovery (allowance), loans held for sale | 178,225 | 71,060 | 38,761 | (156,107) | |||
Servicing income, net of amortization and impairment of $4,514 and $22,682 for the three and nine months ended September 30, 2025, and $5,841 and $14,216 for the three and nine months ended September 30, 2024, respectively | 7,509 | 5,415 | 13,661 | 12,444 | |||
Gain on bargain purchase | 24,472 | 32,165 | 112,562 | 13,859 | |||
Income (loss) on unconsolidated joint ventures | 7,417 | 3,214 | 3,291 | 4,821 | |||
Other income | 14,773 | 14,823 | 37,667 | 37,246 | |||
Total non-interest income (expense) | $74,914 | $56,252 | $73,979 | $(128,769) | |||
Non-interest expense | |||||||
Employee compensation and benefits | (21,151) | (22,989) | (65,564) | (59,202) | |||
Allocated employee compensation and benefits from related party | (3,602) | (2,537) | (10,478) | (8,037) | |||
Professional fees | (6,008) | (6,232) | (17,864) | (19,330) | |||
Management fees – related party | (5,156) | (6,498) | (15,805) | (19,344) | |||
Loan servicing expense | (9,771) | (10,101) | (36,653) | (33,907) | |||
Transaction related expenses | (1,910) | (2,998) | (5,243) | (5,240) | |||
Impairment on real estate | (1,862) | (525) | (8,476) | (26,627) | |||
Other operating expenses | (24,879) | (18,048) | (57,135) | (43,935) | |||
Total non-interest expense | $(74,339) | $(69,928) | $(217,218) | $(215,622) | |||
Loss from continuing operations before benefit for income taxes | (26,882) | (15,877) | (38,369) | (201,676) | |||
Income tax benefit | 9,935 | 8,404 | 55,081 | 87,194 | |||
Net income (loss) from continuing operations | $(16,947) | $(7,473) | $16,712 | $(114,482) | |||
Discontinued operations (refer to Note 9) | |||||||
Income (loss) from discontinued operations before benefit (provision) for income taxes | 280 | 258 | (6,881) | (1,554) | |||
Income tax benefit (provision) | (70) | (64) | 1,720 | 389 | |||
Net income (loss) from discontinued operations | $210 | $194 | $(5,161) | $(1,165) | |||
Net income (loss) | $(16,737) | $(7,279) | $11,551 | $(115,647) | |||
Less: Dividends on preferred stock | 1,999 | 1,999 | 5,997 | 5,997 | |||
Less: Net income attributable to non-controlling interest | 2,008 | 2,031 | 6,282 | 3,968 | |||
Net loss attributable to Ready Capital Corporation | $(20,744) | $(11,309) | $(728) | $(125,612) | |||
Earnings per common share from continuing operations - basic | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Earnings per common share from discontinued operations - basic | $0.00 | $0.00 | $(0.03) | $(0.01) | |||
Total earnings per common share - basic | $(0.13) | $(0.07) | $(0.01) | $(0.75) | |||
Earnings per common share from continuing operations - diluted | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Earnings per common share from discontinued operations - diluted | $0.00 | $0.00 | $(0.03) | $(0.01) | |||
Total earnings per common share - diluted | $(0.13) | $(0.07) | $(0.01) | $(0.75) | |||
Weighted-average shares outstanding | |||||||
Basic | 163,574,703 | 168,335,483 | 165,491,135 | 169,669,145 | |||
Diluted | 165,873,807 | 169,509,208 | 167,790,240 | 170,815,080 | |||
Dividends declared per share of common stock | $0.125 | $0.25 | $0.375 | $0.85 | |||
See Notes To Unaudited Consolidated Financial Statements
6
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Net income (loss) | $(16,737) | $(7,279) | $11,551 | $(115,647) | |||
Other comprehensive income (loss) - net change by component: | |||||||
Derivative financial instruments (cash flow hedges) | (872) | (12,639) | (8,157) | (7,834) | |||
Foreign currency translation | 64 | 2,257 | 2,624 | 1,534 | |||
Other comprehensive income (loss) | $(808) | $(10,382) | $(5,533) | $(6,300) | |||
Comprehensive income (loss) | $(17,545) | $(17,661) | $6,018 | $(121,947) | |||
Less: Comprehensive income attributable to non-controlling interests | 2,011 | 1,945 | 6,257 | 3,909 | |||
Comprehensive income (loss) attributable to Ready Capital Corporation | $(19,556) | $(19,606) | $(239) | $(125,856) | |||
See Notes To Unaudited Consolidated Financial Statements
7
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three Months Ended September 30, 2025 | |||||||||||||||||||
Preferred Series E | Common Stock | Additional Paid- In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | Total Ready Capital Corporation Equity | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||
(in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||
Balance at June 30, 2025 | 4,600,000 | $111,378 | 164,326,387 | $17 | $2,267,540 | $(528,524) | $(23,293) | $1,827,118 | $98,544 | $1,925,662 | |||||||||
Dividend declared: | |||||||||||||||||||
Common stock ($0.125 per share) | — | — | — | — | — | (20,441) | — | (20,441) | — | (20,441) | |||||||||
OP units | — | — | — | — | — | — | — | — | (75) | (75) | |||||||||
$0.390625 per Series C preferred share | — | — | — | — | — | (131) | — | (131) | — | (131) | |||||||||
$0.406250 per Series E preferred share | — | — | — | — | — | (1,868) | — | (1,868) | — | (1,868) | |||||||||
Stock-based compensation | — | — | 23,704 | — | 182 | — | — | 182 | — | 182 | |||||||||
Share repurchases | — | — | (2,515,254) | — | (10,586) | — | — | (10,586) | — | (10,586) | |||||||||
Reallocation of non-controlling interest | — | — | — | — | (58) | — | 8 | (50) | 50 | — | |||||||||
Net income (loss) | — | — | — | — | — | (18,745) | — | (18,745) | 2,008 | (16,737) | |||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | (811) | (811) | 3 | (808) | |||||||||
Balance at September 30, 2025 | 4,600,000 | $111,378 | 161,834,837 | $17 | $2,257,078 | $(569,709) | $(24,096) | $1,774,668 | $100,530 | $1,875,198 | |||||||||
Three Months Ended September 30, 2024 | |||||||||||||||||||
Preferred Series E | Common Stock | Additional Paid- In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Ready Capital Corporation Equity | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||
(in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||
Balance at June 30, 2024 | 4,600,000 | $111,378 | 168,167,272 | $17 | $2,287,684 | $(92,319) | $(13,880) | $2,292,880 | $98,985 | $2,391,865 | |||||||||
Dividend declared: | |||||||||||||||||||
Common stock ($0.25 per share) | — | — | — | — | — | (42,375) | — | (42,375) | — | (42,375) | |||||||||
OP units | — | — | — | — | — | — | — | — | (228) | (228) | |||||||||
$0.390625 per Series C preferred share | — | — | — | — | — | (131) | — | (131) | — | (131) | |||||||||
$0.406250 per Series E preferred share | — | — | — | — | — | (1,868) | — | (1,868) | — | (1,868) | |||||||||
Conversion of OP units into common stock | — | — | 315,000 | — | 2,649 | — | — | 2,649 | (2,649) | — | |||||||||
Stock-based compensation | — | — | 48,980 | — | 450 | — | — | 450 | — | 450 | |||||||||
Share repurchases | — | — | (548) | — | (5) | — | — | (5) | — | (5) | |||||||||
Reallocation of non-controlling interest | — | — | — | — | 1,451 | — | (56) | 1,395 | (1,395) | — | |||||||||
Net income (loss) | — | — | — | — | — | (9,310) | — | (9,310) | 2,031 | (7,279) | |||||||||
Other comprehensive loss | — | — | — | — | — | — | (10,296) | (10,296) | (86) | (10,382) | |||||||||
Balance at September 30, 2024 | 4,600,000 | $111,378 | 168,530,704 | $17 | $2,292,229 | $(146,003) | $(24,232) | $2,233,389 | $96,658 | $2,330,047 | |||||||||
See Notes To Unaudited Consolidated Financial Statements
8
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Nine Months Ended September 30, 2025 | |||||||||||||||||||
Preferred Series E | Common Stock | Additional Paid- In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | Total Ready Capital Corporation Equity | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||
(in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||
Balance at December 31, 2024 | 4,600,000 | $111,378 | 162,792,372 | $17 | $2,250,291 | $(505,089) | $(18,552) | $1,838,045 | $97,697 | $1,935,742 | |||||||||
Dividend declared: | |||||||||||||||||||
Common stock ($0.375 per share) | — | — | — | — | — | (63,892) | — | (63,892) | — | (63,892) | |||||||||
OP units | — | — | — | — | — | — | — | — | (261) | (261) | |||||||||
$1.17188 per Series C preferred share | — | — | — | — | — | (393) | — | (393) | — | (393) | |||||||||
$1.21875 per Series E preferred share | — | — | — | — | — | (5,604) | — | (5,604) | — | (5,604) | |||||||||
Distributions, net | — | — | — | — | — | — | — | — | (187) | (187) | |||||||||
Shares issued pursuant to merger transaction | — | — | 12,766,819 | — | 64,600 | — | — | 64,600 | — | 64,600 | |||||||||
Stock-based compensation | — | — | 760,794 | — | 6,860 | — | — | 6,860 | — | 6,860 | |||||||||
Conversion of OP units into common stock | — | — | 282,614 | — | 1,197 | — | — | 1,197 | (1,197) | — | |||||||||
Share repurchases | — | — | (14,767,762) | — | (67,685) | — | — | (67,685) | — | (67,685) | |||||||||
Reallocation of non-controlling interest | — | — | — | — | 1,815 | — | (36) | 1,779 | (1,779) | — | |||||||||
Net income (loss) | — | — | — | — | — | 5,269 | — | 5,269 | 6,282 | 11,551 | |||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | (5,508) | (5,508) | (25) | (5,533) | |||||||||
Balance at September 30, 2025 | 4,600,000 | $111,378 | 161,834,837 | $17 | $2,257,078 | $(569,709) | $(24,096) | $1,774,668 | $100,530 | $1,875,198 | |||||||||
Nine Months Ended September 30, 2024 | |||||||||||||||||||
Preferred Series E | Common Stock | Additional Paid- In Capital | Retained Earnings (Deficit) | Accumulated Other Comprehensive Loss | Total Ready Capital Corporation Equity | Non-controlling Interests | Total Stockholders' Equity | ||||||||||||
(in thousands, except share data) | Shares | Amount | Shares | Amount | |||||||||||||||
Balance at December 31, 2023 | 4,600,000 | $111,378 | 172,276,105 | $17 | $2,321,989 | $124,413 | $(17,860) | $2,539,937 | $98,464 | $2,638,401 | |||||||||
Dividend declared: | |||||||||||||||||||
Common stock ($0.85 per share) | — | — | — | — | — | (144,804) | — | (144,804) | — | (144,804) | |||||||||
OP units | — | — | — | — | — | — | — | — | (968) | (968) | |||||||||
$1.17188 per Series C preferred share | — | — | — | — | — | (393) | — | (393) | — | (393) | |||||||||
$1.21875 per Series E preferred share | — | — | — | — | — | (5,604) | — | (5,604) | — | (5,604) | |||||||||
Contributions, net | — | — | (1,981) | — | (18) | — | — | (18) | 600 | 582 | |||||||||
Stock-based compensation | — | — | 435,052 | — | 5,056 | — | — | 5,056 | — | 5,056 | |||||||||
Conversion of OP units into common stock | — | — | 420,000 | — | 3,632 | — | — | 3,632 | (3,632) | — | |||||||||
Share repurchases | — | — | (4,598,472) | — | (40,276) | — | — | (40,276) | — | (40,276) | |||||||||
Reallocation of non-controlling interest | — | — | — | — | 1,846 | — | (131) | 1,715 | (1,715) | — | |||||||||
Net income (loss) | — | — | — | — | — | (119,615) | — | (119,615) | 3,968 | (115,647) | |||||||||
Other comprehensive loss | — | — | — | — | — | — | (6,241) | (6,241) | (59) | (6,300) | |||||||||
Balance at September 30, 2024 | 4,600,000 | $111,378 | 168,530,704 | $17 | $2,292,229 | $(146,003) | $(24,232) | $2,233,389 | $96,658 | $2,330,047 | |||||||||
See Notes To Unaudited Consolidated Financial Statements
9
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | |||
(in thousands) | 2025 | 2024 | |
Cash Flows From Operating Activities: | |||
Net income (loss) | $11,551 | $(115,647) | |
Net income (loss) from discontinued operations, net of tax | (5,161) | (1,165) | |
Net income (loss) from continuing operations | 16,712 | (114,482) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||
Amortization of premiums, discounts, and debt issuance costs, net | 33,208 | 38,484 | |
Stock-based compensation | 5,010 | 5,642 | |
Provision for (recovery of) loan losses | (62,951) | 7,751 | |
Impairment loss on real estate owned, held for sale | 8,476 | 26,627 | |
Depreciation and amortization on real estate owned | 1,100 | — | |
Repair and denial reserve | 1,627 | 282 | |
Paid-in-kind accrued interest | (4,061) | (56,995) | |
Provision for loan losses on purchased future receivables | — | 2,118 | |
Valuation allowance (recovery), loans held for sale | (38,761) | 156,107 | |
Net (income) loss of unconsolidated joint ventures, net of distributions | (1,509) | (2,912) | |
Realized (gains) losses, net | 132,945 | 46,863 | |
Unrealized (gains) losses, net | (626) | (3,594) | |
Bargain purchase gain | (112,562) | (13,859) | |
Loans, held for sale, net | 556,246 | 270,411 | |
Changes in operating assets and liabilities: | |||
Derivative instruments | (457) | (4,720) | |
Assets of consolidated VIEs (excluding loans, net), accrued interest and due from servicers | 41,127 | (70,315) | |
Receivable from third parties | (6,209) | 1,587 | |
Other assets | (111,574) | (59,795) | |
Accounts payable and other accrued liabilities | 8,922 | 59,080 | |
Net cash provided by operating activities from continuing operations | $466,663 | $288,280 | |
Net cash used for operating activities from discontinued operations | (23,784) | (42,625) | |
Net cash provided by operating activities | $442,879 | $245,655 | |
Cash Flows From Investing Activities: | |||
Origination of loans | (420,697) | (674,770) | |
Proceeds from disposition and principal payment of loans | 1,593,480 | 1,614,847 | |
Funding of investments held to maturity | (2,385) | — | |
Funding of real estate, held for sale | (964) | (1,308) | |
Proceeds from sale of real estate, held for sale | 57,743 | 56,766 | |
Investment in unconsolidated joint ventures | (20,280) | (17,657) | |
Distributions in excess of cumulative earnings from unconsolidated joint ventures | 9,800 | 8,384 | |
Payment of liabilities under participation agreements | (1,335) | (4,009) | |
Net cash provided by (used for) disposal of discontinued operations | 3,521 | — | |
Net cash provided by (used for) asset acquisitions | 4,249 | — | |
Net cash provided by (used for) business acquisitions | 16,020 | (44,166) | |
Net cash provided by investing activities from continuing operations | $1,239,152 | $938,087 | |
Net cash provided by investing activities from discontinued operations | 43,316 | 59,955 | |
Net cash provided by investing activities | $1,282,468 | $998,042 | |
Cash Flows From Financing Activities: | |||
Proceeds from secured borrowings | 2,710,938 | 1,714,585 | |
Repayment of secured borrowings | (1,870,521) | (1,633,621) | |
Repayment of the Paycheck Protection Program Liquidity Facility borrowings | (10,451) | (13,885) | |
Repayment of securitized debt obligations of consolidated VIEs | (2,295,827) | (1,136,024) | |
Proceeds from senior secured note | 290,250 | 92,119 | |
Repayment of corporate debt | (232,140) | — | |
Repayment of guaranteed loan financing | (147,002) | (101,909) | |
Payment of deferred financing costs | (25,940) | (10,851) | |
Common stock repurchased | (65,721) | (39,190) | |
Settlement of share-based awards in satisfaction of withholding tax requirements | (1,964) | (1,086) | |
Dividend payments | (90,716) | (161,456) | |
Distributions, net | — | (18) | |
Net cash used for financing activities from continuing operations | $(1,739,094) | $(1,291,336) | |
Net cash provided by (used for) financing activities from discontinued operations | (4,324) | 19,474 | |
Net cash used for financing activities | $(1,743,418) | $(1,271,862) | |
Net decrease in cash, cash equivalents, and restricted cash including cash classified within assets held for sale | (18,071) | (28,165) | |
Less: Net decrease in cash and cash equivalents within assets held for sale | (29,792) | (1,241) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 11,721 | (26,924) | |
Cash, cash equivalents, and restricted cash beginning balance | 182,774 | 262,506 | |
Cash, cash equivalents, and restricted cash ending balance | $194,495 | $235,582 | |
See Notes To Unaudited Consolidated Financial Statements
10
READY CAPITAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | |||
(in thousands) | 2025 | 2024 | |
Supplemental disclosures: | |||
Cash paid for interest | $385,608 | $520,795 | |
Cash received for income taxes | $(228) | $(11,942) | |
Non-cash investing activities | |||
Loans transferred from loans, held for sale to loans, net | $130,126 | $— | |
Loans transferred from loans, net to loans, held for sale | $722,797 | $719,623 | |
Loans transferred to real estate owned, held for sale | $519,824 | $18,711 | |
Contingent consideration in connection with acquisitions | $15,242 | $2,007 | |
Non-cash financing activities | |||
Shares and OP units issued in connection with merger transactions | $64,600 | $— | |
Conversion of OP units to common stock | $1,197 | $3,632 | |
Cash, cash equivalents, and restricted cash reconciliation | |||
Cash and cash equivalents | $147,505 | $181,315 | |
Restricted cash | 44,491 | 31,331 | |
Cash, cash equivalents, and restricted cash in assets of consolidated VIEs | 2,499 | 22,936 | |
Cash, cash equivalents, and restricted cash ending balance | $194,495 | $235,582 | |
See Notes To Unaudited Consolidated Financial Statements
11
READY CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Organization
Ready Capital Corporation (the “Company” or “Ready Capital” and together with its subsidiaries “we,” “us” and “our”),
is a Maryland corporation. The Company is a multi-strategy real estate finance company that originates, acquires,
finances and services lower-to-middle-market commercial real estate (“LMM”) loans, Small Business Administration
(“SBA”) loans, construction loans, United States Department of Agriculture (“USDA”) loans, and to a lesser extent,
mortgage-backed securities (“MBS”) collateralized primarily by LMM loans, or other real estate-related investments.
LMM loans represent a special category of commercial loans, sharing both commercial and residential loan
characteristics. LMM loans are generally secured by first mortgages on commercial properties, but because LMM loans
are also often accompanied by collateralization of personal assets and subordinate lien positions, aspects of residential
mortgage credit analysis are utilized in the underwriting process.
The Company is externally managed and advised by Waterfall Asset Management, LLC (“Waterfall” or the “Manager”),
an investment advisor registered with the United States Securities and Exchange Commission (“SEC”) under the
Investment Advisors Act of 1940, as amended.
Sutherland Partners, L.P. (the “operating partnership”) holds substantially all of the Company’s assets and conducts
substantially all of the Company’s business. As of September 30, 2025 and December 31, 2024, the Company owned
approximately 99.6% and 99.5% of the operating partnership, respectively. The Company, as sole general partner of the
operating partnership, has responsibility and discretion in the management and control of the operating partnership, and
the limited partners of the operating partnership, in such capacity, have no authority to transact business for, or
participate in the management activities of the operating partnership. Therefore, the Company consolidates the operating
partnership.
Acquisitions
United Development Funding IV. On March 13, 2025, pursuant to the terms of the Agreement and Plan of Merger,
dated as of November 29, 2024, by and among the Company, United Development Funding IV (“UDF IV”), and RC
Merger Sub IV, LLC, a wholly owned subsidiary of the Company (“RC Merger Sub IV”), the Company acquired UDF
IV, a real estate investment trust providing capital solutions to residential real estate developers and regional
homebuilders, (the “UDF IV Merger”). At the effective time of the UDF IV Merger (the “Effective Time”), each
outstanding common share of beneficial interest, par value $0.01 per share, of UDF IV (“UDF IV Common Shares”),
excluding any UDF IV Common Shares held by UDF IV, the Company, RC Merger Sub IV or their subsidiaries, was
automatically cancelled and retired and converted into the right to receive (i) 0.416 shares of Company common stock,
(ii) 0.416 contingent value rights (“CVRs”) representing the potential right to receive additional shares of Company
common stock after the end of each of (1) the period beginning on October 1, 2024, and ending on December 31, 2025
and (2) the three subsequent calendar years, based, in part, upon cash proceeds received by the Company and its
subsidiaries in respect of a portfolio of five UDF IV loans and (iii) cash consideration in lieu of any fractional shares of
Company common stock. Refer to Note 5 for assets acquired and liabilities assumed in the UDF IV Merger.
Funding Circle. On July 1, 2024, the Company acquired Funding Circle USA, Inc. (“Funding Circle”) through its
subsidiary, iBusiness Funding LLC, for approximately $41.2 million in cash plus the assumption of certain liabilities
(the “Funding Circle Acquisition”). Funding Circle is an online lending platform that originates and services small
business loans. The Funding Circle Acquisition integrates Funding Circle’s loan origination servicing platform with the
Company’s Lending as a Service and LenderAI product offerings. Refer to Note 5 for assets acquired and liabilities
assumed in the Funding Circle Acquisition.
Madison One. On June 5, 2024, the Company acquired Madison One Capital, M1 CUSO and Madison One Lender
Services (together, “Madison One”), a leading originator and servicer of USDA and SBA guaranteed loan products, for
an initial purchase price of approximately $32.9 million paid in cash (the “Madison One Acquisition”). Approximately
$3.6 million of the initial purchase price was paid as bonuses to certain key Madison One personnel in cash. Additional
purchase price payments, including cash payments and the issuance of shares of common stock of the Company, may be
made over the four years following the acquisition date contingent upon the Madison One business achieving certain
12
performance metrics. Part of the Company’s strategy in acquiring Madison One included the value of the anticipated
synergies arising from the acquisition and the value of the acquired assembled workforce, neither of which qualify for
recognition as an intangible asset. Refer to Note 5 for assets acquired and liabilities assumed in the Madison One
Acquisition.
REIT Status
The Company qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”), commencing with its first taxable year ended December 31, 2011. To maintain its tax
status as a REIT, the Company distributes dividends equal to at least 90% of its taxable income in the form of
distributions to shareholders.
Note 2. Basis of Presentation
The unaudited interim consolidated financial statements herein, referred to as the “consolidated financial statements”, as
of September 30, 2025 and December 31, 2024 and for the three and nine months ended September 30, 2025 and 2024,
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”)—as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) and the rules and regulations of the SEC.
The accompanying consolidated financial statements, including the notes thereto, are unaudited and exclude some of the
disclosures required in audited financial statements. Accordingly, certain information and footnote disclosures normally
included in consolidated financial statements have been condensed or omitted. In the opinion of management, the
accompanying consolidated financial statements contain all normal recurring adjustments necessary for a fair statement
of the results for the interim periods presented. Such operating results may not be indicative of the expected results for
any other interim period or the entire year. The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2024, as filed with the SEC.
Note 3. Summary of Significant Accounting Policies
Use of estimates
Preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires certain
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the reported amounts of income and expenses during
the reporting period. These estimates and assumptions are based on the best available information however, actual results
could be materially different.
Basis of consolidation
The accompanying consolidated financial statements of the Company include the accounts and results of operations of
the operating partnership and other consolidated subsidiaries and variable interest entities (“VIEs”) in which the
Company is the primary beneficiary. The consolidated financial statements are prepared in accordance with ASC 810,
Consolidation (“ASC 810”). Intercompany balances and transactions have been eliminated.
Reclassifications
Certain amounts reported for the prior periods in the accompanying consolidated financial statements have been
reclassified in order to conform to the current period’s presentation.
Cash and cash equivalents
The Company accounts for cash and cash equivalents in accordance with ASC 305, Cash and Cash Equivalents. The
Company defines cash and cash equivalents as cash, demand deposits, and short-term, highly liquid investments with
original maturities of 90 days or less when purchased. Cash and cash equivalents are exposed to concentrations of credit
risk. The Company deposits cash with institutions believed to have highly valuable and defensible business franchises,
strong financial fundamentals, and predictable and stable operating environments.
13
Restricted cash
Restricted cash represents cash held by the Company as collateral against its derivatives, borrowings under repurchase
agreements, borrowings under credit facilities and other financing agreements with counterparties, construction and
mortgage escrows, as well as cash held for remittance on loans serviced for third parties. Restricted cash is not available
for general corporate purposes but may be applied against amounts due to counterparties under existing swaps and
repurchase agreement borrowings, returned to the Company when the restriction requirements no longer exist or at the
maturity of the swap or repurchase agreement.
Loans, net
Loans, net consists of loans, held-for-investment, net of allowance for credit losses, and loans, held at fair value.
Loans, held-for-investment. Loans, held-for-investment are loans acquired from third parties (“acquired loans”), loans
originated by the Company that it does not intend to sell, or securitized loans that were previously originated. Certain
securitized loans remain on the Company’s balance sheet because the securitization vehicles are consolidated under ASC
810. Acquired loans are recorded at the valuation at the time of acquisition and are accounted for under ASC 310,
Receivables (“ASC 310”).
The Company uses the interest method to recognize, as a constant effective yield adjustment, the difference between the
initial recorded investment in the loan and the principal amount of the loan. The calculation of the constant effective
yield necessary to apply the interest method uses the payment terms required by the loan contract, and prepayments of
principal are not anticipated to shorten the loan term.
Purchased credit deteriorated (“PCD”) loans are purchased loans that, as of the acquisition date, have experienced a
more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment
under ASC 326, Financial Instruments-Credit Losses. An allowance for credit losses is determined using the same
methodology as loans held for investment. When a discounted cash flow model is used to determine the allowance for
credit losses, the change in the allowance associated with the time value of money is presented as an adjustment to
interest income. The sum of a loan's purchase price and allowance for credit losses becomes its initial amortized cost
basis. The difference between the initial amortized cost basis and the unpaid principal balance of a loan is a non-credit
discount or premium which is amortized into interest income over the life of the loan. Subsequent changes to the
allowance for credit losses are recorded through provision for loan losses.
Loans, held at fair value. Loans, held at fair value represent certain loans originated by the Company for which the fair
value option has been elected. Interest is recognized as interest income in the consolidated statements of operations when
earned and deemed collectible. Changes in fair value are recurring and are reported as net unrealized gain (loss) on
financial instruments in the consolidated statements of operations. Loans, held at fair value are classified as Level 3 in
the fair value hierarchy.
Allowance for credit losses. The allowance for credit losses consists of the allowance for losses on loans and lending
commitments accounted for at amortized cost. Such loans and lending commitments are reviewed quarterly considering
credit quality indicators, including probable and historical losses, collateral values, loan-to-value (“LTV”) ratio and
economic conditions. The allowance for credit losses increases through provisions charged to earnings and reduced by
charge-offs, net of recoveries.
The Company utilizes loan loss forecasting models for estimating expected life-time credit losses, at the individual loan
level, for its loan portfolio. The Current Expected Credit Loss (“CECL”) forecasting methods used by the Company
include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan
databases with historical loan losses and (ii) probability weighted expected cash flow method, depending on the type of
loan and the availability of relevant historical market loan loss data. The Company might use other acceptable alternative
approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of
relevant historical market loan loss data.
Significant inputs to the Company’s forecasting methods include (i) key loan-specific inputs such as LTV, vintage year,
loan-term, underlying property type, occupancy, geographic location, and others, and (ii) a macro-economic forecast,
including unemployment rates, interest rates, commercial real estate prices, and others. These estimates may change in
14
future periods based on available future macro-economic data and might result in a material change in the Company’s
future estimates of expected credit losses for its loan portfolio.
In certain instances, the Company considers relevant loan-specific qualitative factors to certain loans to estimate its
CECL expected credit losses. The Company considers loan investments to be “collateral-dependent” loans if they are
both (i) expected to be substantially repaid through the operation or sale of the underlying collateral and (ii) for which
the borrower is experiencing financial difficulty. For such loans that the Company determines that foreclosure of the
collateral is probable, the Company measures the expected losses based on the difference between the fair value of the
collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost
basis of the loan as of the measurement date. For collateral-dependent loans that the Company determines foreclosure is
not probable, the Company applies a practical expedient to estimate expected losses using the difference between the
collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the
amortized cost basis of the loan.
While the Company has a formal methodology to determine the adequate and appropriate level of the allowance for
credit losses, estimates of inherent loan losses involve judgment and assumptions as to various factors, including current
economic conditions. The Company’s determination of adequacy of the allowance for credit losses is based on quarterly
evaluations of the above factors. Accordingly, the provision for credit losses will vary from period to period based on
management’s ongoing assessment of the adequacy of the allowance for credit losses.
Non-accrual loans. A loan is generally placed on non-accrual status when it is probable that principal and interest will
not be collected under the original contractual terms. At that time, interest income is no longer accrued. Non-accrual
loans consist of loans for which principal or interest has been delinquent for 90 days or more and for which specific
reserves are recorded, including PCD loans. Interest income accrued, but not collected, at the date loans are placed on
non-accrual status is reversed, unless the loan is expected to be fully recoverable by the collateral or is in the process of
being collected. Interest income is subsequently recognized only to the extent it is received in cash or until the loan
qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan
principal, all cash received is applied to reduce the carrying value of such loans. Loans are restored to accrual status
when contractually current and the collection of future payments is reasonably assured. In certain instances, the
Company may make exceptions to placing a loan on non-accrual status if the loan is in the process of a modification. For
construction loans that have been delinquent for 90 days or more, interest income may continue to accrue if it is probable
that principal and interest will be collected in full.
Paid-In-Kind (“PIK”) Interest. PIK interest is computed at the contractual rate specified in each loan agreement and
added to the principal balance of the loan, and is recorded as interest income over the life of the loan on the consolidated
statement of operations. The Company will generally cease accruing PIK interest if there is insufficient value to support
the accrual or management does not expect the borrower to be able to pay all principal and interest due. To maintain the
Company's status as a REIT, this non-cash source of income is included within the 90% of its taxable income required to
be distributed to shareholders.
Loan modifications made to borrowers experiencing financial difficulty. In situations where economic or legal
circumstances may cause a borrower to experience significant financial difficulties, the Company may grant concessions
for a period of time to the borrower that it would not otherwise consider. These modified terms may include interest rate
reductions, principal forgiveness, term extensions, and other-than-insignificant payment delay intended to minimize the
Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company monitors the
performance of loans modified to borrowers experiencing financial difficulty and considers loans that are 30 days past
due to be in payment default.
Loans, held for sale
Loans are classified as held for sale if there is an intent to sell in the near-term. These loans are recorded at the lower of
amortized cost or fair value, unless the fair value option has been elected at the time of origination or acquisition. If the
loan’s fair value is determined to be less than its amortized cost, a non-recurring fair value adjustment may be recorded
through a valuation allowance. Changes in fair value on originated loans for which the fair value option has been elected,
are recurring and are reported as net unrealized gain (loss) on financial instruments in the consolidated statements of
operations. Loans, held for sale for which the fair value option has been elected are predominantly classified as Level 2
15
in the fair value hierarchy. For originated SBA loans, the guaranteed portion is held at fair value. Interest is recognized
as interest income in the consolidated statements of operations when earned and deemed collectible. When loans
classified as held for sale are sold, the proceeds, less the costs to sell, in excess (or deficiency) of the net carrying value,
including accrued interest, are recognized as a realized gain (loss).
Paycheck Protection Program loans
Paycheck Protection Program (“PPP”) loans were originated in response to the COVID-19 pandemic. The Company has
elected the fair value option for the loans originated by the Company for the first round of the program. Interest is
recognized in the consolidated statements of operations as interest income when earned and deemed collectible.
Although PPP includes a 100% guarantee from the federal government and principal forgiveness for borrowers if the
funds were used for defined purposes, changes in fair value are recurring and are reported as net unrealized gains (losses)
on financial instruments in the consolidated statements of operations.
The Company’s loan originations in the second round of the program are accounted for as loans, held-for-investment
under ASC 310. Loan origination fees and related direct loan origination costs are capitalized into the initial recorded
investment in the loan and are deferred over the loan term. The Company recognizes the difference between the initial
recorded investment and the principal amount of the loan as interest income using the effective yield method. The
effective yield is determined based on the payment terms required by the loan contract as well as with actual and
expected prepayments from loan forgiveness by the federal government.
Mortgage-backed securities
The Company accounts for MBS as trading securities and carries them at fair value under ASC 320, Investments-Debt
and Equity Securities (“ASC 320”). The Company’s MBS portfolio is comprised of asset-backed securities collateralized
by interest in, or obligations backed by, pools of LMM loans, which are guaranteed by the U.S. government, such as the
Government National Mortgage Association (“Ginnie Mae”), or guaranteed by federally sponsored enterprises, such as
the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie
Mac”). Purchases and sales of MBS are recorded as of the trade date. MBS securities pledged as collateral against
borrowings under repurchase agreements are included in mortgage-backed securities on the consolidated balance sheets.
MBS are recorded at fair value as determined by market prices provided by independent broker dealers or other
independent valuation service providers. The fair values assigned to these investments are based upon available
information and may not reflect amounts that may be realized. The fair value adjustments on MBS are reported within
net unrealized gain (loss) on financial instruments in the consolidated statements of operations. Mortgage-backed
securities are classified as Level 2 in the fair value hierarchy.
Derivative instruments
Subject to maintaining qualification as a REIT for U.S. federal income tax purposes, the Company utilizes derivative
financial instruments, comprised of interest rate swaps and FX forwards as part of its risk management strategy. The
Company accounts for derivative instruments under ASC 815, Derivatives and Hedging (“ASC 815”). All derivatives
are reported as either assets or liabilities in the consolidated balance sheets at the estimated fair value with the changes in
the fair value recorded in earnings unless hedge accounting is elected. As of September 30, 2025 and December 31,
2024, the Company had offset $16.5 million and $25.4 million of cash collateral payable against gross derivative asset
positions, respectively.
Interest rate swap agreements. An interest rate swap is an agreement between two counterparties to exchange periodic
interest payments where one party to the contract makes a fixed-rate payment in exchange for a floating-rate payment
from the other party. The dollar amount each party pays is an agreed-upon periodic interest rate multiplied by a pre-
determined dollar principal (notional amount). No principal (notional amount) is exchanged between the two parties at
the trade initiation date and only interest payments are exchanged over the life of the contract. The fair value adjustments
are reported within net unrealized gain (loss) on financial instruments, while the related interest income or interest
expense are reported within net realized gain (loss) on financial instruments in the consolidated statements of operations.
Interest rate swaps are classified as Level 2 in the fair value hierarchy.
FX forwards. FX forwards are agreements between two counterparties to exchange a pair of currencies at a set rate on a
future date. Such contracts are used to convert the foreign currency risk to U.S. dollars to mitigate exposure to
16
fluctuations in FX rates. The fair value adjustments are reported within net unrealized gain (loss) on financial
instruments in the consolidated statements of operations. FX forwards are classified as Level 2 in the fair value
hierarchy.
Hedge accounting. As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk,
such as interest rate risk, that causes changes in the fair value of an asset or liability or variability in the expected future
cash flows of an existing asset, liability, or forecasted transaction that may affect earnings.
To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting
is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged. Cash
flow hedges are used to hedge the exposure to the variability in cash flows from forecasted transactions, including the
anticipated issuance of securitized debt obligations. ASC 815 requires that a forecasted transaction be identified as
either: 1) a single transaction, or 2) a group of individual transactions that share the same risk exposures for which they
are designated as being hedged. Hedges of forecasted transactions are considered cash flow hedges since the price is not
fixed, hence involve variability of cash flows.
For qualifying cash flow hedges, the change in the fair value of the derivative (the hedging instrument) is recorded in
other comprehensive income (loss) (“OCI”) and is reclassified out of OCI and into the consolidated statements of
operations when the hedged cash flows affect earnings. These amounts are recognized consistent with the classification
of the hedged item, primarily interest expense (for hedges of interest rate risk). If the hedge relationship is terminated,
then the value of the derivative recorded in accumulated other comprehensive income (loss) (“AOCI”) is recognized in
earnings when the cash flows that were hedged affect earnings, so long as the forecasted transaction remains probable of
occurring.
Hedge accounting is generally terminated at the debt issuance date because the Company is no longer exposed to cash
flow variability subsequent to issuance. Accumulated amounts recorded in AOCI at that date are then released to
earnings in future periods to reflect the difference in 1) the fixed rates economically locked in at the inception of the
hedge and 2) the actual fixed rates established in the debt instrument at issuance. Because of the effects of the time value
of money, the actual interest expense reported in earnings will not equal the effective yield locked in at hedge inception
multiplied by the par value. Similarly, this hedging strategy does not actually fix the interest payments associated with
the forecasted debt issuance.
Servicing rights
Servicing rights initially represent the fair value of expected future cash flows for performing servicing activities for
others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service
the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the servicing
right asset against contractual servicing and ancillary fee income.
Servicing rights are recognized upon sale of loans, including a securitization of loans accounted for as a sale in
accordance with U.S. GAAP, if servicing is retained. For servicing rights, gains (losses) related to servicing rights
retained is included in net realized gain (loss) in the consolidated statements of operations.
Servicing rights are accounted for under ASC 860, Transfers and Servicing (“ASC 860”). A significant portion of the
Company’s multi-family servicing rights are under the Freddie Mac program.
Servicing rights are initially recorded at fair value and subsequently carried at amortized cost. Servicing rights are
amortized in proportion to and over the expected service period, or term of the loans, and are evaluated for potential
impairment quarterly.
For purposes of testing servicing rights for impairment, the Company first determines whether facts and circumstances
exist that would suggest the carrying value of the servicing asset is not recoverable. If so, the Company then compares
the net present value of servicing cash flow to its carrying value. The estimated net present value of servicing cash flows
is determined using discounted cash flow modeling techniques, which require management to make estimates regarding
future net servicing cash flows, taking into consideration historical and forecasted loan prepayment rates, delinquency
rates and anticipated maturity defaults. If the carrying value of the servicing rights exceeds the net present value of
17
servicing cash flows, the servicing rights are considered impaired, and an impairment loss is recognized in the
consolidated statements of operations for the amount by which carrying value exceeds the net present value of servicing
cash flows.
The Company estimates the fair value of servicing rights by determining the present value of future expected servicing
cash flows using modeling techniques that incorporate management’s best estimates of key variables including estimates
regarding future net servicing cash flows, forecasted loan prepayment rates, delinquency rates, and return requirements
commensurate with the risks involved. Cash flow assumptions are modeled using internally forecasted revenue and
expenses, and where possible, the reasonableness of assumptions is periodically validated through comparisons to
market data. Prepayment speed estimates are determined from historical prepayment rates or obtained from third-party
industry data. Return requirement assumptions are determined using data obtained from market participants, where
available, or based on current relevant interest rates plus a risk-adjusted spread. The Company also considers other
factors that can impact the value of the servicing rights, such as surety provider termination clauses and servicer
terminations that could result if the Company failed to materially comply with the covenants or conditions of its
servicing agreements and did not remedy the failure. Since many factors can affect the estimate of the fair value of
servicing rights, the Company regularly evaluates the major assumptions and modeling techniques used in its estimate
and reviews these assumptions against market comparables, if available. The Company monitors the actual performance
of its servicing rights by regularly comparing actual cash flow, credit, and prepayment experience to modeled estimates.
Real estate owned
The Company generally acquires real estate assets through foreclosure or deed-in-lieu of foreclosure in full or partial
settlement of loan obligations. Based on the Company’s strategic plan to realize the maximum value from the real estate
acquired, properties are either classified as real estate owned, held for use if the Company intends to hold, operate or
develop the property for a period of at least 12 months or real estate owned, held for sale if the Company intends to
market these properties for sale in the near term.
Real estate owned, held for use. Upon acquisition of a property, the Company assesses the fair value of acquired
tangible and intangible assets (including above and below-market leases) and allocates the fair value of the acquired
assets and assumed liabilities. The Company assesses fair value based on estimated cash flow projections, as well as
other available market information. Real estate owned, held for use is recorded at acquisition cost less any accumulated
depreciation. Depreciation is computed using a straight-line method over the estimated useful life of 50 years for
building and improvements and 8 years for furniture, fixtures and equipment. On a quarterly basis, management assesses
whether there are any indicators that the value of the Company’s properties classified as held for use may be impaired.
Such indicators include occupancy trends, revenue per available room trends, leasing trends, current and estimated future
cash flows associated with the property and other quantitative and qualitative factors. A property is considered impaired
if management’s estimate of the aggregate future cash flows is less than the carrying value of the property. To the extent
impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair
value of the property. The Company’s estimates of aggregate future cash flows involve significant judgment and
assumptions, including current economic conditions and therefore, actual results could be materially different.
Gains or losses from operating lease income are recorded as other income (loss) in the consolidated statement of
operations.
Real estate owned, held for sale. Real estate owned, held for sale is recorded at acquisition at the property’s estimated
fair value less estimated costs to sell. After acquisition, costs incurred relating to the development and improvement of
property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas
costs relating to holding and disposition of the property are expensed as incurred. After acquisition, real estate owned,
held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged through
impairment.
The Company records a gain or loss from the sale of real estate when control of the property transfers to the buyer,
which generally occurs at the time of an executed deed. When the Company finances the sale of real estate to the buyer,
the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the
collectability of the transaction price is probable. Once these criteria are met, the real estate is derecognized and the gain
or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the
sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is
18
present. This adjustment is based on management’s estimate of the fair value of the loan extended to the buyer to finance
the sale.
Investment in unconsolidated joint ventures
According to ASC 323, Equity Method and Joint Ventures, investors in unincorporated entities such as partnerships and
unincorporated joint ventures generally shall account for their investments using the equity method of accounting if the
investor has the ability to exercise significant influence over the investee. Under the equity method, the Company
recognizes its allocable share of the earnings or losses of the investment monthly in earnings and adjusts the carrying
amount for its share of the distributions that exceeds its allocable share of earnings. The fair value adjustments are
reported within income on unconsolidated joint ventures in the consolidated statements of operations. Investments in
unconsolidated joint ventures are classified as Level 3 in the fair value hierarchy.
Investments held to maturity
The Company accounts for held to maturity investments under ASC 320. Such securities are accounted for at amortized
cost and reviewed on a quarterly basis to determine if an allowance for credit losses should be recorded in the
consolidated statements of operations.
Purchased future receivables
The Company provides working capital advances to small businesses through the purchase of their future revenues. The
Company enters into a contract with the business whereby the Company pays the business an upfront amount in return
for a specific amount of the business’s future revenue receivables, known as payback amounts. The payback amounts are
primarily received through daily payments initiated by automated clearing house transactions.
Revenues from purchased future receivables are realized when funds are received under each contract. The allocation of
the amount received is determined by apportioning the amount received based upon the factor (discount) rate of the
business’s contract. Management believes that this methodology best reflects the effective interest method.
The CECL method the Company utilizes is an aging schedule where estimating expected life-time credit losses is
determined on the basis of how long a receivable has been outstanding. Where there is doubt regarding the ultimate
collectability, the allowance for credit losses increases through provisions recorded in the consolidated statements of
operations and reduced by charge-offs, net of recoveries. Purchased future receivables that have been delinquent for 90
days or more are considered uncollectible and subsequently charged off. While the Company has a formal methodology
to determine the adequate and appropriate level of the allowance for credit losses, estimates involve judgment and
assumptions as to various factors, including current economic conditions and inherent risk in the portfolio. The
Company’s determination of adequacy of the allowance for credit losses is based on quarterly evaluations of the above
factors. Accordingly, the provision for credit losses will vary from period to period based on management’s ongoing
assessment of the adequacy of the allowance for credit losses.
Intangible assets
The Company accounts for intangible assets under ASC 350, Intangibles- Goodwill and Other (“ASC 350”). The
Company’s intangible assets include an SBA license, capitalized software, a broker network, trade names, above and
below market leases and customer relationships. The Company capitalizes software costs expected to result in long-term
operational benefits, such as replacement systems or new applications that result in significantly increased operational
efficiencies or functionality as well as costs related to internally developed software expected to be sold, leased or
otherwise marketed under ASC 985-20, Software- costs of software to be sold, leased, or marketed. All other costs
incurred in connection with internal use software are expensed as incurred. The Company initially records its intangible
assets at cost or fair value and will test for impairment if a triggering event occurs. Intangible assets are included within
other assets in the consolidated balance sheets. The Company amortizes intangible assets with identified estimated useful
lives on a straight-line basis over their estimated useful lives.
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of net assets, including identifiable
intangible assets, at the acquisition date. Goodwill is assessed for impairment annually in the fourth quarter or more
frequently if events or changes in circumstances indicate a potential impairment exists.
19
In assessing goodwill for impairment, the Company follows ASC 350, which permits a qualitative assessment of whether
it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill. If the
qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its
carrying value, including goodwill, then no impairment is determined to exist for the reporting unit. However, if the
qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its
carrying value, including goodwill, or the Company chooses not to perform the qualitative assessment, then the
Company compares the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative
assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the
impairment loss measured as the excess of the reporting unit’s carrying value, including goodwill, over its fair value.
The estimated fair value of the reporting unit is derived based on valuation techniques the Company believes market
participants would use for each of the reporting units.
The qualitative assessment requires judgment to be applied in evaluating the effects of multiple factors, including actual
and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions
and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting
unit is less than its carrying amount, including goodwill. In the third quarter of 2025, as a result of the qualitative
assessment, the Company determined that it was more likely than not that the estimated fair value of each of the
reporting units exceeded its respective estimated carrying value. Therefore, goodwill for each reporting unit was not
impaired and a quantitative test was not required.
Deferred financing costs
Costs incurred in connection with secured borrowings are accounted for under ASC 340, Other Assets and Deferred
Costs. Deferred costs are capitalized and amortized using the effective interest method over the respective financing term
with such amortization reflected on the Company’s consolidated statements of operations as a component of interest
expense. Secured Borrowings may include legal, accounting and other related fees. Unamortized deferred financing costs
are expensed when the associated debt is refinanced or repaid before maturity. Unamortized deferred financing costs
related to securitizations and note issuances are presented in the consolidated balance sheets as a direct deduction from
the associated liability.
Due from servicers
The loan-servicing activities of the Company’s LMM Commercial Real Estate segment are performed primarily by third-
party servicers. SBL loans originated and held by the Company are internally serviced. The Company’s servicers hold
substantially all of the cash owned by the Company related to loan servicing activities. These amounts include principal
and interest payments made by borrowers, net of advances and servicing fees. Cash is generally received within 30 days
of recording the receivable.
The Company is subject to credit risk to the extent any servicer with whom the Company conducts business is unable to
deliver cash balances or process loan-related transactions on the Company’s behalf. The Company monitors the financial
condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the
aforementioned circumstances is remote.
Secured borrowings
Secured borrowings include borrowings under credit facilities and other financing agreements and repurchase
agreements.
Borrowings under credit facilities and other financing agreements. Borrowings under credit facilities and other
financing agreements are accounted for under ASC 470, Debt (“ASC 470”). The Company partially finances its loans,
net through credit agreements and other financing agreements with various counterparties. These borrowings are
collateralized by loans, held-for-investment and loans, held for sale and have maturity dates within two years from the
consolidated balance sheet date. If the fair value (as determined by the applicable counterparty) of the collateral securing
these borrowings decreases, the Company may be subject to margin calls during the period the borrowings are
outstanding. In instances where margin calls are not satisfied within the required time frame the counterparty may retain
the collateral and pursue collection of any outstanding debt. Interest accrued in connection with credit facilities is
recorded as interest expense in the consolidated statements of operations.
20
Borrowings under repurchase agreements. Borrowings under repurchase agreements are accounted for under ASC 860.
Investment securities financed under repurchase agreements are treated as collateralized borrowings, unless they meet
sale treatment or are deemed to be linked transactions. As of the current period ended, the Company had no such
repurchase agreements that have been accounted for as components of linked transactions. All securities financed
through a repurchase agreement have remained on the Company’s consolidated balance sheets as an asset and cash
received from the lender has been recorded on the Company’s consolidated balance sheets as a liability. Interest accrued
in connection with repurchase agreements is recorded as interest expense in the consolidated statements of operations.
Paycheck Protection Program Liquidity Facility borrowings
The Paycheck Protection Program Liquidity Facility (“PPPLF”) is a government loan facility created to enable the
distribution of funds for PPP whereby the Company received advances from the Federal Reserve through the PPPLF.
The Company accounts for borrowings under the PPPLF under ASC 470. Interest accrued in connection with PPPLF is
recorded as interest expense in the consolidated statements of operations.
Securitized debt obligations of consolidated VIEs, net
The Company has engaged in several securitization transactions accounted for under ASC 810. Securitization involves
transferring assets to a special purpose entity or securitization trust, which typically qualifies as a VIE. The entity that
has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the
VIE. The consolidation of the VIE includes the VIE’s issuance of senior securities to third parties, which are shown as
securitized debt obligations of consolidated VIEs in the consolidated balance sheets.
Debt issuance costs related to securitizations are presented as a direct deduction from the carrying value of the related
debt liability. Debt issuance costs are amortized using the effective interest method and are included in interest expense
in the consolidated statements of operations.
Senior secured notes, net
The Company accounts for secured debt offerings net of issuance costs, under ASC 470. These senior secured notes are
collateralized by loans, MBS, and retained interests of consolidated VIE’s. Interest accrued in connection with senior
secured notes is recorded as interest expense in the consolidated statements of operations.
Corporate debt, net
The Company accounts for corporate debt offerings net of issuance costs, under ASC 470. Interest accrued in connection
with corporate debt is recorded as interest expense in the consolidated statements of operations.
Guaranteed loan financing
Certain partial loan sales do not meet the definition of a “participating interest” under ASC 860 and therefore, do not
qualify as a sale. Participations or other partial loan sales which do not meet the definition of a participating interest
remain as an investment in the consolidated balance sheets and the proceeds from the portion sold is recorded as
guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the
interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial
loan sale is recorded within interest expense in the accompanying consolidated statements of operations.
Contingent consideration
The Company accounts for certain liabilities recognized in relation to mergers and acquisitions as contingent
consideration whereby the fair value of this liability is dependent on certain criteria. Contingent consideration is
classified as Level 3 in the fair value hierarchy with fair value adjustments reported within other income (loss) in the
consolidated statements of operations.
Loan participations sold
The Company accounts for loan participations sold, which represents an interest in a loan receivable sold, as a liability
on the consolidated balance sheets as these arrangements do not qualify as a sale under U.S. GAAP. Such liabilities are
non-recourse and remain on the consolidated balance sheets until the loan is repaid.
21
Due to third parties
Due to third parties primarily relates to funds held by the Company to advance certain expenditures necessary to fulfill
the Company’s obligations under its existing indebtedness or to be released at the Company’s discretion upon the
occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans. While retained,
these balances earn interest in accordance with the specific loan terms with which they are associated.
Repair and denial reserve
The repair and denial reserve represents the potential liability to the SBA in the event that the Company is required to
make the SBA whole for reimbursement of the guaranteed portion of SBA loans. The Company may be responsible for
the guaranteed portion of SBA loans if there are lien and collateral issues, unauthorized use of proceeds, liquidation
deficiencies, undocumented servicing actions or denial of SBA eligibility. This reserve is calculated using an estimated
frequency of a repair and denial event upon default, as well as an estimate of the severity of the repair and denial as a
percentage of the guaranteed balance.
Variable interest entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without
additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to
make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to
absorb the expected losses, or do not have the right to receive the residual returns of the entity. The entity that is the
primary beneficiary is required to consolidate the VIE. An entity is deemed to be the primary beneficiary of a VIE if the
entity has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and
(ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the
VIE.
In determining whether the Company is the primary beneficiary of a VIE, both qualitative and quantitative factors are
considered regarding the nature, size and form of its involvement with the VIE, such as its role establishing the VIE and
ongoing rights and responsibilities, the design of the VIE, its economic interests, servicing fees and servicing
responsibilities, and other factors. The Company performs ongoing reassessments to evaluate whether changes in the
entity’s capital structure or changes in the nature of its involvement with the entity result in a change to the VIE
designation or a change to its consolidation conclusion.
Non-controlling interests
Non-controlling interests are presented on the consolidated balance sheets and the consolidated statements of operations
and represent direct investment in the operating partnership by third parties, including operating partnership units issued
to satisfy a portion of the purchase price in connection with a series of mergers (collectively, the “Mosaic Mergers”),
pursuant to which the company acquired a group of privately held, real estate structured finance opportunities funds,
with a focus on construction lending (collectively, the “Mosaic Funds”), managed by MREC Management, LLC. In
addition, the Company has non-controlling interests from investments in consolidated joint ventures whereby, net
income or loss is generally based upon relative ownership interests or contractual arrangements.
Fair value option
ASC 825, Financial Instruments (“ASC 825”) provides a fair value option election that allows entities to make an
election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and
liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.
The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an
entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance
are required to be reported separately in the consolidated balance sheets from those instruments using another accounting
method.
The Company has elected the fair value option for certain loans held-for-sale originated by the Company that it intends
to sell in the near term. The fair value elections for loans, held for sale originated by the Company were made due to the
short-term nature of these instruments. The Company additionally elected the fair value option for certain investments in
unconsolidated joint ventures due to their short-term tenor.
22
Earnings per share
Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of shares
of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from
the Company’s share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted
stock awards (“RSAs”), performance-based equity awards, as well as the dilutive impact of convertible preferred stock
and CVRs under the if-converted method and warrants under the treasury stock method. Potential dilutive shares are
excluded from the calculation if they have an anti-dilutive effect in the period.
All of the Company’s unvested RSAs, unvested RSUs granted to non-employee directors, and preferred stock contain
rights to receive non-forfeitable dividends or dividend equivalents and, thus, are participating securities. Due to the
existence of these participating securities, the two-class method of computing EPS is required, unless another method is
determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of
common stock and participating securities.
Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current
period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an
entity’s consolidated financial statements or tax returns. The Company assesses the recoverability of deferred tax assets
through evaluation of carryback availability, projected taxable income and other factors as applicable. Significant
judgment is required in assessing the future tax consequences of events that have been recognized in the consolidated
financial statements or tax returns as well as the recoverability of amounts recorded, including deferred tax assets.
The Company provides for exposure in connection with uncertain tax positions, which requires significant judgment by
management including determination, based on the weight of the tax law and available evidence, that it is more-likely-
than-not that a tax result will be realized. The Company’s policy is to recognize interest and/or penalties related to
income tax matters in income tax expense on the consolidated statements of operations. As of the date of the
consolidated balance sheets, the Company has accrued no taxes, interest or penalties related to uncertain tax positions. In
addition, changes in this position in the next 12 months are not anticipated.
Revenue recognition
Under ASC 606 Revenue Recognition (“ASC 606”), revenue is recognized upon the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. Revenue is recognized through the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
Most of the Company’s revenue streams, such as revenue associated with financial instruments, including interest
income, realized or unrealized gains on financial instruments, loan servicing fees, loan origination fees, hotel income,
among other revenue streams, follow specific revenue recognition criteria and therefore the guidance referenced above
does not have a material impact on the consolidated financial statements. In addition, revisions to existing accounting
rules regarding the determination of whether a company is acting as a principal or agent in an arrangement and
accounting for sales of nonfinancial assets where the seller has continuing involvement, did not materially impact the
Company. A further description of the revenue recognition criteria is outlined below.
Interest income. Interest income on loans, held-for-investment, loans, held at fair value, loans, held for sale, and MBS,
at fair value is accrued based on the outstanding principal amount and contractual terms of the instrument, including
loans with contractual PIK interest for which the Company has not yet collected cash. Discounts or premiums associated
with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the
effective interest method, based on contractual cash flows through the maturity date of the investment.
23
Employee retention credit consulting income. In connection with the Coronavirus Aid, Relief and Economic Security
Act, which provided numerous stimulus measures including the employee retention credit (“ERC”), the Company
provided consulting services whereby ERC requests received were processed on the client’s behalf. Income related to
ERC consulting are recorded in accordance with ASC 606 and recognized when the performance obligation has been
satisfied. In addition, the Company estimates an allowance for doubtful accounts using historical data and other relevant
factors, such as collection rate, to determine the uncollectible reserve rate. While the Company has a formal
methodology to determine the adequate and appropriate level of the allowance for doubtful accounts, estimates of losses
involve judgment and assumptions as to various factors, including current economic conditions. Accordingly, the
provision for losses will vary from period to period based on management's ongoing assessment of the adequacy of the
allowance for doubtful accounts. Employee retention credit consulting income is reported as other income and the
provision for losses is reported as other expense in the consolidated statements of operations.
Lease rental income. Revenue from real estate owned operations primarily includes lease rental income which arises
from base rent income, net of concessions, from tenant leases. Base rent is recognized on a straight-line basis over the
term of the lease and recorded as other income in the consolidated statement of operations. Such income for the three and
nine months ended September 30, 2025, was not material.
Realized gains (losses). Upon the sale or disposition (not including the prepayment of outstanding principal balance) of
loans or securities, the excess (or deficiency) of net proceeds over the net carrying value or cost basis of such loans or
securities is recognized as a realized gain (loss).
Origination income and expense. Origination income represents fees received for origination of either loans, held at fair
value, loans, held for sale, or loans, held-for-investment. For loans held, at fair value, and loans, held for sale, pursuant
to ASC 825 the Company reports origination fee income as revenue and fees charged and costs incurred as expenses.
These fees and costs are excluded from the fair value. For originated loans, held-for-investment, under ASC 310 the
Company defers these origination fees and costs at origination and amortizes them under the effective interest method
over the life of the loan. Origination fees and expenses for loans, held at fair value and loans, held for sale, are presented
in the consolidated statements of operations as components of other income and operating expenses. The amortization of
net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of
operations as a component of interest income.
Assets and liabilities held for sale
The Company classifies long-lived assets or a disposal group to be sold as held for sale in the period when all the
necessary criteria are met. The criteria includes (i) management, having the authority to approve the action, commits to a
plan to sell the asset or the disposal group (ii) the asset or disposal group is available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets (iii) an active program to locate a
buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated (iv) the sale
of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for
recognition as a completed sale within one year (v) the asset or disposal group is being actively marketed for sale at a
price that is reasonable in relation to its current fair value and (vi) actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, the
Company reports the assets and liabilities of the disposal group, if material, in the line items assets or liabilities held for
sale, respectively, on the consolidated balance sheets. A long-lived asset or disposal group that is classified as held for
sale is measured at the lower of its cost or estimated fair value less any costs to sell. The fair values of assets held for
sale are assessed each reporting period and changes in such fair values are reported as an adjustment to the carrying
value of the asset or disposal group with an offset on the consolidated statements of operations, to the extent that any
subsequent changes in fair value do not exceed the cost basis of the asset or disposal group. Any loss resulting from the
transfer of long-lived assets or disposal groups to assets held for sale is recognized in the period in which the held for
sale criteria are met.
Discontinued operations
The results of operations of long-lived assets or a disposal group that the Company has either disposed of or has
classified as held for sale is reported as discontinued operations on the consolidated statements of operations if the
24
disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial
results.
Foreign currency transactions
Assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollars using foreign currency
exchange rates prevailing at the end of the reporting period. Revenue and expenses are translated at the average
exchange rates for each reporting period. Foreign currency remeasurement gains or losses on transactions in
nonfunctional currencies are recognized in earnings. Gains or losses on translation of the financial statements of a non-
U.S. operation, when the functional currency is other than the U.S. dollar, are included, net of taxes, in the consolidated
statements of comprehensive income (loss).
Note 4. Recent Accounting Pronouncements
ASU 2025-06, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted
Improvements to the Accounting for Internal-Use Software Issued September 2025
This ASU makes targeted improvements to increase the operability of the recognition guidance considering different
methods of software development. The ASU is effective in reporting periods beginning after December 15, 2027,
including interim periods within the fiscal year, on a prospective or retrospective basis, or using a modified transition
method. Early adoption is permitted. The Company is currently assessing the impact upon adoption of this standard on
the consolidated financial statements.
ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurements of Credit Losses for Accounts
Receivable and Contract Assets Issued July 2025
This ASU provides a practical expedient related to the estimation of expected credit losses. The ASU is effective in
reporting periods beginning after December 15, 2025, including interim periods within the fiscal year, on a prospective
basis. Early adoption is permitted. The Company is currently assessing the impact upon adoption of this standard on the
consolidated financial statements.
ASU 2025-03, Compensation – Business Combinations (Topic 805) and Consolidation (Topic 810) Determining
the Accounting Acquirer in the Acquisition of a Variable Interest Entity Issued May 2025
This ASU clarifies the guidance in determining the accounting acquirer in certain transactions involving VIEs. The ASU
is effective in reporting periods beginning after December 15, 2026, including interim periods within the fiscal year, on a
prospective basis. Early adoption is permitted. The Company is currently assessing the impact upon adoption of this
standard on the consolidated financial statements.
ASU 2024-04, Compensation – Debt Conversion and Other Topics (Subtopic 470-20) Induced Conversions of
Convertible Debt Instruments Issued November 2024
This ASU clarifies the requirements for settlement of a convertible debt instrument as an induced conversion. The ASU
is effective in reporting periods beginning after December 15, 2025, including interim periods within the fiscal year, on a
prospective or retrospective basis. Early adoption is permitted. The Company is currently assessing the impact upon
adoption of this standard on the consolidated financial statements.
ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
(Subtopic 220-40) Issued November 2024
This ASU requires additional disclosure in the notes to financial statements of specified information about certain costs
and expenses. The ASU is effective in reporting periods beginning after December 15, 2026, and interim periods within
annual reporting periods beginning after December 15, 2027, on a prospective or retrospective basis. Early adoption is
permitted. The Company is currently assessing the impact upon adoption of this standard on the consolidated financial
statements.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures Issued December 2023
25
This ASU improves income tax disclosure requirements, primarily through standardization of rate reconciliation
categories and disaggregation of income taxes paid by jurisdiction. The ASU is effective in reporting periods beginning
after December 15, 2024 on a prospective or retrospective basis. Early adoption is permitted. The Company is currently
assessing the impact upon adoption of this standard on the consolidated financial statements.
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures Issued November
2023
This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about
significant segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”). This ASU
is effective in reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, on a retrospective basis. The adoption of this standard did not have an impact on the
Company's consolidated financial statements.
ASU 2023-05, Business Combinations- Joint Venture Formations (Topic 805): Recognition and Initial
Measurement Issued August 2023
This ASU applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to
initially measure all contributions received upon its formation at fair value and is applicable to joint venture entities with
a formation date on or after January 1, 2025 on a prospective basis. The adoption of this standard did not have an impact
on the Company's consolidated financial statements.
Note 5. Business Combinations
UDF IV Merger
On March 13, 2025 the Company acquired UDF IV, a real estate investment trust providing capital solutions to
residential real estate developers and regional homebuilders. Refer to Note 1 for more information about the UDF IV
Merger. The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair
values. The methodologies used, and key assumptions made, to estimate the fair value of the assets acquired and
liabilities assumed are primarily based on future cash flows and discount rates.
The table below summarizes the fair value of assets acquired and liabilities assumed from the UDF IV Merger.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Assets | |||||
Cash and cash equivalents | $16,020 | $— | $16,020 | ||
Loans, net | 158,469 | 13,848 | 172,317 | ||
Investment in unconsolidated joint ventures | 5,290 | — | 5,290 | ||
Other Assets: | |||||
Accrued interest | 1,231 | — | 1,231 | ||
Receivable from third party | 738 | — | 738 | ||
Other | 1,946 | — | 1,946 | ||
Total assets acquired | $183,694 | $13,848 | $197,542 | ||
Liabilities | |||||
Accounts payable and other accrued liabilities | 1,214 | (605) | 609 | ||
Contract liability | — | 4,529 | 4,529 | ||
Total liabilities assumed | $1,214 | $3,924 | $5,138 | ||
Net assets acquired | $182,480 | $9,924 | $192,404 |
In a business combination, the initial allocation of the purchase price is considered preliminary and therefore, is subject
to change until the end of the measurement period. The final determination must occur within one year of the merger
date. Because the measurement period for the UDF IV Merger remains open, certain fair value estimates may change
once all information necessary to make a final fair value assessment is received. The amounts presented in the table
above pertain to the preliminary purchase price allocation reported at the time of the UDF IV Merger based on
information that was available to management at the time the consolidated financial statements were prepared. The
26
preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value of the
assets acquired and liabilities assumed, which could have an impact on the consolidated financial statements. Subsequent
to the determination of the preliminary purchase price allocation, the Company recorded a measurement period
adjustment based on the updated valuations obtained by increasing net assets acquired, decreasing the consideration
transferred and increasing the bargain purchase gain related to this transaction by $10.1 million.
The table below illustrates the aggregate consideration transferred, net assets acquired, and the related bargain purchase
gain, which was primarily driven by a discount in UDF IV’s market valuation due to factors such as the illiquid nature of
UDF IV’s shares, and a change in our stock price between the date of the agreement and the closing date of the UDF IV
Merger.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Fair value of net assets acquired | $182,480 | $9,924 | $192,404 | ||
Consideration transferred based on the value of common stock issued | 64,600 | — | 64,600 | ||
Contingent consideration | 15,409 | (167) | 15,242 | ||
Total consideration transferred | $80,009 | $(167) | $79,842 | ||
Bargain purchase gain | $102,471 | $10,091 | $112,562 |
The table above includes contingent consideration in the form of CVRs valued at approximately $15.4 million or $1.21
per CVR. Subsequent to the determination of the preliminary purchase price allocation, based on updated valuations
obtained, the Company recorded a measurement period adjustment of $0.2 million to decrease the value of the CVR. As
of September 30, 2025, the updated purchase price of the CVRs was valued at approximately $15.2 million or $1.19 per
CVR. See note 7 for more information about the valuation of the CVRs.
Funding Circle Acquisition
On July 1, 2024 the Company acquired Funding Circle, an online lending platform that originates and services small
business loans. Refer to Note 1 for more information about the Funding Circle Acquisition. The purchase price was
allocated to the assets acquired and liabilities assumed based on their respective fair values. The methodologies used, and
key assumptions made, to estimate the fair value of the assets acquired and liabilities assumed are primarily based on
future cash flows and discount rates.
The table below summarizes the fair value of assets acquired and liabilities assumed from the Funding Circle
Acquisition.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Assets | |||||
Cash and cash equivalents | $29,209 | $— | $29,209 | ||
Loans, net | 8,167 | — | 8,167 | ||
Investment in unconsolidated joint ventures | 891 | — | 891 | ||
Servicing rights | 5,388 | — | 5,388 | ||
Other assets: | |||||
Deferred tax asset | 32,186 | — | 32,186 | ||
Intangible assets | 10,052 | — | 10,052 | ||
Other | 4,558 | — | 4,558 | ||
Total assets acquired | $90,451 | $— | $90,451 | ||
Liabilities | |||||
Secured borrowings | 2,022 | — | 2,022 | ||
Accounts payable and other accrued liabilities | 14,952 | — | 14,952 | ||
Total liabilities assumed | $16,974 | $— | $16,974 | ||
Net assets acquired | $73,477 | $— | $73,477 |
In a business combination, the initial allocation of the purchase price is considered preliminary and therefore, is subject
to change until the end of the measurement period. The final determination occurred within one year of the merger date.
Because the measurement period for the Funding Circle Acquisition remained open until July 1, 2025, certain fair value
estimates changed once all information necessary to make a final fair value assessment was received. The amounts
27
presented in the table above pertained to the preliminary purchase price allocation reported at the time of the Funding
Circle Acquisition based on information that was available to management at the time the consolidated financial
statements were prepared. The preliminary purchase price allocation changed as the Company completed its analysis of
the fair value of the assets acquired and liabilities assumed, which impacted the consolidated financial statements. While
the measurement period remained open, there have been no adjustments related to this transaction.
The table below illustrates the aggregate consideration transferred, net assets acquired, and the related bargain purchase
gain.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Fair value of net assets acquired | $73,477 | $— | $73,477 | ||
Consideration transferred | 41,312 | — | 41,312 | ||
Bargain purchase gain | $32,165 | $— | $32,165 |
Madison One Acquisition
On June 5, 2024 the Company acquired Madison One, a lending originator and servicer in the government guaranteed
loan industry focusing on USDA and SBA guaranteed loan products. Refer to Note 1 for more information about the
Madison One Acquisition. The purchase price was allocated to the assets acquired and liabilities assumed based on their
respective fair values. The methodologies used, and key assumptions made, to estimate the fair value of the assets
acquired and liabilities assumed are primarily based on future cash flows and discount rates.
The table below summarizes the fair value of assets acquired and liabilities assumed from the Madison One Acquisition.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Assets | |||||
Cash and cash equivalents | $83 | $— | $83 | ||
Restricted cash | 721 | (200) | 521 | ||
Servicing rights | 16,304 | 612 | 16,916 | ||
Other assets: | |||||
Intangible assets | 10,400 | 900 | 11,300 | ||
Other | 303 | — | 303 | ||
Total assets acquired | $27,811 | $1,312 | $29,123 | ||
Liabilities | |||||
Accounts payable and other accrued liabilities | 978 | 1,722 | 2,700 | ||
Total liabilities assumed | $978 | $1,722 | $2,700 | ||
Non-controlling interests | (600) | — | (600) | ||
Net assets acquired, net of non-controlling interests | $26,233 | $(410) | $25,823 |
In a business combination, the initial allocation of the purchase price is considered preliminary and therefore, is subject
to change until the end of the measurement period. The final determination occurred within one year of the merger date.
Because the measurement period for the Madison One Acquisition remained open until June 5, 2025, certain fair value
estimates changed once all information necessary to make a final fair value assessment was received. The amounts
presented in the table above pertained to the preliminary purchase price allocation reported at the time of the Madison
One Acquisition based on information that was available to management at the time the consolidated financial
statements were prepared. The preliminary purchase price allocation changed as the Company completed its analysis of
the fair value of the assets acquired and liabilities assumed, which impacts the consolidated financial statements.
Subsequent to the determination of the preliminary purchase price allocation, the Company recorded a measurement
period adjustment based on the updated valuations obtained by decreasing net assets acquired and increasing goodwill
related to this transaction by $0.4 million.
The table below illustrates the aggregate consideration transferred, net assets acquired, and the related goodwill.
28
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
Fair value of net assets acquired | $26,233 | $(410) | $25,823 | ||
Cash paid | 32,868 | — | 32,868 | ||
Contingent consideration | 3,926 | — | 3,926 | ||
Total consideration transferred | $36,794 | $— | $36,794 | ||
Goodwill | $10,561 | $410 | $10,971 |
Note 6. Loans and Allowance for Credit Losses
Loans includes (i) loans held for investment that are accounted for at amortized cost net of allowance for credit losses,
(ii) loans held at fair value under the fair value option, (iii) loans held for sale that are accounted for at the lower of cost
or fair value net of valuation allowance and (iv) loans held for sale at fair value under the fair value option. The
classification for a loan is based on product type and management’s strategy for the loan.
Loan portfolio
The table below summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by
the Company including loans of consolidated VIEs.
September 30, 2025 | December 31, 2024 | ||||||
(in thousands) | Carrying Value | UPB | Carrying Value | UPB | |||
Loans | |||||||
Bridge | $2,605,140 | $2,645,511 | $1,246,725 | $1,309,683 | |||
Fixed rate | 151,561 | 152,141 | 197,162 | 197,272 | |||
Construction | 476,279 | 604,346 | 733,276 | 874,558 | |||
Freddie Mac | 1,377 | 1,337 | — | — | |||
SBA - 7(a) | 1,039,365 | 1,091,047 | 1,043,120 | 1,075,845 | |||
Other | 86,779 | 105,894 | 157,866 | 177,155 | |||
Total Loans, net | $4,360,501 | $4,600,276 | $3,378,149 | $3,634,513 | |||
Loans in consolidated VIEs | |||||||
Bridge | 1,057,164 | 1,059,878 | 3,854,982 | 3,970,084 | |||
Fixed rate | 577,404 | 579,726 | 685,505 | 688,347 | |||
SBA - 7(a) | 145,445 | 154,425 | 178,498 | 189,737 | |||
Other | 176,470 | 176,907 | 211,076 | 212,020 | |||
Total Loans, net, in consolidated VIEs | $1,956,483 | $1,970,936 | $4,930,061 | $5,060,188 | |||
Loans, held for sale | |||||||
Bridge | 1,696 | 44,400 | 58,703 | 134,065 | |||
Fixed rate | — | — | 2,750 | 6,056 | |||
Construction | 18,277 | 29,427 | 54,392 | 77,487 | |||
Freddie Mac | 18,947 | 18,752 | 36,248 | 35,931 | |||
SBA - 7(a) | 115,903 | 108,574 | 87,825 | 81,524 | |||
Other | 8,969 | 8,440 | 1,708 | 1,817 | |||
Total Loans, held for sale | $163,792 | $209,593 | $241,626 | $336,880 | |||
Total | $6,480,776 | $6,780,805 | $8,549,836 | $9,031,581 | |||
In the table above, 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.
Loan vintage and credit quality indicators
The Company monitors the credit quality of its loan portfolio based on primary credit quality indicators, such as
delinquency rates. Loans that are 30 days or more past due, provide an indication of the borrower’s capacity and
willingness to meet its financial obligations.
29
The tables below summarize the classification, UPB, carrying value and gross write-offs of loans by year of origination.
Carrying Value by Year of Origination | |||||||||||||||
(in thousands) | UPB | 2025 | 2024 | 2023 | 2022 | 2021 | Pre 2021 | Total | |||||||
September 30, 2025 | |||||||||||||||
Bridge | $3,705,389 | $— | $296,572 | $196,360 | $1,417,367 | $1,619,122 | $132,883 | $3,662,304 | |||||||
Fixed rate | 731,867 | — | — | — | 93,743 | 176,541 | 458,681 | 728,965 | |||||||
Construction | 604,346 | 20,016 | 48,984 | 26,940 | 196,638 | 36,413 | 147,288 | 476,279 | |||||||
Freddie Mac | 1,337 | — | — | — | 1,377 | — | — | 1,377 | |||||||
SBA - 7(a) | 1,245,472 | 172,987 | 214,214 | 127,817 | 273,002 | 169,978 | 226,812 | 1,184,810 | |||||||
Other | 282,801 | 17,629 | 14,374 | 2,777 | 4,214 | 451 | 223,804 | 263,249 | |||||||
Total Loans, net | $6,571,212 | $210,632 | $574,144 | $353,894 | $1,986,341 | $2,002,505 | $1,189,468 | $6,316,984 | |||||||
Gross write-offs | $— | $507 | $1,216 | $989 | $707 | $159,830 | $163,249 | ||||||||
UPB | 2024 | 2023 | 2022 | 2021 | 2020 | Pre 2020 | Total | ||||||||
December 31, 2024 | |||||||||||||||
Bridge | $5,279,767 | $321,439 | $244,283 | $2,083,723 | $2,270,504 | $105,279 | $76,479 | $5,101,707 | |||||||
Fixed rate | 885,619 | — | — | 109,733 | 180,209 | 86,013 | 506,712 | 882,667 | |||||||
Construction | 874,558 | 9,233 | 26,925 | 162,309 | 83,287 | 144 | 451,378 | 733,276 | |||||||
SBA - 7(a) | 1,265,582 | 235,374 | 138,670 | 322,007 | 237,105 | 94,730 | 193,732 | 1,221,618 | |||||||
Other | 389,175 | 14,769 | 2,881 | 4,225 | 685 | 9,205 | 337,177 | 368,942 | |||||||
Total Loans, net | $8,694,701 | $580,815 | $412,759 | $2,681,997 | $2,771,790 | $295,371 | $1,565,478 | $8,308,210 | |||||||
Gross write-offs | $28 | $1,440 | $1,710 | $3,022 | $617 | $7,776 | $14,593 | ||||||||
The tables below present delinquency information on loans, net by year of origination.
Carrying Value by Year of Origination | |||||||||||||||
(in thousands) | UPB | 2025 | 2024 | 2023 | 2022 | 2021 | Pre 2021 | Total | |||||||
September 30, 2025 | |||||||||||||||
Current | $5,900,289 | $209,686 | $567,582 | $322,153 | $1,636,525 | $1,818,311 | $1,143,691 | $5,697,948 | |||||||
30 - 59 days past due | 165,989 | — | 357 | — | 119,696 | 36,888 | 8,605 | 165,546 | |||||||
60+ days past due | 504,934 | 946 | 6,205 | 31,741 | 230,120 | 147,306 | 37,172 | 453,490 | |||||||
Total Loans, net | $6,571,212 | $210,632 | $574,144 | $353,894 | $1,986,341 | $2,002,505 | $1,189,468 | $6,316,984 | |||||||
UPB | 2024 | 2023 | 2022 | 2021 | 2020 | Pre 2020 | Total | ||||||||
December 31, 2024 | |||||||||||||||
Current | $8,094,859 | $575,781 | $392,201 | $2,488,252 | $2,566,736 | $289,352 | $1,475,325 | $7,787,647 | |||||||
30 - 59 days past due | 148,612 | 3,666 | 1,676 | 92,516 | 26,385 | 734 | 6,311 | 131,288 | |||||||
60+ days past due | 451,230 | 1,368 | 18,882 | 101,229 | 178,669 | 5,285 | 83,842 | 389,275 | |||||||
Total Loans, net | $8,694,701 | $580,815 | $412,759 | $2,681,997 | $2,771,790 | $295,371 | $1,565,478 | $8,308,210 | |||||||
The table below presents delinquency information on loans, net by portfolio.
(in thousands) | Current | 30 - 59 days past due | 60+ days past due | Total | Non-Accrual Loans | 90+ days past due and Accruing | |||||
September 30, 2025 | |||||||||||
Bridge | $3,158,486 | $156,066 | $347,752 | $3,662,304 | $293,846 | $102,949 | |||||
Fixed rate | 704,442 | 3,301 | 21,222 | 728,965 | 21,222 | — | |||||
Construction | 453,171 | — | 23,108 | 476,279 | 37,998 | 15,378 | |||||
Freddie Mac | — | — | 1,377 | 1,377 | 1,377 | — | |||||
SBA - 7(a) | 1,139,206 | 1,073 | 44,531 | 1,184,810 | 84,660 | 12 | |||||
Other | 242,643 | 5,106 | 15,500 | 263,249 | 12,680 | 578 | |||||
Total Loans, net | $5,697,948 | $165,546 | $453,490 | $6,316,984 | $451,783 | $118,917 | |||||
Percentage of loans outstanding | 90.2% | 2.6% | 7.2% | 100% | 7.2% | 1.9% | |||||
December 31, 2024 | |||||||||||
Bridge | $4,732,393 | $93,078 | $276,236 | $5,101,707 | $366,890 | $88,396 | |||||
Fixed rate | 840,951 | 8,421 | 33,295 | 882,667 | 33,295 | — | |||||
Construction | 691,655 | — | 41,621 | 733,276 | 60,018 | — | |||||
SBA - 7(a) | 1,160,844 | 27,124 | 33,650 | 1,221,618 | 64,687 | — | |||||
Other | 361,804 | 2,665 | 4,473 | 368,942 | 1,871 | 973 | |||||
Total Loans, net | $7,787,647 | $131,288 | $389,275 | $8,308,210 | $526,761 | $89,369 | |||||
Percentage of loans outstanding | 93.7% | 1.6% | 4.7% | 100% | 6.3% | 1.1% |
In addition to delinquency rates, the current estimated LTV ratio, geographic distribution of the loan collateral and
collateral concentration are primary credit quality indicators that provide insight into a borrower’s capacity and
30
willingness to meet its financial obligation. High LTV loans tend to have higher delinquency rates than loans where the
borrower has equity in the collateral. The geographic distribution of the loan collateral considers factors such as the
regional economy, property price changes and specific events such as natural disasters, which will affect credit quality.
The collateral concentration of the loan portfolio considers economic factors or events may have a more pronounced
impact on certain sectors or property types.
The table below presents quantitative information on the credit quality of loans, net.
LTV(1) | |||||||||||||
(in thousands) | 0.0 – 20.0% | 20.1 – 40.0% | 40.1 – 60.0% | 60.1 – 80.0% | 80.1 – 100.0% | Greater than 100.0% | Total | ||||||
September 30, 2025 | |||||||||||||
Bridge | $1,463 | $17,193 | $373,850 | $2,307,306 | $608,918 | $353,574 | $3,662,304 | ||||||
Fixed rate | 92 | 23,942 | 301,584 | 386,001 | 17,346 | — | 728,965 | ||||||
Construction | 4,164 | 17,194 | 100,224 | 221,121 | 77,181 | 56,395 | 476,279 | ||||||
Freddie Mac | — | — | — | 1,377 | — | — | 1,377 | ||||||
SBA - 7(a) | 13,920 | 62,366 | 155,999 | 319,904 | 183,128 | 449,493 | 1,184,810 | ||||||
Other | 68,902 | 79,224 | 66,537 | 36,038 | 9,314 | 3,234 | 263,249 | ||||||
Total Loans, net | $88,541 | $199,919 | $998,194 | $3,271,747 | $895,887 | $862,696 | $6,316,984 | ||||||
Percentage of loans outstanding | 1.4% | 3.2% | 15.8% | 51.7% | 14.2% | 13.7% | 100.0% | ||||||
December 31, 2024 | |||||||||||||
Bridge | $— | $103,364 | $553,768 | $3,230,535 | $471,137 | $742,903 | $5,101,707 | ||||||
Fixed rate | 1,348 | 29,799 | 379,043 | 446,246 | 26,231 | — | 882,667 | ||||||
Construction | 27,973 | 4,725 | 90,615 | 160,507 | 17,892 | 431,564 | 733,276 | ||||||
SBA - 7(a) | 14,222 | 65,279 | 184,965 | 354,891 | 219,371 | 382,890 | 1,221,618 | ||||||
Other | 105,417 | 116,848 | 61,974 | 62,662 | 16,661 | 5,380 | 368,942 | ||||||
Total Loans, net | $148,960 | $320,015 | $1,270,365 | $4,254,841 | $751,292 | $1,562,737 | $8,308,210 | ||||||
Percentage of loans outstanding | 1.8% | 3.9% | 15.3% | 51.2% | 9.0% | 18.8% | 100.0% | ||||||
(1)LTV is calculated by dividing the current UPB by the most recent collateral value received. The most recent value for performing loans is often the third-party as-is
valuation utilized during the original underwriting process.
The table below presents the geographic concentration of loans, net, secured by real estate.
Geographic Concentration (% of UPB) | September 30, 2025 | December 31, 2024 | |
Texas | 25.2% | 19.3% | |
California | 11.8 | 10.8 | |
Florida | 9.1 | 7.9 | |
Arizona | 7.9 | 7.7 | |
Georgia | 7.3 | 6.7 | |
New York | 3.4 | 4.8 | |
Washington | 3.2 | 3.1 | |
Ohio | 2.5 | 2.5 | |
Illinois | 2.1 | 3.1 | |
North Carolina | 1.9 | 4.0 | |
Other | 25.6 | 30.1 | |
Total | 100.0% | 100.0% |
The table below presents the collateral type concentration of loans, net.
Collateral Concentration (% of UPB) | September 30, 2025 | December 31, 2024 | |
Multi-family | 57.5% | 60.1% | |
SBA | 19.0 | 14.6 | |
Industrial | 5.5 | 4.8 | |
Land | 4.7 | 1.0 | |
Retail | 4.0 | 4.1 | |
Office | 3.5 | 3.2 | |
Mixed Use | 2.6 | 9.5 | |
Other | 3.2 | 2.7 | |
Total | 100.0% | 100.0% |
31
The table below presents the collateral type concentration of SBA loans within loans, net.
Collateral Concentration (% of UPB) | September 30, 2025 | December 31, 2024 | |
Lodging | 19.1% | 20.9% | |
Gasoline Service Stations | 9.9 | 12.0 | |
Eating Places | 6.0 | 6.5 | |
Child Day Care Services | 5.7 | 5.7 | |
Offices of Physicians | 3.1 | 3.7 | |
General Freight Trucking, Local | 2.7 | 3.0 | |
Grocery Stores | 2.4 | 2.3 | |
Car Washes | 1.5 | 1.1 | |
Assisted Living Facilities for the Elderly | 1.0 | 1.0 | |
Coin-Operated Laundries and Drycleaners | 0.9 | 1.4 | |
Other | 47.7 | 42.4 | |
Total | 100.0% | 100.0% |
Allowance for credit losses
The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at
amortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators,
including probable and historical losses, collateral values, LTV ratios, and economic conditions.
The table below presents the allowance for loan losses by loan product and impairment methodology.
(in thousands) | Bridge | Fixed rate | Construction | SBA - 7(a) | Other | Total | |||||
September 30, 2025 | |||||||||||
General | $17,025 | $2,517 | $807 | $29,275 | $1,474 | $51,098 | |||||
Specific | 23,759 | 1,586 | 14,958 | 8,601 | 262 | 49,166 | |||||
PCD | — | — | 68,786 | — | — | 68,786 | |||||
Ending balance | $40,784 | $4,103 | $84,551 | $37,876 | $1,736 | $169,050 | |||||
December 31, 2024 | |||||||||||
General | $126,471 | $3,156 | $493 | $18,825 | $1,523 | $150,468 | |||||
Specific | 43,974 | 1,958 | 137,812 | 3,262 | 631 | 187,637 | |||||
PCD | — | — | 1,834 | — | — | 1,834 | |||||
Ending balance | $170,445 | $5,114 | $140,139 | $22,087 | $2,154 | $339,939 |
32
The table below presents a summary of the changes in the allowance for loan losses.
(in thousands) | Bridge | Fixed rate | Construction | SBA - 7(a) | Other | Total |
Three Months Ended September 30, 2025 | ||||||
Beginning balance | $40,710 | $5,115 | $150,137 | $33,335 | $3,282 | $232,579 |
Provision for (recoveries of) loan losses | 300 | (498) | 31,536 | 6,942 | 315 | 38,595 |
Measurement period adjustment | — | — | 43,107 | — | — | 43,107 |
Time value of money adjustment | — | — | 6,319 | — | — | 6,319 |
Charge-offs and sales | (226) | (514) | (146,548) | (2,590) | (1,861) | (151,739) |
Recoveries | — | — | — | 189 | — | 189 |
Ending balance | $40,784 | $4,103 | $84,551 | $37,876 | $1,736 | $169,050 |
Three Months Ended September 30, 2024 | ||||||
Beginning balance | $14,398 | $6,480 | $7,910 | $13,566 | $2,478 | $44,832 |
Provision for (recoveries of) loan losses | 8,438 | (186) | 41,253 | 3,680 | (575) | 52,610 |
Charge-offs and sales | — | — | — | (724) | — | (724) |
Recoveries | — | — | — | 524 | — | 524 |
Ending balance | $22,836 | $6,294 | $49,163 | $17,046 | $1,903 | $97,242 |
Nine Months Ended September 30, 2025 | ||||||
Beginning balance | $170,445 | $5,114 | $140,139 | $22,087 | $2,154 | $339,939 |
Provision for (recoveries of) loan losses | (129,435) | 1,305 | 41,192 | 18,442 | 1,443 | (67,053) |
PCD(1) | — | — | 52,535 | — | — | 52,535 |
Time value of money adjustment | — | — | 6,319 | — | — | 6,319 |
Charge-offs and sales | (226) | (2,316) | (155,634) | (3,212) | (1,861) | (163,249) |
Recoveries | — | — | — | 559 | — | 559 |
Ending balance | $40,784 | $4,103 | $84,551 | $37,876 | $1,736 | $169,050 |
Nine Months Ended September 30, 2024 | ||||||
Beginning balance | $36,241 | $13,598 | $30,870 | $17,867 | $3,029 | $101,605 |
Provisions for (recoveries of) loan losses | (13,405) | (4,675) | 23,038 | 3,434 | (1,060) | 7,332 |
Charge-offs and sales | — | (2,629) | (4,745) | (4,983) | (66) | (12,423) |
Recoveries | — | — | — | 728 | — | 728 |
Ending balance | $22,836 | $6,294 | $49,163 | $17,046 | $1,903 | $97,242 |
(1)Includes the impact of a measurement period adjustment related to the UDF IV Merger. Refer to Note 5 for further details on assets acquired and liabilities assumed in
connection with the UDF Merger.
The table above excludes $1.8 million and $1.1 million of allowance for loan losses on unfunded lending commitments
as of September 30, 2025 and September 30, 2024, respectively. Refer to Note 3 – Summary of Significant Accounting
Policies for more information on accounting policies, methodologies and judgment applied to determine the allowance
for loan losses and lending commitments.
Non-accrual loans
A loan is placed on nonaccrual status when it is probable that principal and interest will not be collected under the
original contractual terms. At that time, interest income is no longer accrued.
The table below presents information on non-accrual loans.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Non-accrual loans | |||
With an allowance | $433,980 | $509,752 | |
Without an allowance | 17,803 | 17,009 | |
Total carrying value of non-accrual loans | $451,783 | $526,761 | |
Allowance for loan losses related to non-accrual loans | $(47,841) | $(125,218) | |
UPB of non-accrual loans | $503,808 | $654,526 | |
September 30, 2025 | September 30, 2024 | ||
Interest income on non-accrual loans for the three months ended | $2,510 | $1,066 | |
Interest income on non-accrual loans for the nine months ended | $13,009 | $6,245 |
33
Loan modifications made to borrowers experiencing financial difficulty
In certain situations, the Company may provide loan modifications to borrowers experiencing financial difficulty. These
modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than-insignificant
payment delays intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of
collateral.
Three months ended September 30, 2025. During the three months ended September 30, 2025, the Company entered into
50 loan modifications with an aggregate carrying value of $491.6 million, or 7.8% of total loans, net. These modified
loans include a combination of changes to the contractual terms which were in the form of interest rate reductions, term
extensions and other-than-insignificant payment delays.
There were 6 loans with an aggregate carrying value of $187.2 million, or 2.9% of loans, net that were modified to
include term extensions which ranged between 2 and 120 months with a weighted average of 5 months added to the
original loan term. Included within these modifications was 1 SBA loan with a carrying value of $0.7 million with a 120
month term extension, which is included in the range mentioned above. There were 34 loans with an aggregate carrying
value of $135.7 million, or 2.2% of loans, net that were modified to include interest payment deferrals which ranged
between 5 and 26 months with a weighted average of 8 months and include payments for periods before the modification
date. There were 7 loans with an aggregate carrying value of $79.6 million, or 1.3% of loans, net that were modified to
include both term extensions and interest payment deferrals. The term extensions ranged between 2 and 60 months with
a weighted average of 11 months added to the original loan term. Interest payment deferrals ranged between 2 and 25
months with a weighted average of 11 months. Payment modifications include the reduction of interest payments to
equal excess net operating income with the difference between the original rate and the interest collected due at maturity.
In most cases, default interest is waived. There was 1 loan with a carrying value of $71.0 million, or 1.1% of loans, net
that was modified to include both a 4 month term extension added to the original loan term and an interest rate reduction
from SOFR + 5.50% to SOFR + 4.00% from July 2025 to June 2026. There was 1 loan with a carrying value of $18.0
million, or 0.3% of loans, net that was assumed by a new borrower with a 23 month term extension added to the original
loan term and a 10 month interest payment deferral. There was 1 loan with a carrying value of $0.1 million, or less than
0.1% of loans, net that was modified to include both a 7 month interest payment deferral and an interest rate reduction
from a fixed rate of 10.25% to a fixed rate of 6.0% from June 2025 to October 2026.
During the three months ended September 30, 2025, $2.8 million of total capital was invested by the borrowers,
substantially all in the form of payments in contribution to interest reserve accounts and equity in the projects.
Nine months ended September 30, 2025. During the nine months ended September 30, 2025, the Company entered into
104 loan modifications with an aggregate carrying value of $857.2 million, or 13.6% of total loans, net. These modified
loans include a combination of changes to the contractual terms which were in the form of interest rate reductions, term
extensions and other-than-insignificant payment delays.
There were 18 loans with an aggregate carrying value of $267.2 million, or 4.3% of loans, net, that were modified to
include term extensions which ranged between 2 and 120 months with a weighted average of 10 months added to the
original loan term. Included within these modifications was 1 SBA loan with a carrying value of $0.7 million with a 120
month term extension, which is included in the range mentioned above. There were 60 loans with an aggregate carrying
value of $149.2 million, or 2.4% of loans, net that were modified to include interest payment deferrals which ranged
between 3 and 28 months with a weighted average of 8 months and include payments for periods before the modification
date. There were 16 loans with an aggregate carrying value of $121.2 million, or 1.9% of loans, net that were modified to
include both term extensions and interest payment deferrals. The term extensions ranged between 3 and 60 months with
a weighted average of 14 months added to the original loan term. Interest payment deferrals ranged between 6 and 25
months with a weighted average of 14 months. Payment modifications include the reduction of interest payments to
equal excess net operating income with the difference between the original rate and the interest collected due at maturity.
In most cases, default interest is waived. There were 2 loans with an aggregate carrying value of $99.8 million, or 1.6%
of loans, net that were modified to include both term extensions which ranged between 4 and 24 months with a weighted
average of 10 months added to the original loan term and interest rate reductions which range between SOFR + 5.50% to
SOFR + 4.00% from May 2025 to October 2027. There were 3 loans with an aggregate carrying value of $81.8 million,
or 1.3% of loans, net that were assumed by new borrowers and modified to include both term extensions and interest
payment deferrals. The term extensions ranged between 19 and 32 months with a weighted average of 25 months added
34
to the original loan term. Interest payment deferrals ranged between 10 and 24 months with a weighted average of 16
months. There were 2 loans with an aggregate carrying value of $78.2 million, or 1.2% of loans, net that were assumed
by new borrowers and modified to include term extensions. The term extensions ranged between 18 and 35 months with
a weighted average of 28 months added to the original loan term. There were 2 loans with an aggregate carrying value of
$34.4 million, or 0.5% of loans, net that were modified to include both interest payment deferrals which ranged between
7 and 26 months with a weighted average of 26 months and interest rate reductions which range between a fixed rate of
10.25% to a fixed rate of 6.0% from June 2024 to September 2027. There was 1 loan with a carrying value of $25.4
million, or 0.4% of loans, net that was modified to include an 12 month term extension added to the original loan term, a
7 month interest payment deferral, and an interest rate reduction from SOFR + 5.75% to SOFR + 3.50% from June 2025
to March 2026.
During the nine months ended September 30, 2025, $13.4 million of total capital was invested by the borrowers,
substantially all in the form of payments in contribution to various reserve accounts.
Three months ended September 30, 2024. During the three months ended September 30, 2024, the Company entered into
9 loan modifications with an aggregate carrying value of $224.4 million, or 2.5% of total loans, net. These modified
loans include a combination of changes to the contractual terms which were in the form of term extensions, other-than-
insignificant payment delays, and interest reductions.
There was 1 loan with a carrying value of $93.3 million, or 1.0% of loans, net that was modified to include an interest
payment deferral of 7 months and includes payments for periods before the modification date. There were 7 loans with
an aggregate carrying value of $68.8 million, or 0.8% of loans, net, that were modified to include both term extensions
and interest payment deferrals. The term extension ranged between 2 and 125 months with a weighted average of 11
months added to the original loan term. Included within these modifications was 1 SBA loan with a carrying value of
less than $0.1 million with a 125 month term extension, which is included in the range mentioned above. Interest
payment deferrals ranged between 6 and 28 months with a weighted average of 15 months and include payments for
periods before the modification date. Payment modifications include the reduction of interest payments to equal excess
net operating income with the difference between the original rate and the interest collected due at maturity. In most
cases, cash management accounts are set up for the loans and default interest is waived. There was 1 loan with a carrying
value of $62.3 million, or 0.7% of loans, net that was modified to include an 18 month term extension, a 22 month
interest payment deferral and an interest rate reduction from SOFR + 3.30% to SOFR + 0.50% from October 2024 to
August 2025 and to SOFR + 1.00% from September 2025 to August 2026.
During the three months ended September 30, 2024, $2.5 million of total capital was invested by the borrowers,
substantially all in the form of payments in contribution to interest reserve accounts.
Nine months ended September 30, 2024. During the nine months ended September 30, 2024, the Company entered into
32 loan modifications with an aggregate carrying value of $772.3 million, or 8.5% of total loans, net. These modified
loans include a combination of changes to the contractual terms which were in the form of term extensions, other-than-
insignificant payment delays, and interest reductions.
There were 20 loans with an aggregate carrying value of $425.6 million, or 4.7% of loans, net that were modified to
include both term extensions and interest payment deferrals. The term extensions ranged between 2 and 125 months with
a weighted average of 12 months added to the original loan term. Included within these modifications was 1 SBA loan
with a carrying value of less than $0.1 million with a 125 month term extension, which is included in the range
mentioned above. Interest payment deferrals ranged between 6 and 32 months with a weighted average of 14 months and
include payments for periods before the modification date. Payment modifications include the reduction of interest
payments to equal excess net operating income with the difference between the original rate and the interest collected
due at maturity. In most cases, cash management accounts are set up for the loans and default interest is waived. There
were 4 loans with an aggregate carrying value of $151.8 million, or 1.7% of loans, net that were modified to include
interest payment deferrals which ranged between 7 and 28 months with a weighted average of 11 months and include
payments for periods before the modification date. Payment modifications include the reduction of interest payments to
equal excess net operating income with the difference between the original rate and the interest collected due at maturity.
In most cases, cash management accounts are set up for the loans and default interest is waived. There was 1 loan with a
carrying value of $74.3 million, or 0.8% of loans, net that was modified to include both an 18 month term extension
35
added to the original loan term and an interest rate reduction from SOFR + 3.25% to a fixed rate of 6.0% from June 2024
to December 2024 and 6.5% from January 2025 to July 2025. There was 1 loan with a carrying value of $62.3 million, or
0.7% of loans, net that was modified to include an 18 month term extension added to the original loan term, a 22 month
interest payment deferral, and an interest rate reduction from SOFR + 3.30% to SOFR + 0.50% from October 2024 to
August 2025 and to SOFR + 1.00% from September 2025 to August 2026. There were 6 loans with an aggregate
carrying value of $58.3 million, or 0.6% of loans, net that were modified to include term extensions which ranged
between 10 and 24 months with a weighted average of 17 months added to the original loan term.
During the nine months ended September 30, 2024, $9.7 million of total capital was invested by the borrowers,
substantially all in the form of payment towards past due interest, principal or contribution to various reserve accounts.
The remaining elements of the Company’s modification programs are generally considered insignificant and do not have
a material impact on financial results.
Allowance for loan losses. The Company’s allowance for loan losses reflects estimates of expected life-time loan losses,
which considers historical loan losses including losses from modified loans to borrowers experiencing financial
difficulty. The Company continues to estimate the allowance for loan losses after modification using loan-specific
inputs. Majority of the modified loans during the three and nine months ended September 30, 2025 and September 30,
2024, respectively, were on accrual status and performing in accordance with the modified contractual terms.
Loans with modifications disclosed in the previous twelve months are performing in accordance with their modified
terms as of September 30, 2025, except for 30 loans with a carrying value of $32.4 million which did not make payments
in accordance with their modified terms during the three months ended September 30, 2025.
On loans for which the Company determines foreclosure of the collateral is probable, expected losses are measured
based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the
measurement date. As of September 30, 2025 and December 31, 2024, the Company’s total carrying amount of loans in
the foreclosure process was $31.3 million and $8.4 million, respectively.
Lending commitments. For the three and nine months ended September 30, 2025, lending commitments to borrowers
experiencing financial difficulty for which the Company has modified the loan terms were $10.9 million and $37.9
million, respectively. For the three and nine months ended September 30, 2024, lending commitments to borrowers
experiencing financial difficulty for which the Company has modified the loan terms were not material and $22.7
million, respectively.
PCD loans
On March 13, 2025, the Company acquired PCD loans in connection with the UDF IV Merger. Subsequent to the
determination of the preliminary purchase price allocation, based on updated valuations obtained, the Company recorded
a measurement period adjustment of $36.3 million to increase the PCD allowance. Refer to Note 5 for further details on
assets acquired and liabilities assumed in connection with the UDF IV Merger. The table below presents a reconciliation
of the Company’s purchase price with the par value of the purchased loans.
(in thousands) | Preliminary Purchase Price Allocation | Measurement Period Adjustments | Updated Purchase Price Allocation | ||
UPB | $200,729 | $(37,205) | $163,524 | ||
Allowance for credit losses | (16,626) | (36,291) | (52,917) | ||
Non-credit discount | (87,141) | 51,469 | (35,672) | ||
Purchase price of loans classified as PCD | $96,962 | $(22,027) | $74,935 |
The Company did not acquire any PCD loans during the three months ended September 30, 2025 or September 30, 2024.
Note 7. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. U.S. GAAP has a three-level hierarchy that prioritizes and ranks
the level of market price observability used in measuring financial instruments at fair value. Market price observability is
36
impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the
state of the marketplace (including the existence and transparency of transactions between market participants). The
Company’s valuation techniques for financial instruments use observable and unobservable inputs. Investments with
readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an
orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in
measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Investments measured and reported at fair value are classified and disclosed into one of the following categories:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the
ability to access.
Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for
similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates,
yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated
inputs.
Level 3 — One or more pricing inputs is significant to the overall valuation and unobservable. Significant unobservable
inputs are based on the best information available in the circumstances, to the extent observable inputs are not available,
including the Company’s own assumptions used in determining the fair value of financial instruments. Fair value for
these investments is determined using valuation methodologies that consider a range of factors including, but not limited
to, the price at which the investment was acquired, the nature of the investment, local market conditions, trading values
on public exchanges for comparable securities, current and projected operating performance, and financing transactions
subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant
management judgment.
Valuation techniques of Level 3 investments vary by instrument type, but are generally based on an income, market or
cost-based approach. The income approach predominantly considers discounted cash flows which is the measure of
expected future cash flows in a default scenario, implied by the value of the underlying collateral, where applicable, and
current performance whereas the market-based approach predominantly considers pull-through rates, industry multiples
and the UPB. Fair value measurements of loans are sensitive to changes in assumptions regarding prepayments,
probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or
developments in the real estate market.
Contingent consideration primarily consists of CVRs issued pursuant to the UDF IV Merger. Pursuant to the Contingent
Value Rights Agreement, dated as of March 13, 2025, by and among the Company and Computershare Inc. and its
affiliate Computershare Trust Company, N.A., on the issuance date following the end of each CVR accrual period, the
Company will issue to the CVR holders, with respect to each CVR, a number of shares of Company common stock equal
to 60% of any cash proceeds received between October 1, 2024 and December 31, 2028 from select loans in excess of
the outstanding amounts of such loans and net of certain costs, divided by the Company’s tangible book value per share,
with cash being paid in lieu of any fractional shares of Company common stock otherwise due to such holder. In
addition, each CVR holder will be entitled to receive (i) an amount in cash equal to the amount of any dividends or other
distributions paid with respect to the number of whole shares of Company common stock received by such holder in
respect of such holder’s CVRs and having a record date on or after the Effective Time and a payment date prior to the
issuance date of such shares of Company common stock (the “Catch-up Dividend Amount”) or (ii) a number of shares of
Company common stock equal to (A) the Catch-up Dividend Amount, divided by (B) the most recently publicly reported
tangible book value per share of Company common stock immediately preceding the issuance date of such shares of
Company common stock and (y) the amount of any dividends or other distributions payable with respect to such shares
of Company common stock and having a record date prior to the issuance date of such Company common stock and a
payment date on or after the relevant issuance date of such Company common stock. The fair value of the contingent
consideration in connection with the UDF IV Merger was determined using a discounted cash flow model which is based
on Level 3 inputs, including estimates of future cash proceeds generated from the underlying collateral of such loans and
discount rate. Fair value measurements of the contingent consideration liability are sensitive to changes in assumptions
related to future cash proceeds and discount rate.
37
As of September 30, 2025, the CVRs associated with the closing of the UDF IV Merger were valued at approximately
$17.9 million or $1.40 per CVR.
In addition, the fair value of certain contingent consideration in connection with mergers and acquisitions was
determined using a Monte Carlo simulation model which considers various potential results based on Level 3 inputs,
including management’s latest estimates of future operating results. Fair value measurements of the contingent
consideration liability are sensitive to changes in assumptions related to earnings before tax, discount rate and risk-free
rate of return.
The final purchase price allocation associated with the closing of the Mosaic Mergers valued the contingent equity rights
at approximately $25.0 million or $0.83 per contingent equity right. On March 17, 2025, the contingent equity rights
expired with an aggregate consideration of zero.
In certain cases, the inputs used to measure fair value may be categorized into different levels of the fair value hierarchy.
In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to the investment.
The table below presents financial instruments carried at fair value on a recurring basis.
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||
September 30, 2025 | |||||||
Assets: | |||||||
Money market funds (1) | $143,601 | $— | $— | $143,601 | |||
Loans, net | — | — | 1,088 | 1,088 | |||
Loans, held for sale | — | 143,819 | — | 143,819 | |||
PPP loans (2) | — | 326 | — | 326 | |||
MBS | — | 33,105 | — | 33,105 | |||
Derivative instruments | — | 5,295 | — | 5,295 | |||
Investment in unconsolidated joint ventures | — | — | 5,952 | 5,952 | |||
Preferred equity investment (3) | — | — | 90,532 | 90,532 | |||
Total assets | $143,601 | $182,545 | $97,572 | $423,718 | |||
Liabilities: | |||||||
Derivative instruments | — | 1,627 | — | 1,627 | |||
Contingent consideration | — | — | 18,385 | 18,385 | |||
Total liabilities | $— | $1,627 | $18,385 | $20,012 | |||
December 31, 2024 | |||||||
Assets: | |||||||
Money market funds (1) | $86,637 | $— | $— | $86,637 | |||
Loans, net | — | — | 3,533 | 3,533 | |||
Loans, held for sale | — | 125,781 | 2,750 | 128,531 | |||
PPP loans (2) | — | 1,340 | — | 1,340 | |||
MBS | — | 31,006 | — | 31,006 | |||
Derivative instruments | — | 7,963 | — | 7,963 | |||
Investment in unconsolidated joint ventures | — | — | 6,577 | 6,577 | |||
Preferred equity investment (3) | — | — | 92,810 | 92,810 | |||
Total assets | $86,637 | $166,090 | $105,670 | $358,397 | |||
Liabilities: | |||||||
Derivative instruments | — | 352 | — | 352 | |||
Contingent consideration | — | — | 573 | 573 | |||
Total liabilities | $— | $352 | $573 | $925 |
(1) Money market funds are included in cash and cash equivalents on the consolidated balance sheets
(2) PPP loans are included in other assets on the consolidated balance sheets
(3) Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIEs on the consolidated balance sheets
The table below presents the valuation techniques and significant unobservable inputs used to value Level 3 financial
instruments, using third party information without adjustment.
38
(in thousands) | Fair Value | Predominant Valuation Technique (1) | Type | Range | Weighted Average | ||||
September 30, 2025 | |||||||||
Assets: | |||||||||
Investment in unconsolidated joint ventures | $5,952 | Income Approach | Discount rate | 9.0% | 9.0% | ||||
Preferred equity investment | 90,532 | Income Approach | Discount rate | 12.0% | 12.0% | ||||
Total assets | $96,484 | ||||||||
Liabilities: | |||||||||
Contingent consideration- Madison One | $491 | Monte Carlo Simulation Model | Net income volatility | Risk- adjusted discount rate | 64.0% | 51.0% | 64.0% | 51.0% | ||||
Contingent consideration - UDF | 17,894 | Distributable Cash Flow Approach | Discount factor | 17.5% | 17.5% | ||||
Total liabilities | $18,385 | ||||||||
December 31, 2024 | |||||||||
Assets: | |||||||||
Investment in unconsolidated joint ventures | $6,577 | Income Approach | Discount rate | 9.0% | 9.0% | ||||
Preferred equity investment | 92,810 | Income Approach | Discount rate | 12.0% | 12.0% | ||||
Total assets | $99,387 | ||||||||
Liabilities: | |||||||||
Contingent consideration- Madison One | $573 | Monte Carlo Simulation Model | Net income volatility | Risk- adjusted discount rate | 66.0% | 44.3% | 66.0% | 44.3% | ||||
Total liabilities | $573 |
(1) Prices are weighted based on the UPB of the loans and securities included in the range for each class.
Included within Level 3 assets of $97.6 million as of September 30, 2025 and $105.7 million as of December 31, 2024,
is $1.1 million and $6.3 million, respectively, of transaction prices in which quantitative unobservable inputs are not
developed by the Company when measuring fair value.
39
The table below presents a summary of changes in fair value for Level 3 assets and liabilities.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Assets: | |||||||
Loans, net | |||||||
Beginning balance | $1,263 | $— | $3,533 | $9,348 | |||
Sales / Principal payments | (81) | — | (1,070) | — | |||
Unrealized gains (losses), net | (94) | — | (1,375) | 680 | |||
Mergers and acquisitions (2) | — | 4,851 | — | 4,851 | |||
Transfer to (from) Level 3 | — | — | — | (10,028) | |||
Ending balance | $1,088 | $4,851 | $1,088 | $4,851 | |||
Loans, held for sale | |||||||
Beginning balance | — | 9,145 | 2,750 | — | |||
Sales / Principal payments | — | (4,009) | — | (4,009) | |||
Unrealized gains (losses), net | — | (75) | 10 | (75) | |||
Transfer to (from) Level 3 | — | — | (2,760) | 9,145 | |||
Ending balance | $— | $5,061 | $— | $5,061 | |||
Investment in unconsolidated joint ventures | |||||||
Beginning balance | 6,163 | 6,974 | 6,577 | 7,360 | |||
Unrealized gains (losses), net | (211) | (197) | (625) | (583) | |||
Ending balance | $5,952 | $6,777 | $5,952 | $6,777 | |||
Preferred equity investment (1) | |||||||
Beginning balance | 88,583 | 108,423 | 92,810 | 108,423 | |||
Unrealized gains (losses), net | 1,949 | — | (2,278) | — | |||
Ending balance | $90,532 | $108,423 | $90,532 | $108,423 | |||
Total assets | |||||||
Beginning balance | 96,009 | 124,542 | 105,670 | 125,131 | |||
Sales / Principal payments | (81) | (4,009) | (1,070) | (4,009) | |||
Unrealized gains (losses), net | 1,644 | (272) | (4,268) | 22 | |||
Mergers and acquisitions (2) | — | 4,851 | — | 4,851 | |||
Transfer to (from) Level 3 | — | — | (2,760) | (883) | |||
Ending balance | $97,572 | $125,112 | $97,572 | $125,112 | |||
Liabilities: | |||||||
Contingent consideration | |||||||
Beginning balance | 17,189 | 3,926 | 573 | 7,628 | |||
Realized (gains) losses, net | — | — | — | (7,628) | |||
Unrealized (gains) losses, net | 1,196 | (1,919) | 2,403 | (1,919) | |||
Mergers and acquisitions (2) | — | — | 15,409 | 3,926 | |||
Ending balance | $18,385 | $2,007 | $18,385 | $2,007 | |||
(1)Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIE's on the consolidated balance sheets.
(2)Includes assets acquired and liabilities assumed as a result of the UDF IV Merger in 2025 and the Madison One Acquisition in 2024. Refer to Note 5 for further details on
assets acquired and liabilities assumed in connection with the UDF IV Merger and Madison One Acquisition.
The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of
the change in circumstances that caused the transfer. Transfers between Level 2 and Level 3 generally relate to whether
there were changes in the significant relevant observable and unobservable inputs that are available for the fair value
measurements of such financial instruments.
Financial instruments not carried at fair value
The table below presents the carrying value and estimated fair value of financial instruments that are not carried at fair
value and are classified as Level 3.
40
September 30, 2025 | December 31, 2024 | ||||||
(in thousands) | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||
Assets: | |||||||
Loans, net | $6,315,896 | $6,143,561 | $8,304,677 | $8,426,700 | |||
Loans, held for sale | 19,973 | 19,973 | 113,095 | 113,095 | |||
Servicing rights | 126,966 | 144,449 | 128,440 | 141,513 | |||
Total assets | $6,462,835 | $6,307,983 | $8,546,212 | $8,681,308 | |||
Liabilities: | |||||||
Secured borrowings | 2,879,172 | 2,879,172 | 2,035,176 | 2,035,176 | |||
Securitized debt obligations of consolidated VIEs, net | 1,293,778 | 1,265,857 | 3,580,513 | 3,532,765 | |||
Senior secured notes, net | 721,151 | 704,561 | 437,847 | 421,427 | |||
Guaranteed loan financing | 565,883 | 594,326 | 691,118 | 724,747 | |||
Corporate debt, net | 666,624 | 637,781 | 895,265 | 865,380 | |||
Total liabilities | $6,126,608 | $6,081,697 | $7,639,919 | $7,579,495 | |||
As of both September 30, 2025 and December 31, 2024, other assets and accounts payable and accrued liabilities are not
carried at fair value but generally approximate fair value. Further details are presented in Note 18 – Other Assets and
Other Liabilities.
Note 8. Servicing Rights
The Company performs servicing activities for third parties, which primarily include collecting principal, interest and
other payments from borrowers, remitting the corresponding payments to investors and monitoring delinquencies. The
Company’s servicing fees are specified by pooling and servicing agreements.
The table below presents information about servicing rights at amortized cost.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
SBA | |||||||
Beginning net carrying amount | $39,193 | $35,327 | $39,227 | $29,536 | |||
Additions | 2,534 | 4,892 | 9,626 | 13,165 | |||
Amortization | (1,623) | (1,522) | (5,203) | (3,482) | |||
Recovery (impairment) | 339 | 20 | (3,207) | (502) | |||
Ending net carrying amount | $40,443 | $38,717 | $40,443 | $38,717 | |||
Multi-family | |||||||
Beginning net carrying amount | 64,627 | 70,222 | 67,996 | 73,301 | |||
Additions | 681 | 2,003 | 3,367 | 4,623 | |||
Amortization | (3,046) | (2,927) | (9,101) | (8,626) | |||
Ending net carrying amount | $62,262 | $69,298 | $62,262 | $69,298 | |||
USDA | |||||||
Beginning net carrying amount | 16,404 | 14,219 | 16,465 | — | |||
Additions | 3,506 | 1,336 | 6,615 | 15,749 | |||
Amortization | (732) | (572) | (2,064) | (766) | |||
Recovery (impairment) | 1,371 | — | (467) | — | |||
Ending net carrying amount | $20,549 | $14,983 | $20,549 | $14,983 | |||
Small business loans | |||||||
Beginning net carrying amount | 4,059 | — | 4,752 | — | |||
Additions | 476 | 5,831 | 1,600 | 5,831 | |||
Amortization | (728) | (840) | (2,279) | (840) | |||
Impairment | (95) | — | (361) | — | |||
Ending net carrying amount | $3,712 | $4,991 | $3,712 | $4,991 | |||
Total servicing rights | $126,966 | $127,989 | $126,966 | $127,989 | |||
The Company’s servicing rights are carried at amortized cost and evaluated quarterly for impairment. The Company
estimates the fair value of these servicing rights by using a combination of internal models and data provided by third-
party valuation experts. The assumptions used in the Company’s internal models include forward prepayment rates,
forward default rates, discount rates, and servicing expenses.
41
The Company’s models calculate the present value of expected future cash flows utilizing assumptions that it believes
are used by market participants. Forward prepayment rates, forward default rates and discount rates are derived from
historical experiences adjusted for prevailing market conditions. Components of the estimated future cash flows include
servicing fees, late fees, other ancillary fees and cost of servicing.
The table below presents additional information about servicing rights at amortized cost.
As of September 30, 2025 | As of December 31, 2024 | ||||||
(in thousands) | UPB | Carrying Value | UPB | Carrying Value | |||
SBA | $1,900,425 | $40,443 | $1,779,233 | $39,227 | |||
Multi-family | 6,347,352 | 62,262 | 6,160,486 | 67,996 | |||
USDA | 685,496 | 20,549 | 599,362 | 16,465 | |||
Small business loans | 438,532 | 3,712 | 494,609 | 4,752 | |||
Total | $9,371,805 | $126,966 | $9,033,690 | $128,440 | |||
The table below presents significant assumptions used in the estimated valuation of servicing rights at amortized cost.
September 30, 2025 | December 31, 2024 | ||||||||||
Range of input values | Weighted Average | Range of input values | Weighted Average | ||||||||
SBA | |||||||||||
Forward prepayment rate | 4.4% | - | 21.7% | 10.1% | 9.9% | - | 21.6% | 10.6% | |||
Forward default rate | 0.0% | - | 4.0% | 1.3% | 0.0% | - | 6.8% | 6.6% | |||
Discount rate | 10.0% | - | 19.0% | 11.8% | 11.9% | - | 21.8% | 12.2% | |||
Servicing expense | 0.4% | - | 0.4% | 0.4% | 0.4% | - | 0.4% | 0.4% | |||
Multi-family | |||||||||||
Forward prepayment rate | 0.0% | - | 7.3% | 7.0% | 0.0% | - | 7.3% | 6.7% | |||
Forward default rate | 0.0% | - | 1.0% | 0.1% | 0.0% | - | 1.0% | 0.6% | |||
Discount rate | 5.2% | - | 5.2% | 5.2% | 5.5% | - | 6.0% | 5.8% | |||
Servicing expense | 0.0% | - | 0.8% | 0.1% | 0.0% | - | 0.8% | 0.1% | |||
USDA | |||||||||||
Forward prepayment rate | 5.2% | - | 16.3% | 11.7% | 12.2% | - | 12.2% | 12.2% | |||
Discount rate | 4.5% | - | 6.0% | 5.6% | 4.9% | - | 5.2% | 5.1% | |||
Servicing expense | 0.1% | - | 0.3% | 0.2% | 0.1% | - | 0.3% | 0.2% | |||
Small business loans | |||||||||||
Discount rate | 6.0% | - | 6.0% | 6.0% | 6.0% | - | 6.0% | 6.0% | |||
Servicing expense | 0.5% | - | 0.5% | 0.5% | 0.5% | - | 0.5% | 0.5% | |||
Assumptions can change between and at each reporting period as market conditions and projected interest rates change.
42
The table below presents the possible impact of 10% and 20% adverse changes to key assumptions on servicing rights.
(in thousands) | September 30, 2025 | December 31, 2024 | |
SBA | |||
Forward prepayment rate | |||
Impact of 10% adverse change | $(1,248) | $(1,273) | |
Impact of 20% adverse change | $(2,426) | $(2,473) | |
Forward default rate | |||
Impact of 10% adverse change | $(204) | $(192) | |
Impact of 20% adverse change | $(407) | $(382) | |
Discount rate | |||
Impact of 10% adverse change | $(1,329) | $(1,349) | |
Impact of 20% adverse change | $(2,571) | $(2,605) | |
Servicing expense | |||
Impact of 10% adverse change | $(2,668) | $(2,545) | |
Impact of 20% adverse change | $(5,336) | $(5,091) | |
Multi-family | |||
Forward prepayment rate | |||
Impact of 10% adverse change | $(483) | $(530) | |
Impact of 20% adverse change | $(950) | $(1,041) | |
Forward default rate | |||
Impact of 10% adverse change | $(13) | $(14) | |
Impact of 20% adverse change | $(25) | $(28) | |
Discount rate | |||
Impact of 10% adverse change | $(1,878) | $(2,132) | |
Impact of 20% adverse change | $(3,677) | $(4,161) | |
Servicing expense | |||
Impact of 10% adverse change | $(2,483) | $(2,519) | |
Impact of 20% adverse change | $(4,972) | $(5,037) | |
USDA | |||
Forward prepayment rate | |||
Impact of 10% adverse change | $(1,090) | $(958) | |
Impact of 20% adverse change | $(2,085) | $(1,829) | |
Discount rate | |||
Impact of 10% adverse change | $(526) | $(399) | |
Impact of 20% adverse change | $(1,028) | $(782) | |
Servicing expense | |||
Impact of 10% adverse change | $(804) | $(681) | |
Impact of 20% adverse change | $(1,609) | $(1,362) | |
Small business loans | |||
Discount rate | |||
Impact of 10% adverse change | $(19) | $(28) | |
Impact of 20% adverse change | $(37) | $(58) | |
Servicing expense | |||
Impact of 10% adverse change | $(290) | $(300) | |
Impact of 20% adverse change | $(579) | $(600) |
The table below presents estimated future amortization expense for servicing rights.
(in thousands) | September 30, 2025 |
2025 | $6,194 |
2026 | 22,245 |
2027 | 18,768 |
2028 | 15,727 |
2029 | 13,759 |
Thereafter | 50,273 |
Total | $126,966 |
Note 9. Discontinued Operations and Assets and Liabilities Held for Sale
In the fourth quarter of 2023, the Board approved a plan to strategically shift the Company’s core focus to LMM
commercial real estate lending and small business loans, which contemplates the disposition of assets and liabilities of
the Company’s Residential Mortgage Banking segment. Accordingly, the then Residential Mortgage Banking segment
met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations
43
on the consolidated statements of operations, and excluded from continuing operations for all periods presented. In the
second and fourth quarters of 2024, the Company sold $4.7 billion and $2.9 billion of residential mortgage servicing
rights for net proceeds of $61.8 million and $47.4 million, respectively, as part of the Company’s disposition of its
Residential Mortgage Banking segment. In the first quarter of 2025, the Company sold $4.2 billion of residential
mortgage servicing rights for net proceeds of $9.8 million. The Company completed the disposition of its Residential
Mortgage Banking segment effective on June 30, 2025 through the sale of all of the issued and outstanding equity of
GMFS, LLC. The aggregate consideration consists of approximately $3.5 million paid at closing, as adjusted for closing
and other costs related to the disposition and subject to customary post-closing adjustments, plus certain deferred
payments related to the sale of MSRs and an earnout opportunity not to exceed $5.5 million in the approximately 30
months after closing based on the performance of the sold business.
The table below presents the assets and liabilities of the Residential Mortgage Banking segment classified as held for
sale.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Assets | |||
Cash and cash equivalents | $— | $24,328 | |
Restricted cash | — | 5,464 | |
Loans, net | — | 222 | |
Loans, held for sale | — | 158,152 | |
Loans eligible for repurchase from Ginnie Mae | — | 14,107 | |
Servicing rights(1) | — | 55,582 | |
Other assets | — | 29,740 | |
Total Assets | $— | $287,595 | |
Liabilities | |||
Secured borrowings | $— | $190,333 | |
Liabilities for loans eligible for repurchase from Ginnie Mae | — | 14,107 | |
Derivative instruments | — | 1,443 | |
Accounts payable and other accrued liabilities | — | 22,852 | |
Total Liabilities | $— | $228,735 |
(1)Servicing rights are Level 3 assets that had been measured at fair value using the income approach valuation technique. Refer to Note 7- Fair value measurements for
further details.
44
The table below presents the operating results of the Residential Mortgage Banking segment presented as discontinued
operations.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Interest income | $— | $2,716 | $4,693 | $6,678 | |||
Interest expense | — | (3,010) | (4,515) | (8,295) | |||
Net interest income (expense) | $— | $(294) | $178 | $(1,617) | |||
Non-interest income | |||||||
Residential mortgage banking activities | (556) | 14,897 | 20,399 | 35,492 | |||
Net realized gain (loss) on financial instruments | — | — | 9,832 | 2,938 | |||
Net unrealized gain (loss) on financial instruments | — | — | (8,952) | (7,219) | |||
Servicing income, net of amortization and impairment | — | 6,274 | 1,776 | 24,162 | |||
Other income | — | 4 | 8 | 12 | |||
Total non-interest income | $(556) | $21,175 | $23,063 | $55,385 | |||
Non-interest expense | |||||||
Employee compensation and benefits | (38) | (5,122) | (6,391) | (16,624) | |||
Variable expenses on residential mortgage banking activities | — | (11,318) | (13,599) | (25,526) | |||
Professional fees | (3) | (748) | (827) | (1,160) | |||
Loan servicing expense | — | (1,541) | (3,702) | (6,282) | |||
Other operating expenses | (13) | (1,894) | (3,483) | (5,730) | |||
Total non-interest expense | $(54) | $(20,623) | $(28,002) | $(55,322) | |||
Income (loss) from discontinued operations before income tax benefit (provision) | (610) | 258 | (4,761) | (1,554) | |||
Income (loss) from disposal of discontinued operations before income tax benefit (provision) | 890 | — | (2,120) | — | |||
Net income (loss) from discontinued operations before income tax benefit (provision) | $280 | $258 | $(6,881) | $(1,554) | |||
Income tax benefit (provision) | (70) | (64) | 1,720 | 389 | |||
Net income (loss) from discontinued operations | $210 | $194 | $(5,161) | $(1,165) | |||
Note 10. Secured Borrowings
The table below presents certain characteristics of secured borrowings.
Pledged Assets | Carrying Value at | |||||||||
Lenders (1) | Asset Class | Current Maturity (2) | Pricing (3) | Facility Size | Carrying Value | September 30, 2025 | December 31, 2024 | |||
3 | SBA loans | November 2025 - June 2027 | SOFR + 2.84% Prime - 0.82% | $335,000 | $417,510 | $334,045 | $250,601 | |||
1 | LMM loans - USD | February 2026 | SOFR + 1.35% | 80,000 | 18,947 | 18,752 | 35,931 | |||
1 | LMM loans - Non-USD (4) | January 2027 | EURIBOR + 3.00% | 58,742 | 40,194 | 30,040 | 30,513 | |||
2 | USDA loans | June 2027 - August 2028 | SOFR + 2.78% | 148,500 | 25,712 | 35,382 | — | |||
Total borrowings under credit facilities and other financing agreements | $622,242 | $502,363 | $418,219 | $317,045 | ||||||
9 | LMM loans | October 2025 - September 2028 | SOFR + 2.79% | 4,735,000 | 3,490,291 | 2,325,766 | 1,482,085 | |||
5 | MBS | October 2025 - January 2026 | 5.92% | 135,187 | 253,610 | 135,187 | 236,046 | |||
Total borrowings under repurchase agreements | $4,870,187 | $3,743,901 | $2,460,953 | $1,718,131 | ||||||
Total secured borrowings | $5,492,429 | $4,246,264 | $2,879,172 | $2,035,176 | ||||||
(1)Represents the total number of facility lenders.
(2)Current maturity does not reflect extension options available beyond original commitment terms.
(3)Asset class pricing is determined using an index rate plus a weighted average spread.
(4)Non-USD denominated credit facilities and repurchase agreements have been converted into USD for purposes of this disclosure.
In the table above, the agreements governing secured borrowings require maintenance of certain financial and debt
covenants. As of both September 30, 2025 and December 31, 2024, certain financing counterparties covenants
calculations were amended to exclude the PPPLF from certain covenant calculations. As of both September 30, 2025 and
December 31, 2024 the Company was in compliance with all debt and financial covenants.
45
The table below presents the carrying value of collateral pledged with respect to secured borrowings outstanding.
Pledged Assets Carrying Value | |||
(in thousands) | September 30, 2025 | December 31, 2024 | |
Collateral pledged - borrowings under credit facilities and other financing agreements | |||
Loans, held for sale | $30,473 | $36,249 | |
Loans, net | 471,890 | 351,443 | |
Total | $502,363 | $387,692 | |
Collateral pledged - borrowings under repurchase agreements | |||
Loans, net | 2,919,334 | 2,036,311 | |
MBS | 33,105 | 21,729 | |
Retained interest in assets of consolidated VIEs | 220,505 | 436,617 | |
Loans, held for sale | — | 81,708 | |
Real estate acquired in settlement of loans | 570,957 | 127,828 | |
Total | $3,743,901 | $2,704,193 | |
Total collateral pledged on secured borrowings | $4,246,264 | $3,091,885 | |
Note 11. Senior Secured Notes and Corporate Debt, net
Senior secured notes, net
ReadyCap Holdings, LLC (“ReadyCap Holdings”) 4.50% senior secured notes due 2026. On October 20, 2021,
ReadyCap Holdings, an indirect subsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50%
Senior Secured Notes due 2026 (the “2026 Senior Secured Notes”). The 2026 Senior Secured Notes are fully and
unconditionally guaranteed by the Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect
subsidiaries of the Company from time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise
pledges collateral to secure the 2026 Senior Secured Notes (collectively, the “2026 SSN Guarantors”).
ReadyCap Holdings’ and the 2026 SSN Guarantors’ respective obligations under the 2026 Senior Secured Notes are
secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2026 SSN Collateral”)
owned by certain subsidiaries of the Company.
The 2026 Senior Secured Notes are redeemable by ReadyCap Holdings’ following a non-call period, through the
payment of the outstanding principal balance of the 2026 Senior Secured Notes plus a “make-whole” or other premium
that decreases the closer the 2026 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to
repurchase the 2026 Senior Secured Notes at 101% of the principal balance of the 2026 Senior Secured Notes in the
event of a change in control and a downgrade of the rating on the 2026 Senior Secured Notes in connection therewith, as
set forth more fully in the note purchase agreement.
The 2026 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary
negative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2026 SSN
Guarantors, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio
and limitations on transactions with affiliates.
ReadyCap Holdings 9.375% senior secured notes due 2028. On February 21, 2025, ReadyCap Holdings completed the
offer and sale of $220.0 million of its 9.375% Senior Secured Notes due 2028 (the “2028 Senior Secured Notes” and,
with the 2026 Senior Secured Notes, collectively, the “Senior Secured Notes”) for net proceeds of $216.7 million before
expenses. The 2028 Senior Secured Notes are fully and unconditionally guaranteed by the Company and other direct or
indirect subsidiaries of the Company from time to time that pledge collateral to secure the 2028 Senior Secured Notes
(collectively, the “2028 SSN Guarantors”).
ReadyCap Holdings’ and the 2028 SSN Guarantors’ respective obligations under the 2028 Senior Secured Notes are
secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2028 SSN Collateral”)
owned by certain subsidiaries of the Company.
The 2028 Senior Secured Notes are redeemable by ReadyCap Holdings following a non-call period, through the
payment of the outstanding principal balance of the 2028 Senior Secured Notes plus a “make-whole” or other premium
that decreases the closer the 2028 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to
46
repurchase the 2028 Senior Secured Notes at 101% of the principal balance of the 2028 Senior Secured Notes in the
event of a change in control and a downgrade of the rating on the 2028 Senior Secured Notes in connection therewith, as
set forth more fully in the note purchase agreement.
The 2028 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary
negative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2028 SSN
Guarantors, including maintenance of minimum tangible net worth, maximum debt to net worth ratio and limitations on
transactions with affiliates.
On April 16, 2025, ReadyCap Holdings issued an additional $50.0 million in aggregate principal amount of its 2028
Senior Secured Notes for net proceeds of $49.3 million before expenses. The additional notes are fungible with and
treated as a single series of debt securities as the Company’s 2028 Senior Secured Notes issued on February 21, 2025.
The Company used the net proceeds from the issuance of the additional notes to repay its indebtedness and for general
corporate purposes.
Ready Term Holdings, LLC (“Ready Term Holdings”) term loan due 2029. On April 12, 2024, Ready Term Holdings,
an indirect subsidiary of the Company, entered into a credit agreement which provides for a delayed draw term loan to
the Company in an aggregate principal amount not to exceed $115.25 million (the “Term Loan”). The Term Loan is fully
and unconditionally guaranteed by the Company and other direct or indirect subsidiaries of the Company from time to
time that pledge collateral to secure the Term Loan (collectively, the “Term Loan Guarantors”).
Ready Term Holdings’ and the Term Loan Guarantors’ respective obligations under the Term Loan are secured by a
perfected first-priority lien on certain capital stock and assets (collectively, the “Term Loan Collateral”) owned by
certain subsidiaries of the Company.
The Term Loan matures on April 12, 2029, and may be drawn at any time on or prior to January 12, 2025, subject to the
satisfaction of customary conditions. The Company borrowed $75.0 million in connection with the initial closing of the
Term Loan. On August 19, 2024, the Company borrowed an additional $20.0 million. The Term Loan bears interest on
the outstanding principal amount thereof at a rate equal to (a) SOFR plus 5.50% per annum or (b) base rate plus 4.50%
per annum; provided that if at any time the Term Loan is rated below investment grade, the interest rate shall increase to
(x) SOFR plus 6.50% per annum or (y) base rate plus 5.50% per annum until the rating is no longer below investment
grade. In connection with the entry into the credit agreement, the Company also agreed to pay certain upfront fees on the
initial borrowing date. The Company will also pay, with respect to any unused portion of the Term Loan, a commitment
fee of 1.00% per annum.
The Term Loan was issued pursuant to a credit agreement, which contains certain customary representations and
warranties and affirmative and negative covenants and requirements relating to the collateral and the Company, Ready
Term Holdings, and the Term Loan Guarantors, including maintenance of a minimum asset coverage ratio.
As of September 30, 2025, the Company was in compliance with all covenants with respect to the Senior Secured Notes
and the Term Loan.
Corporate debt, net
The Company issues senior unsecured notes in public and private transactions. The notes are governed by a base
indenture and supplemental indentures. Often, the notes are redeemable by us following a non-call period, through the
payment of the outstanding principal balance plus a “make-whole” or other premium that typically decreases the closer
the notes are to maturity. The Company often is required to offer to repurchase the notes, in some cases at 101% of the
principal balance of the notes, in the event of a change in control or fundamental change pertaining to our company, as
defined in the applicable supplemental indentures. The notes rank equal in right of payment to any of its existing and
future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its existing and future
secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all
existing and future indebtedness, other liabilities (including trade payables) and (to the extent not held by us) preferred
stock, if any, of our subsidiaries. The supplemental indentures governing the notes often contain customary negative
covenants and financial covenants relating to maintenance of minimum liquidity, minimum tangible net worth,
maximum debt to net worth ratio and limitations on transactions with affiliates.
47
In addition, in connection with the merger among the Company, Broadmark Realty Capital Inc. (“Broadmark”), and
RCC Merger Sub, LLC, a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), in which
Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of
the operating partnership (the “Broadmark Merger”), RCC Merger Sub assumed Broadmark’s obligations on certain
senior unsecured notes. The note purchase agreement governing these notes contains financial covenants that require
compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other
customary affirmative and negative covenants.
As of September 30, 2025, the Company was in compliance with all covenants with respect to its Corporate debt.
The Debt ATM Agreement
On May 20, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.
Riley Securities, Inc. (the “Agent”), pursuant to which it may offer and sell, from time to time, up to $100.0 million of
the Company’s 6.20% Senior Notes due 2026 and 5.75% Senior Notes due 2026. Sales of such notes pursuant to the
Sales Agreement, if any, may be made in transactions that are deemed to be “at the market offerings” as defined in Rule
415 under the Securities Act (the “Debt ATM Program”). The Agent is not required to sell any specific number of the
notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and
sales practices on mutually agreed terms between the Agent and the Company. No such sales through the Debt ATM
Program were made during the three and nine months ended September 30, 2025 or September 30, 2024, respectively.
The table below presents information about senior secured notes and corporate debt issued through public and private
transactions.
(in thousands) | Coupon Rate | Maturity Date | September 30, 2025 | ||
Senior secured notes principal amount(1) | 4.50% | 10/20/2026 | $350,000 | ||
Senior secured notes principal amount(2) | 9.375% | 3/1/2028 | 270,000 | ||
Term loan principal amount(3) | SOFR + 5.50% | 4/12/2029 | 115,250 | ||
Unamortized discount | (2,031) | ||||
Unamortized deferred financing costs | (12,068) | ||||
Total senior secured notes, net | $721,151 | ||||
Corporate debt principal amount(4) | 5.50% | 12/30/2028 | 110,000 | ||
Corporate debt principal amount(5) | 6.20% | 7/30/2026 | 67,437 | ||
Corporate debt principal amount(5) | 5.75% | 2/15/2026 | 131,852 | ||
Corporate debt principal amount(6) | 7.375% | 7/31/2027 | 100,000 | ||
Corporate debt principal amount(7) | 5.00% | 11/15/2026 | 100,000 | ||
Corporate debt principal amount(8) | 9.00% | 12/15/2029 | 129,371 | ||
Unamortized discount - corporate debt | (5,896) | ||||
Unamortized deferred financing costs - corporate debt | (2,390) | ||||
Junior subordinated notes principal amount(9) | SOFR + 3.10% | 3/30/2035 | 15,000 | ||
Junior subordinated notes principal amount(10) | SOFR + 3.10% | 4/30/2035 | 21,250 | ||
Total corporate debt, net | $666,624 | ||||
Total carrying amount of debt | $1,387,775 |
(1)Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.
(2)Interest on the senior secured notes is payable semiannually on March 1 and September 1 of each year.
(3)Interest on the term loan is payable quarterly on January 12, April 12, July 12 and October 12 of each year.
(4)Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year.
(5)Interest on the corporate debt is payable quarterly on January 30, April 30, July 30, and October 30 of each year.
(6)Interest on the corporate debt is payable semiannually on January 31 and July 31 of each year.
(7)Interest on the corporate debt is payable semiannually on May 15 and November 15 of each year; assumed as part of the Broadmark Merger (as defined above).
(8)Interest on the corporate debt is payable quarterly on March 15, June 15, September 15, and December 15 of each year.
(9) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year.
(10) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year.
48
The table below presents the contractual maturities for senior secured notes and corporate debt.
(in thousands) | September 30, 2025 |
2025 | $— |
2026 | 649,289 |
2027 | 100,000 |
2028 | 380,000 |
2029 | 244,621 |
Thereafter | 36,250 |
Total contractual amounts | $1,410,160 |
Unamortized deferred financing costs, discounts, and premiums, net | (22,385) |
Total carrying amount of debt | $1,387,775 |
Note 12. Guaranteed Loan Financing
Participations or other partial loan sales which do not meet the definition of a participating interest remain as an
investment in the consolidated balance sheets and the portion sold is recorded as guaranteed loan financing in the
liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan
balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within
interest expense in the accompanying consolidated statements of operations. Guaranteed loan financings are secured by
loans of $566.1 million and $691.0 million as of September 30, 2025 and December 31, 2024, respectively.
The table below presents guaranteed loan financing and the related interest rates and maturity dates.
(in thousands) | Weighted Average Interest Rate | Range of Interest Rates | Range of Maturities (Years) | Ending Balance | |||
September 30, 2025 | 8.36% | 1.45-9.50% | 2025-2048 | $565,883 | |||
December 31, 2024 | 8.69% | 1.45-10.00% | 2025-2048 | $691,118 |
The table below presents the contractual maturities of guaranteed loan financing.
(in thousands) | September 30, 2025 |
2025 | $21 |
2026 | 515 |
2027 | 3,475 |
2028 | 5,371 |
2029 | 9,248 |
Thereafter | 547,253 |
Total | $565,883 |
Note 13. Variable Interest Entities and Securitization Activities
In the normal course of business, the Company enters into certain types of transactions with entities that are considered
to be VIEs. The Company’s primary involvement with VIEs has been related to its securitization transactions in which it
transfers assets to securitization vehicles, most notably trusts. The Company primarily securitizes its acquired and
originated loans, which provides a source of funding and has enabled it to transfer a certain portion of economic risk on
loans or related debt securities to third parties. The Company also transfers originated loans to securitization trusts
sponsored by third parties, most notably Freddie Mac. Third-party securitizations are securitization entities in which it
maintains an economic interest but does not sponsor. The entity that has a controlling financial interest in a VIE is
referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIE activity in which
the Company is involved in are consolidated within its financial statements. Refer to Note 3 – Summary of Significant
Accounting Policies for a discussion of accounting policies applied to the consolidation of the VIE and transfer of the
loans in connection with the securitization.
Consolidated VIEs
The Company consolidates variable interests held in an acquired joint venture investment for which it is the primary
beneficiary. The equity held by the remaining owners and their portions of net income (loss) are reflected in
stockholders’ equity on the consolidated balance sheets as Non-controlling interests and in the consolidated statements of
49
operations as Net income attributable to noncontrolling interests, respectively. As of September 30, 2025 and
December 31, 2024, income and expenses on joint venture investments identified as consolidated VIEs were not
material.
The table below presents assets and liabilities of consolidated VIEs.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Assets: | |||
Cash and cash equivalents | $9 | $— | |
Restricted cash | 2,490 | 8,411 | |
Loans, net | 1,956,483 | 4,930,061 | |
Loans, held for sale | — | — | |
Preferred equity investment (1) | 90,532 | 92,810 | |
Receivable from third parties (1) | 15,721 | — | |
Accrued interest (1) | 85,582 | 140,607 | |
Real estate owned | 15,288 | 1,583 | |
Other assets | — | 1,823 | |
Total assets | $2,166,105 | $5,175,295 | |
Liabilities: | |||
Securitized debt obligations of consolidated VIEs, net | 1,293,778 | 3,580,513 | |
Due to third parties (2) | 2,521 | 4,116 | |
Accounts payable and other accrued liabilities | — | 93 | |
Total liabilities | $1,296,299 | $3,584,722 |
(1)Assets are included in Assets of consolidated VIEs on the consolidated balance sheets.
(2)Due to third parties held through consolidated VIEs are included in Accounts payable and other accrued liabilities on the consolidated balance sheets.
Securitization-related VIEs
Company sponsored securitizations. In a securitization transaction, assets are transferred to a trust, which generally
meets the definition of a VIE. The Company’s primary securitization activity is in the form of LMM and SBL loan
securitizations, conducted through securitization trusts, which are typically consolidated, as the company is the primary
beneficiary.
As a result of the consolidation, the securitization is viewed as a loan financing to enable the creation of the senior
security and ultimately, sale to a third-party investor. As such, the senior security is presented in the consolidated balance
sheets as securitized debt obligations of consolidated VIEs. The third-party beneficial interest holders in the VIE have no
recourse against the Company, with the exception of an obligation to repurchase assets from the VIE in the event that
certain representations and warranties in relation to the loans sold to the VIE are breached. In the absence of such a
breach, the Company has no obligation to provide any other explicit or implicit support to any VIE.
The securitization trust receives principal and interest on the underlying loans and distributes those payments to the
certificate holders. The assets and other instruments held by the securitization trust are restricted in that they can only be
used to fulfill the obligations of the securitization trust. The risks associated with the Company’s involvement with the
VIE is limited to the risks and rights as a certificate holder of the securities retained by the Company.
The consolidation of securitization transactions includes the senior securities issued to third parties which are shown as
securitized debt obligations of consolidated VIEs in the consolidated balance sheets.
50
The table below presents additional information on the Company’s securitized debt obligations.
September 30, 2025 | December 31, 2024 | ||||||||||
(in thousands) | Current Principal Balance | Carrying Value | Weighted Average Interest Rate | Current Principal Balance | Carrying Value | Weighted Average Interest Rate | |||||
ReadyCap Lending Small Business Trust 2019-2 | $8,402 | $8,402 | 7.0% | $18,189 | $18,189 | 7.9% | |||||
ReadyCap Lending Small Business Trust 2023-3 | 75,091 | 73,960 | 7.6 | 101,004 | 99,390 | 8.4 | |||||
Sutherland Commercial Mortgage Trust 2019-SBC8 | 77,691 | 76,623 | 2.9 | 89,496 | 88,231 | 2.9 | |||||
Sutherland Commercial Mortgage Trust 2021-SBC10 | 50,366 | 49,684 | 1.7 | 60,816 | 59,907 | 1.6 | |||||
ReadyCap Commercial Mortgage Trust 2016-3 | 2,501 | 2,485 | 5.4 | 6,401 | 6,289 | 5.3 | |||||
ReadyCap Commercial Mortgage Trust 2018-4 | 43,393 | 42,476 | 4.8 | 46,980 | 45,707 | 4.6 | |||||
ReadyCap Commercial Mortgage Trust 2019-5 | 42,805 | 39,671 | 5.1 | 68,125 | 64,209 | 5.0 | |||||
ReadyCap Commercial Mortgage Trust 2019-6 | 136,770 | 134,329 | 3.6 | 168,946 | 165,943 | 3.5 | |||||
ReadyCap Commercial Mortgage Trust 2022-7 | 174,223 | 169,767 | 4.1 | 190,426 | 184,852 | 4.1 | |||||
Ready Capital Mortgage Financing 2021-FL5 | — | — | — | 75,970 | 75,970 | 7.3 | |||||
Ready Capital Mortgage Financing 2021-FL6 | — | — | — | 206,377 | 206,377 | 6.7 | |||||
Ready Capital Mortgage Financing 2021-FL7 | 314,622 | 314,622 | 6.3 | 423,529 | 423,529 | 7.0 | |||||
Ready Capital Mortgage Financing 2022-FL8 | — | — | — | 587,693 | 587,625 | 7.5 | |||||
Ready Capital Mortgage Financing 2022-FL9 | — | — | — | 328,522 | 328,090 | 8.5 | |||||
Ready Capital Mortgage Financing 2022-FL10 | — | — | — | 576,655 | 573,924 | 8.2 | |||||
Ready Capital Mortgage Financing 2023-FL11 | 168,636 | 168,636 | 7.7 | 322,630 | 321,742 | 8.2 | |||||
Ready Capital Mortgage Financing 2023-FL12 | 213,230 | 213,123 | 8.0 | 331,692 | 330,437 | 8.2 | |||||
Total | $1,307,730 | $1,293,778 | 5.8% | $3,603,451 | $3,580,411 | 7.1% | |||||
The table above excludes non-Company sponsored securitized debt obligations of $0.1 million that are included in the
consolidated balance sheets as of December 31, 2024.
Repayment of securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust
that collateralize such debt. The actual cash flows from the securitized loans are comprised of coupon interest, scheduled
principal payments, prepayments and liquidations of the underlying loans. The actual term of the securitized debt may
differ significantly from the Company’s estimate given that actual interest collections, mortgage prepayments and/or
losses on liquidation of mortgages may differ significantly from those expected.
Third-party sponsored securitizations. For most third-party sponsored securitizations, the Company determined that it is
not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the
economic performance of these entities. Specifically, the Company does not manage these entities or otherwise solely
hold decision making powers that are significant, which include special servicing decisions. As a result of this
assessment, the Company does not consolidate any of the underlying assets and liabilities of these trusts and only
accounts for its specific interests in them.
Unconsolidated VIEs
The Company does not consolidate variable interests held in an acquired joint venture investment accounted for as an
equity method investment as it does not have the power to direct the activities that most significantly impact their
economic performance and therefore, the Company only accounts for its specific interest in them.
The table below reflects variable interests in identified VIEs for which the Company is not the primary beneficiary.
Carrying Amount | Maximum Exposure to Loss (1) | ||||||
(in thousands) | September 30, 2025 | December 31, 2024 | September 30, 2025 | December 31, 2024 | |||
MBS (2) | $30,242 | $28,233 | $30,242 | $28,233 | |||
Investment in unconsolidated joint ventures | 178,840 | 161,561 | 178,840 | 161,561 | |||
Total assets in unconsolidated VIEs | $209,082 | $189,794 | $209,082 | $189,794 | |||
(1)Maximum exposure to loss is limited to the greater of the fair value or carrying value of the assets as of the consolidated balance sheet date.
(2)Retained interest in other third party sponsored securitizations.
Note 14. Interest Income and Interest Expense
51
Interest income and expense are recorded in the consolidated statements of operations and classified based on the nature
of the underlying asset or liability.
The table below presents the components of interest income and expense.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Interest income | |||||||
Loans, net | |||||||
Bridge | $74,076 | $138,835 | $253,398 | $433,526 | |||
Fixed rate | 9,260 | 11,643 | 29,444 | 35,602 | |||
Construction | 12,349 | 27,135 | 35,353 | 83,266 | |||
SBA - 7(a) | 27,595 | 30,948 | 82,271 | 94,183 | |||
PPP (1) | 146 | 88 | 934 | 516 | |||
Other | 6,376 | 7,728 | 18,748 | 23,731 | |||
Total loans, net (2) | $129,802 | $216,377 | $420,148 | $670,824 | |||
Loans, held for sale | |||||||
Bridge | (73) | 85 | 3,457 | 209 | |||
Fixed rate | — | 107 | 26 | 371 | |||
Construction | (1) | 2,840 | 326 | 7,240 | |||
SBA - 7(a) | 2,461 | 2,066 | 6,764 | 2,066 | |||
Other | 622 | 379 | 1,112 | 1,135 | |||
Total loans, held for sale (2) | $3,009 | $5,477 | $11,685 | $11,021 | |||
Loans, held at fair value | |||||||
Other | 31 | 182 | 107 | 182 | |||
Total loans, held at fair value | $31 | $182 | $107 | $182 | |||
Investments held to maturity (1) | — | 93 | — | 120 | |||
Preferred equity investment (2) | 3,325 | 3,325 | 9,916 | 7,848 | |||
MBS | 1,324 | 1,083 | 3,337 | 3,015 | |||
Total interest income | $137,491 | $226,537 | $445,193 | $693,010 | |||
Interest expense | |||||||
Secured borrowings | (64,005) | (51,712) | (159,416) | (150,850) | |||
PPPLF borrowings (3) | (10) | (21) | (35) | (73) | |||
Securitized debt obligations of consolidated VIEs | (23,450) | (86,979) | (126,284) | (281,707) | |||
Guaranteed loan financing | (11,659) | (16,959) | (37,078) | (53,249) | |||
Senior secured notes | (15,504) | (6,859) | (39,183) | (17,608) | |||
Corporate debt | (12,343) | (13,042) | (41,278) | (39,057) | |||
Total interest expense | $(126,971) | $(175,572) | $(403,274) | $(542,544) | |||
Net interest income before provision for loan losses | $10,520 | $50,965 | $41,919 | $150,466 | |||
(1)Included in Other assets on the consolidated balance sheets.
(2)Includes interest income on assets in consolidated VIEs.
(3)Included in Other liabilities on the consolidated balance sheets.
Note 15. Derivative Instruments
The Company is exposed to changing interest rates and market conditions, which affect cash flows associated with
borrowings. The Company uses derivative instruments to manage interest rate risk and conditions in the commercial
mortgage market and, as such, views them as economic hedges. Interest rate swaps are used to mitigate the exposure to
changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for
making payments based on a fixed interest rate over the life of the swap contract.
For derivative instruments where the Company has not elected hedge accounting, fair value adjustments are recorded in
earnings. The fair value adjustments for interest rate swaps, along with the related interest income, interest expense and
gains (losses) on termination of such instruments, are reported as a net realized gain on financial instruments in the
consolidated statements of operations.
As described in Note 3, for qualifying cash flow hedges, the change in the fair value of derivatives is recorded in OCI
and not recognized in the consolidated statements of operations. Derivative movements impacting earnings are
recognized on a consistent basis with the classification of the hedged item, primarily interest expense. The ineffective
portions of the cash flow hedges are immediately recognized in earnings.
52
The table below presents average notional derivative amounts, as this is the most relevant measure of volume, and
derivative assets and liabilities by type. Refer to Note 22 for further details on derivative assets and liabilities by product
type.
September 30, 2025 | December 31, 2024 | |||||||||||
(in thousands) | Primary Underlying Risk | Notional Amount | Derivative Asset | Derivative Liability | Notional Amount | Derivative Asset | Derivative Liability | |||||
Interest Rate Swaps - not designated as hedges | Interest rate risk | $26,300 | $2,580 | $— | $26,300 | $3,506 | $— | |||||
Interest Rate Swaps - designated as hedges | Interest rate risk | 396,943 | 18,839 | (361) | 396,943 | 29,030 | — | |||||
FX forwards | Foreign exchange rate risk | 20,731 | 340 | (1,266) | 34,133 | 851 | (352) | |||||
Total | $443,974 | $21,759 | $(1,627) | $457,376 | $33,387 | $(352) | ||||||
The table below presents gains and losses on derivatives.
(in thousands) | Net Realized Gain (Loss) | Net Unrealized Gain (Loss) | |
Three Months Ended September 30, 2025 | |||
Interest rate swaps | $2,030 | $(199) | |
FX forwards | (223) | 428 | |
Total | $1,807 | $229 | |
Three Months Ended September 30, 2024 | |||
Interest rate swaps | $4,460 | $(992) | |
Total | $4,460 | $(992) | |
Nine Months Ended September 30, 2025 | |||
Interest rate swaps | $5,995 | $(1,111) | |
FX forwards | (223) | 428 | |
Total | $5,772 | $(683) | |
Nine Months Ended September 30, 2024 | |||
Interest rate swaps | $12,418 | $(1,405) | |
FX forwards | 912 | — | |
Total | $13,330 | $(1,405) |
In the table above:
•Gains (losses) on interest rate swaps and FX forwards are recorded in net unrealized gain (loss) on financial
instruments or net realized gain (loss) on financial instruments in the consolidated statements of operations.
•For qualifying hedges of interest rate risk on interest rate swaps, the effective portion relating to the unrealized
gain (loss) on derivatives are recorded in AOCI.
The table below summarizes the gains and losses on derivatives which have qualified for hedge accounting.
(in thousands) | Derivatives - effective portion reclassified from AOCI to income | Derivatives - effective portion recorded in OCI | Total change in OCI for period | ||
Interest rate swaps | |||||
Three Months Ended September 30, 2025 | $(233) | $(1,105) | $(872) | ||
Three Months Ended September 30, 2024 | $(274) | $(12,913) | $(12,639) | ||
Nine Months Ended September 30, 2025 | $(729) | $(8,886) | $(8,157) | ||
Nine Months Ended September 30, 2024 | $(835) | $(8,669) | $(7,834) |
In the table above:
•Forecasted transactions on interest rates consists of benchmark interest rate hedges of SOFR indexed floating-
rate liabilities.
•Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative
instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item
attributable to the hedged risk.
•Amounts recorded in OCI for the period represents after tax amounts.
Note 16. Real Estate Owned
53
The table below presents details on the real estate owned portfolio.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Acquired REO, held for sale: | |||
Mixed use | $7,501 | $13,159 | |
Multi-family | 54,371 | 18,000 | |
Lodging | 12,808 | 16,461 | |
Residential | 168,659 | 250 | |
Office | 3,750 | 3,750 | |
Retail | 4,190 | — | |
Land | 71,096 | 91,111 | |
Total Acquired REO, held for sale | $322,375 | $142,731 | |
Other REO, held for sale: | |||
Office | 7,125 | 4,365 | |
Mixed use | 12,210 | 15,210 | |
Multi-family | 23,747 | 30,000 | |
Retail | 5,349 | 1,126 | |
Other | 455 | 5 | |
Total Other REO, held for sale | $48,886 | $50,706 | |
REO, held for use: | |||
Land | 21,469 | — | |
Building and improvements, net | 226,559 | — | |
Furniture, fixtures and equipment, net | 13,696 | — | |
Total REO, held for use | $261,724 | $— | |
Total real estate owned | $632,985 | $193,437 |
In the table above:
•Depreciation expense related to REO, held for use was $1.1 million for both the three and nine months ended
September 30, 2025. There was no such depreciation expense for the three and nine months ended
September 30, 2024.
•Other REO excludes $15.3 million and $1.6 million as of September 30, 2025 and December 31, 2024,
respectively, of real estate owned, held for sale within consolidated VIEs.
Note 17. Agreements and Transactions with Related Parties
Management Agreement
The Company has entered into a management agreement with its Manager (the “Management Agreement”), which
describes the services to be provided to the Company by its Manager and compensation for such services. The
Company’s Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and
oversight of the Board.
Management fee. Pursuant to the terms of the Management Agreement, the Manager is paid a management fee
calculated and payable quarterly in arrears equal to 1.5% per annum of the Company’s stockholders’ equity (as defined
in the Management Agreement) up to $500 million and 1.00% per annum of stockholders’ equity in excess of
$500 million.
The table below presents the management fee payable to the Manager.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2025 | 2024 | 2025 | 2024 | ||||
Management fee - total | $5.2million | $6.5million | $15.8million | $19.3million | |||
Management fee - amount unpaid | $5.2million | $6.3million | $5.2million | $6.3million | |||
Incentive distribution. The Manager is entitled to an incentive distribution in an amount equal to the product of (i) 15%
and (ii) the excess of (a) core earnings as defined in the partnership agreement (IFCE) on a rolling four-quarter basis
over (b) an amount equal to 8.00% per annum multiplied by the weighted average of the issue price per share of the
common stock or OP units multiplied by the weighted average number of shares of common stock outstanding, provided
that IFCE over the prior twelve calendar quarters is greater than zero. For purposes of determining the incentive
54
distribution payable to the Manager, incentive fee core earnings (“IFCE”) is defined under the partnership agreement of
the operating partnership as GAAP net income (loss) of the Operating Partnership excluding non-cash equity
compensation expense, the expenses incurred in connection with the Operating Partnership's formation or continuation,
the incentive distribution, real estate depreciation and amortization (to the extent that the Company forecloses on any
properties underlying its assets) and any unrealized gains, losses, or other non-cash items recorded in the period,
regardless of whether such items are included in other comprehensive income or loss, or in net income. The amount will
be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after
discussions between the Manager and the Company’s independent directors and after approval by a majority of the
independent directors.
The table below presents the Incentive fee payable to the Manager.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2025 | 2024 | 2025 | 2024 | ||||
Incentive fee distribution - total | $— | $— | $— | $— | |||
Incentive fee distribution - amount unpaid | $— | $— | $— | $— | |||
The Management Agreement may be terminated upon the affirmative vote of at least two-thirds of the Company’s
independent directors or the holders of a majority of the outstanding common stock (excluding shares held by employees
and affiliates of the Manager), based upon (1) unsatisfactory performance by the Manager that is materially detrimental
to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the
Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of
management fees agreed to by at least two-thirds of the Company’s independent directors. The Manager must be
provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term.
Additionally, upon such a termination by the Company without cause (or upon termination by the Manager due to the
Company’s material breach), the management agreement provides that the Company will pay the Manager a termination
fee equal to three times the average annual base management fee earned by the Manager during the prior 24 month
period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal
quarter prior to the date of termination, except upon an internalization. Additionally, if the management agreement is
terminated under circumstances in which the Company is obligated to make a termination payment to the Manager, the
operating partnership shall repurchase, concurrently with such termination, the Class A special unit for an amount equal
to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special
unit during the 24 month period immediately preceding such termination, calculated as of the end of the most recently
completed fiscal quarter before the date of termination.
The current term of the Management Agreement will expire on October 31, 2025 and is automatically renewed for
successive one-year terms on each anniversary thereafter; provided, however, that either the Company or the Manager
may terminate the Management Agreement annually upon 180 days prior notice. Under certain limited circumstances
described above, the Company and the operating partnership are required to make certain payments to the Manager upon
termination.
Expense reimbursement. In addition to the management fees and incentive distribution described above, the Company is
also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company and
for certain services provided by the Manager to the Company. Expenses incurred by the Manager and reimbursed by the
Company are typically included in salaries and benefits or general and administrative expense in the consolidated
statements of operations.
The table below presents reimbursable expenses payable to the Manager.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2025 | 2024 | 2025 | 2024 | ||||
Reimbursable expenses payable to Manager - total | $4.0million | $2.5million | $12.9million | $8.6million | |||
Reimbursable expenses payable to Manager - amount unpaid | $7.7million | $4.2million | $7.7million | $4.2million | |||
55
Co-Investment with Manager
On July 15, 2022, the Company closed on a $125.0 million commitment to invest into a parallel vehicle, Waterfall Atlas
Anchor Feeder, LLC (the “Fund”), a fund managed by the Manager, in exchange for interests in the Fund. In exchange
for the Company’s commitment, the Company is entitled to 15% of any carried interest distributions received by the
general partner of the Fund such that over the life of the Fund, the Company receives an internal rate of return of 1.5%
over the internal rate of return of the Fund. The Fund focuses on commercial real estate equity through the acquisition of
distressed and value-add real estate across property types with local operating partners. As of September 30, 2025, the
Company has contributed $95.8 million of cash into the Fund for a remaining commitment of $29.2 million.
Note 18. Other Assets and Other Liabilities
The table below presents the composition of other assets and other liabilities.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Other assets: | |||
Goodwill | $49,501 | $49,501 | |
Deferred loan exit fees | 22,467 | 27,811 | |
Accrued interest | 95,133 | 45,416 | |
Due from servicers | 8,124 | 7,039 | |
Intangible assets | 38,868 | 37,006 | |
Receivable from third party | 47,204 | 34,540 | |
Deferred financing costs | 12,294 | 8,053 | |
Deferred tax asset | 111,325 | 111,325 | |
Tax receivable | 60,236 | 1,654 | |
Right-of-use lease asset | 3,537 | 7,362 | |
PPP receivables | 10,641 | 18,363 | |
Investments held to maturity | — | 3,000 | |
Other | 13,186 | 11,416 | |
Other assets | $472,516 | $362,486 | |
Accounts payable and other accrued liabilities: | |||
Accrued salaries, wages and commissions | 37,735 | 39,565 | |
Accrued interest payable | 40,036 | 39,723 | |
Servicing principal and interest payable | 20,892 | 13,609 | |
Repair and denial reserve | 8,986 | 7,359 | |
Payable to related parties | 5,175 | 5,566 | |
PPP liabilities | 10,441 | 20,892 | |
Accrued professional fees | 2,458 | 5,538 | |
Lease payable | 8,509 | 17,806 | |
Liabilities of consolidated VIEs | 2,521 | 4,209 | |
Other | 29,653 | 33,784 | |
Total accounts payable and other accrued liabilities | $166,406 | $188,051 |
In the table above, investments held to maturity was $3.0 million as of December 31, 2024 and consisted of multi-family
preferred equities with maturities of less than one year and a weighted average interest rate of 10.0%. The provision for
credit losses on held to maturity securities was not material for the three and nine months ended September 30, 2024.
Goodwill
The table below presents the carrying value of goodwill by reportable segment.
(in thousands) | September 30, 2025 | December 31, 2024 | |
LMM Commercial Real Estate | $27,324 | $27,324 | |
Small Business Lending | 22,177 | 22,177 | |
Total | $49,501 | $49,501 |
56
Intangible assets
The table below presents information on intangible assets.
(in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||
September 30, 2025 | |||||
Amortized intangible assets: | |||||
Internally developed software | $25,166 | $10,426 | $14,740 | ||
Customer relationships | 10,299 | 2,037 | 8,262 | ||
Broker network | 10,200 | 2,450 | 7,750 | ||
Above market leases | 1,958 | 39 | 1,919 | ||
Other | 3,535 | 1,100 | 2,435 | ||
Unamortized intangible assets: | |||||
Trade name | 2,500 | — | 2,500 | ||
Trademark | 262 | — | 262 | ||
SBA license | 1,000 | — | 1,000 | ||
Total intangible assets | $54,920 | $16,052 | $38,868 | ||
Amortized intangible liabilities: | |||||
Below market leases | $(417) | $(6) | $(411) | ||
Total intangible liabilities | $(417) | $(6) | $(411) | ||
December 31, 2024 | |||||
Amortized intangible assets: | |||||
Internally developed software | $20,518 | $7,051 | $13,467 | ||
Customer relationships | 10,332 | 1,474 | 8,858 | ||
Broker network | 10,200 | 1,700 | 8,500 | ||
Other | 3,499 | 818 | 2,681 | ||
Unamortized intangible assets: | |||||
Trade name | 2,500 | — | 2,500 | ||
SBA license | 1,000 | — | 1,000 | ||
Total intangible assets | $48,049 | $11,043 | $37,006 |
The amortization expense related to intangible assets was $1.8 million and $5.1 million for the three and nine months
ended September 30, 2025 and $1.4 million and $3.1 million for the three and nine months ended September 30, 2024,
respectively. Such amounts are recorded as other operating expenses in the consolidated statements of operations.
The table below presents amortization expense related to finite-lived intangible assets for the subsequent five years.
(in thousands) | September 30, 2025 |
2025 | $1,959 |
2026 | 6,276 |
2027 | 6,143 |
2028 | 5,116 |
2029 | 3,554 |
Thereafter | 11,647 |
Total | $34,695 |
Note 19. Other Income and Operating Expenses
57
The table below presents the composition of other income and operating expenses.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Other income: | |||||||
Origination income | $6,944 | $9,121 | $23,486 | $14,251 | |||
Hotel income | 5,885 | — | 5,885 | — | |||
Change in repair and denial reserve | (488) | 325 | (1,822) | (1,841) | |||
ERC consulting income | — | 615 | 149 | 3,201 | |||
Other | 2,432 | 4,762 | 9,969 | 21,635 | |||
Total other income | $14,773 | $14,823 | $37,667 | $37,246 | |||
Other operating expenses: | |||||||
Origination costs | 4,438 | 6,801 | 16,465 | 10,030 | |||
Hotel expense | 5,735 | — | 5,735 | — | |||
Technology expense | 3,405 | 3,457 | 9,197 | 8,282 | |||
Rent and property tax expense | 2,827 | 2,042 | 6,518 | 5,732 | |||
Depreciation and amortization expense | 2,973 | 1,435 | 6,339 | 3,303 | |||
Recruiting, training and travel expense | 462 | 839 | 1,907 | 2,071 | |||
Marketing expense | 357 | 750 | 1,060 | 1,499 | |||
Bad debt expense - ERC | — | 49 | 109 | 3,670 | |||
Other | 4,682 | 2,675 | 9,805 | 9,348 | |||
Total other operating expenses | $24,879 | $18,048 | $57,135 | $43,935 | |||
Note 20. Redeemable Preferred Stock and Stockholders’ Equity
Common stock dividends
The table below presents dividends declared by the Board on common stock during the last twelve months.
Declaration Date | Record Date | Payment Date | Dividend per Share | |||
September 13, 2024 | September 30, 2024 | October 31, 2024 | $0.250 | |||
December 13, 2024 | December 31, 2024 | January 31, 2025 | $0.250 | |||
March 3, 2025 | March 31, 2025 | April 30, 2025 | $0.125 | |||
June 13, 2025 | June 30, 2025 | July 31, 2025 | $0.125 | |||
September 15, 2025 | September 30, 2025 | October 31, 2025 | $0.125 |
Stock incentive plans
The Company currently maintains the 2013 Equity Incentive Plan and the 2023 Equity Incentive Plan which authorize
the Compensation Committee of the Board to approve grants of equity-based awards to the Company’s officers and
directors, and employees of the Manager and its affiliates. The 2013 Equity Incentive Plan provided for grants of equity-
based awards up to an aggregate of 5% of the shares of the Company’s common stock issued and outstanding from time
to time on a fully diluted basis. On August 22, 2023, the Company’s stockholders approved the 2023 Equity Incentive
Plan which replaces the 2013 Equity Incentive Plan and provides for grants of equity-based awards up to 5.5 million
shares of the Company’s common stock. As of August 22, 2023, no further awards will be granted under the 2013
Equity Incentive Plan, and the 2013 Equity Incentive Plan remains in effect only for so long as awards granted
thereunder remain outstanding. The Company currently settles stock-based incentive awards with newly issued shares.
The fair value of the RSUs and RSAs granted, which is generally determined based upon the stock price on the grant
date, is recorded as compensation expense on a straight-line basis over the vesting periods for the awards, with an
offsetting increase in stockholders’ equity.
In 2025, 2024, and 2023, the Company granted 1,184,196, 774,097, and 413,852, respectively, of time-based RSAs
under the 2013 Equity Incentive Plan and the 2023 Equity Incentive Plan to certain key employees. These awards
generally vest ratably in equal annual installments over a three-year period based solely on continued employment or
service. The Company further granted in these years 89,285, 126,930, and 75,639, respectively, of time-based RSAs and
RSUs to non-employee directors of the Company, which vest ratably in equal installments quarterly over a one-year
period. Directors may elect to receive time-based RSAs or time-based RSUs that have a deferred settlement date of their
choosing. Dividends are currently paid on all time-based RSAs and dividend equivalents are paid on deferred RSU
awards during their deferral period.
58
Additionally, as part of the Broadmark Merger, the Company assumed each award of restricted stock units that was not
an award of performance restricted stock units granted by Broadmark pursuant to the Broadmark Equity Plan (each, a
“Broadmark RSU Award”) outstanding immediately prior to the effective time of the Broadmark Merger (“Broadmark
Merger Effective Time”) and converted them into 736,666 Company RSUs after applying the exchange ratio of 0.47233
shares of Company common stock for each share of common stock, par value $0.001 per share, of Broadmark (the
“Broadmark Common Stock”) issued and outstanding immediately prior to the Broadmark Merger Effective Time, of
which 535 Company RSUs remain outstanding. The Broadmark RSU Awards have the same terms and conditions as
were applicable to them immediately prior to the Broadmark Merger Effective Time and, accordingly, are not dividend
eligible.
The table below summarizes RSU and RSA activity, excluding performance-based equity awards. See below for further
details on performance-based equity awards.
Restricted Stock Units/Awards | |||||
(in thousands, except share data) | Number of shares | Grant date fair value | Weighted-average grant date fair value (per share) | ||
Outstanding, December 31, 2024 | 996,549 | $10,248 | $10.28 | ||
Granted | 1,545,723 | 10,313 | 6.67 | ||
Vested | (682,080) | (6,238) | 9.15 | ||
Forfeited | (27,223) | (215) | 7.90 | ||
Outstanding, March 31, 2025 | 1,832,969 | $14,108 | $7.70 | ||
Granted | 22,506 | 113 | 5.02 | ||
Vested | (55,010) | (454) | 8.25 | ||
Forfeited | (63,955) | (479) | 7.49 | ||
Outstanding, June 30, 2025 | 1,736,510 | $13,288 | $7.65 | ||
Vested | (23,704) | (168) | 7.09 | ||
Forfeited | (25,111) | (181) | 7.21 | ||
Outstanding, September 30, 2025 | 1,687,695 | $12,939 | $7.67 | ||
The Company recognized $1.6 million and $5.0 million for the three and nine months ended September 30, 2025,
respectively and $1.8 million and $5.6 million for the three and nine months ended September 30, 2024, respectively, of
non-cash compensation expense related to its stock-based incentive plan in the consolidated statements of operations. As
of September 30, 2025 and December 31, 2024, approximately $12.9 million and $10.2 million, respectively, of non-
cash compensation expense related to unvested awards had not yet been charged to net income. These costs are expected
to be amortized into compensation expense ratably over the course of the remaining vesting periods.
Performance-based equity awards under the 2023 Equity Incentive Plan
2025 performance-based RSUs. In February 2025, the Company granted, to certain key employees, 238,096
performance-based RSUs at a grant date fair value of $6.72 per performance-based RSU. The performance-based RSUs
are allocated 50% to awards that may be earned based on achievement of performance goals related to distributable ROE
for the three-year forward-looking period ending December 31, 2027 and 50% to awards that may be earned based on
achievement of performance goals related to relative TSR for such three-year forward-looking performance period
relative to the performance of a designated peer group. Subject to the distributable ROE metric and relative TSR
achieved during the performance period, the actual number of shares that the key employees receive at the end of the
performance period may range from 0% to 200% of the target award. The fair value of the performance-based RSUs is
recorded as compensation expense over the performance period and will cliff vest at the end of the three-year
performance period, with an offsetting increase in stockholders’ equity. Dividend equivalents are accrued by the
Company during the performance period and paid to the holder if and when the performance-based RSUs vest.
2024 performance-based RSUs. In February 2024, the Company granted, to certain key employees, 132,450
performance-based RSUs at a grant date fair value of $9.06 per performance-based RSU. The performance-based RSUs
are allocated 50% to awards that may be earned based on achievement of performance goals related to distributable ROE
for the three-year forward-looking period ending December 31, 2026 and 50% to awards that may be earned based on
achievement of performance goals related to relative TSR for such three-year forward-looking performance period
relative to the performance of a designated peer group. Subject to the distributable ROE metric and relative TSR
achieved during the performance period, the actual number of shares that the key employees receive at the end of the
performance period may range from 0% to 200% of the target award. The fair value of the performance-based RSUs is
59
recorded as compensation expense over the performance period and will cliff vest at the end of the three-year
performance period, with an offsetting increase in stockholders’ equity. Dividend equivalents are accrued by the
Company during the performance period and paid to the holder if and when the performance-based RSUs vest.
Performance-based equity awards under the 2013 Equity Incentive Plan
2023 performance-based RSUs. In June 2023, the Company granted, to certain key employees, 222,552 performance-
based RSUs at a grant date fair value of $10.11 per performance-based RSU, which may be earned based on the
achievement of performance goals by the end of 2024 in relation to the Broadmark Merger. The awards are allocated
30% to awards that may be earned based on cost savings in 2024 as a percentage of the pre-merger Broadmark expense
run rate, 15% to awards that may be earned based on the volume of Broadmark product originated from the time of the
merger through the end of 2024, 30% to awards that may be earned based on the generation of incremental liquidity
from asset level financing, portfolio run-off, sales or corporate re-levering through the end of 2024, and 25% to awards
that may be earned based on distributable return on equity (“ROE”) for 2024. Subject to the level of achievement of
these goals during the performance period, the actual number of shares that the key employees receive may range from
0% to 200% of the target award. The fair value of the performance-based RSUs granted is recorded as compensation
expense over the performance period and will vest 2/3rds on December 31, 2024, and 1/3rd on December 31, 2025, with
an offsetting increase in stockholders’ equity. Any awards earned on December 31, 2024 based on achievement of the
applicable performance metrics but vesting on December 31, 2025 will convert into RSAs that are eligible to vest on
December 31, 2025 based on the key employee’s continued employment or service through that date. Dividend
equivalents are accrued by the Company during the performance period and paid to the holder if and when the
performance-based RSUs vest. Following the conclusion of the performance period on December 31, 2024, the Board
determined that the cost savings, product origination volumes and incremental liquidity generation goals were achieved
at maximum payout and the distributable ROE goal was not achieved. As such, on February 3, 2025, the Board approved
the settlement of 333,828 performance-based RSUs. The fair value of the performance-based RSUs granted was
recorded as compensation expense over the performance period with an offsetting increase in stockholders’ equity.
In February 2023, the Company granted, to certain key employees, 92,451 performance-based RSUs at a grant date fair
value of $12.98 per performance-based RSU. The performance-based RSUs are allocated 50% to awards that may be
earned based on achievement of performance goals related to distributable ROE for the three-year forward-looking
period ending December 31, 2025 and 50% to awards that may be earned based on achievement of performance goals
related to relative TSR for such three-year forward-looking performance period relative to the performance of a
designated peer group. Subject to the distributable ROE metric and relative TSR achieved during the performance
period, the actual number of shares that the key employees receive at the end of the performance period may range from
0% to 200% of the target award. The fair value of the performance-based RSUs is recorded as compensation expense
over the performance period and will cliff vest at the end of the three-year performance period, with an offsetting
increase in stockholders’ equity. Dividend equivalents are accrued by the Company during the performance period and
paid to the holder if and when the performance-based RSUs vest.
2022 performance-based RSUs. In February 2022, the Company granted, to certain key employees, 84,566
performance-based RSUs at a grant date fair value of $14.19 per performance-based RSU. During April 2024, 8,809
performance-based RSUs were forfeited. The performance-based RSUs are allocated 50% to awards that may be earned
based on achievement of performance goals related to distributable ROE for the three-year forward-looking period
ending December 31, 2024 and 50% to awards that may be earned based on achievement of performance goals related to
relative TSR for such three-year forward-looking performance period relative to the performance of a designated peer
group. Subject to the distributable ROE metric and relative TSR achieved during the vesting period, the actual number of
shares that the key employees receive at the end of the performance period may range from 0% to 200% of the target
award. The fair value of the performance-based RSUs is recorded as compensation expense over the performance period
and will cliff vest at the end of a three-year performance period, with an offsetting increase in stockholders’ equity.
Dividend equivalents are accrued by the Company during the performance period and paid to the holder if and when the
performance-based RSUs vest. Following the conclusion of the performance period on December 31, 2024, the Board
determined that the distributable ROE threshold goal was achieved and the relative TSR threshold goal was achieved. As
such, on February 22, 2025, the Board approved the settlement of 57,029 performance-based RSUs. The fair value of the
performance-based RSUs granted was recorded as compensation expense over the performance period with an offsetting
increase in stockholders’ equity.
2021 performance-based RSUs. In February 2021, the Company granted, to certain key employees, 61,895
performance-based RSUs at a grant date fair value of $12.82 per performance-based RSU. During October 2021, 18,568
60
performance-based RSUs were forfeited. The performance-based RSUs are allocated 50% to awards that may be earned
based on achievement of performance goals related to absolute TSR for the three-year forward-looking period ending
December 31, 2023 and 50% to awards that may be earned based on achievement of performance goals related to TSR
for such three-year forward-looking performance period relative to the performance of a designated peer group. Subject
to the absolute and relative TSR achieved during the performance period, the actual number of shares that the key
employees receive at the end of the performance period may range from 0% to 300% of the target award. Dividend
equivalents are accrued by the Company during the performance period and paid to the holder if and when the
performance-based RSUs vest. Following the conclusion of the performance period on December 31, 2023, the Board
determined that the relative TSR target goal was achieved and the absolute TSR goal was not achieved. As such, on
January 9, 2024, the Board approved the settlement of 29,215 performance-based RSUs. The fair value of the
performance-based RSUs granted was recorded as compensation expense over the performance period with an offsetting
increase in stockholders’ equity.
Preferred Stock
In the event of a liquidation or dissolution of the Company, any outstanding preferred stock ranks senior to the
outstanding common stock with respect to payment of dividends and the distribution of assets.
The Company classifies Series C Cumulative Convertible Preferred Stock, or Series C Preferred Stock, on the balance
sheets using the guidance in ASC 480‑10‑S99. The Series C Preferred Stock contains certain fundamental change
provisions that allow the holder to redeem the preferred stock for cash only if certain events occur, such as a change in
control. As of September 30, 2025, the conversion rate was 1.8391 shares of common stock per $25 principal amount of
the Series C Preferred Stock, which is equivalent to a conversion price of approximately $13.59 per share of common
stock. As redemption under these circumstances is not solely within the Company’s control, the Series C Preferred Stock
has been classified as temporary equity. The Company has analyzed whether the conversion features should be
bifurcated under the guidance in ASC 815 and has determined that bifurcation is not necessary.
The table below presents details on preferred equity by series.
Preferential Cash Dividends | Carrying Value (in thousands) | ||||||||||
Series | Shares Issued and Outstanding (in thousands) | Par Value | Liquidation Preference | Rate per Annum | Annual Dividend (per share) | September 30, 2025 | |||||
C | 335 | 0.0001 | $25.00 | 6.25% | $1.56 | $8,361 | |||||
E | 4,600 | 0.0001 | $25.00 | 6.50% | $1.63 | $111,378 | |||||
In the table above,
•Shareholders are entitled to receive dividends, when and as authorized by the Board, out of funds legally
available for the payment of dividends. Dividends for Series C Preferred Stock are payable quarterly on the
15th day of January, April, July and October of each year or if not a business day, the next succeeding business
day. Dividends for Series E preferred stock are payable quarterly on or about the last day of each January,
April, July and October of each year. Any dividend payable on the preferred stock for any partial dividend
period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be
payable in arrears to holders of record as they appear on the Company’s records at the close of business on the
last day of each of March, June, September and December, as the case may be, immediately preceding the
applicable dividend payment date.
•The Company declared dividends of $0.1 million and $1.9 million on its Series C Preferred Stock and Series E
Preferred Stock, respectively, during the three months ended September 30, 2025. The dividends were paid on
October 15, 2025 for Series C Preferred Stock and on October 31, 2025 for Series E Preferred Stock to the
holders of record as of the close of business on September 30, 2025.
•The Company may, at its option, redeem the Series E Preferred Stock, in whole or in part, at any time and from
time to time, for cash at a redemption price equal to 100% of the liquidation preference of $25.00 per share,
plus accrued and unpaid dividends, if any, to the redemption date. Series E Preferred Stock is not redeemable
prior to June 10, 2026, except under certain conditions.
61
Public and Private Warrants
As part of the Broadmark Merger, the Company assumed public and private placement warrants that represented the
right to purchase shares of Broadmark Common Stock. As of September 30, 2025, there were 5.2 million private
placement warrants outstanding, each representing the right to purchase 0.47233 shares of common stock. The Company
has outstanding warrants to purchase approximately 2.5 million shares of common stock at a price of $24.34 per whole
share. Settlement of outstanding warrants will be in shares of common stock, unless the Company elects (solely in the
Company’s discretion) to settle warrants the Company has called for redemption in cash, and subject to customary
adjustment in the event of business combinations and certain tender offers. On November 19, 2024, 41.7 million public
warrants, each representing the right to purchase 0.1180825 shares of common stock, expired.
The liability for the private placement warrants was less than $0.1 million as of September 30, 2025 and is included in
accounts payable and other accrued liabilities in the consolidated balance sheets.
Equity ATM Program
On July 9, 2021, the Company, the operating partnership and the Manager entered into an Equity Distribution
Agreement, as amended on March 8, 2022 (the “Equity Distribution Agreement”), with JMP Securities LLC (the “Sales
Agent”), pursuant to which the Company may sell, from time to time, shares of the Company’s common stock, par value
$0.0001 per share, having an aggregate offering price of up to $150 million, through the Sales Agent either as agent or
principal (the “Equity ATM Program”). The Company made no such sales through the Equity ATM Program during the
three and nine months ended September 30, 2025 or September 30, 2024. As of September 30, 2025, shares representing
approximately $78.4 million remain available for sale under the Equity ATM Program.
Note 21. Earnings per Share of Common Stock
The table below provides information on the basic and diluted EPS computations, including the number of shares of
common stock used for purposes of these computations.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands, except for share and per share amounts) | 2025 | 2024 | 2025 | 2024 | |||
Basic Earnings | |||||||
Net income (loss) from continuing operations | $(16,947) | $(7,473) | $16,712 | $(114,482) | |||
Less: Income attributable to non-controlling interest | 2,008 | 2,031 | 6,282 | 3,968 | |||
Less: Income attributable to participating shares | 2,210 | 2,241 | 6,652 | 6,877 | |||
Basic earnings - continuing operations | $(21,165) | $(11,745) | $3,778 | $(125,327) | |||
Basic earnings - discontinued operations | $210 | $194 | $(5,161) | $(1,165) | |||
Diluted Earnings | |||||||
Net income (loss) from continuing operations | (16,947) | (7,473) | 16,712 | (114,482) | |||
Less: Income attributable to non-controlling interest | 2,008 | 2,031 | 6,282 | 3,968 | |||
Less: Income attributable to participating shares | 2,210 | 2,241 | 6,652 | 6,877 | |||
Add: Expenses attributable to dilutive instruments | 131 | 131 | 393 | 393 | |||
Diluted earnings - continuing operations | $(21,034) | $(11,614) | $4,171 | $(124,934) | |||
Diluted earnings - discontinued operations | $210 | $194 | $(5,161) | $(1,165) | |||
Number of Shares | |||||||
Basic — Average shares outstanding | 163,574,703 | 168,335,483 | 165,491,135 | 169,669,145 | |||
Effect of dilutive securities — Unvested participating shares | 2,299,104 | 1,173,725 | 2,299,105 | 1,145,935 | |||
Diluted — Average shares outstanding | 165,873,807 | 169,509,208 | 167,790,240 | 170,815,080 | |||
EPS Attributable to RC Common Stockholders: | |||||||
Basic - continuing operations | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Basic - discontinued operations | $0.00 | $0.00 | $(0.03) | $(0.01) | |||
Basic - total | $(0.13) | $(0.07) | $(0.01) | $(0.75) | |||
Diluted - continuing operations | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Diluted - discontinued operations | $0.00 | $0.00 | $(0.03) | $(0.01) | |||
Diluted - total | $(0.13) | $(0.07) | $(0.01) | $(0.75) | |||
In the table above, participating unvested RSAs and unvested RSUs, granted to non-employee directors of the Company,
were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-
class method used above.
62
Certain investors own OP units in the operating partnership. An OP unit and a share of common stock of the Company
have substantially the same economic characteristics in as much as they effectively share equally in the net income or
loss of the operating partnership. OP unit holders have the right to redeem their OP units, subject to certain restrictions.
The redemption is required to be satisfied in shares of common stock or cash at the Company’s option, calculated as
follows: one share of the Company’s common stock, or cash equal to the fair value of a share of the Company’s common
stock at the time of redemption, for each OP unit. When an OP unit holder redeems an OP unit, non-controlling interests
in the operating partnership is reduced and the Company’s equity is increased. As of September 30, 2025 and
December 31, 2024, the non-controlling interest OP unit holders owned 602,968 and 885,582 OP units, respectively.
Note 22. Offsetting Assets and Liabilities
In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty
risk, the Company may enter into an International Swaps and Derivatives Association (“ISDA”) Master Agreement with
multiple derivative counterparties. An ISDA Master Agreement, published by ISDA, is a bilateral trading agreement
between two parties that allow both parties to enter into over-the-counter (“OTC”), derivative contracts. The ISDA
Master Agreement contains a Schedule to the Master Agreement and a Credit Support Annex, which governs the
maintenance, reporting, collateral management and default process (netting provisions in the event of a default and/or a
termination event). Under an ISDA Master Agreement, the Company may, under certain circumstances, offset with the
counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and
create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in
the event of default, including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency
laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy,
insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative
contracts prior to maturity in the event the Company’s stockholders’ equity declines by a stated percentage or the
Company fails to meet the terms of its ISDA Master Agreements, which would cause the Company to accelerate
payment of any net liability owed to the counterparty. As of September 30, 2025 and December 31, 2024, the Company
was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.
For derivatives traded under an ISDA Master Agreement, the collateral requirements are listed under the Credit Support
Annex, which is the sum of the mark to market for each derivative contract, the independent amount due to the
derivative counterparty and any thresholds, if any. Collateral may be in the form of cash or any eligible securities, as
defined in the respective ISDA agreements. Cash collateral pledged to and by the Company with the counterparty, if any,
is reported separately in the consolidated balance sheets as restricted cash. All margin call amounts must be made before
the notification time and must exceed a minimum transfer amount threshold before a transfer is required. All margin
calls must be responded to and completed by the close of business on the same day of the margin call, unless otherwise
specified. Any margin calls after the notification time must be completed by the next business day. Typically, the
Company and its counterparties are not permitted to sell, rehypothecate or use the collateral posted. To the extent
amounts due to the Company from its counterparties are not fully collateralized, the Company bears exposure and the
risk of loss from a defaulting counterparty. The Company attempts to mitigate counterparty risk by establishing ISDA
agreements with only high-grade counterparties that have the financial health to honor their obligations and
diversification by entering into agreements with multiple counterparties.
The Company discloses the impact of offsetting of assets and liabilities represented in the consolidated balance sheets to
enable users of the consolidated financial statements to evaluate the effect or potential effect of netting arrangements on
its financial position for recognized assets and liabilities. These recognized assets and liabilities are financial instruments
and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master
Agreements or meet the following right of setoff criteria: (a) the amounts owed by the Company to another party are
determinable, (b) the Company has the right to set off the amounts owed with the amounts owed by the counterparty, (c)
the Company intends to offset, and (d) the Company’s right of offset is enforceable at law. As of September 30, 2025
and December 31, 2024, the Company has elected to offset assets and liabilities associated with its OTC derivative
contracts in the consolidated balances sheets.
63
The table below presents the gross fair value of derivative contracts by product type, Paycheck Protection Program
Liquidity Facility borrowings and secured borrowings, the amount of netting reflected in the consolidated balance sheets,
as well as the amount not offset in the consolidated balance sheets as they do not meet the enforceable credit support
criteria for netting under U.S. GAAP.
Gross amounts not offset in the Consolidated Balance Sheets(1) | |||||||||||
(in thousands) | Gross amounts of Assets / Liabilities | Gross amounts offset | Balance in Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received / Paid | Net Amount | |||||
September 30, 2025 | |||||||||||
Assets | |||||||||||
FX forwards | $340 | $— | $340 | $— | $— | $340 | |||||
Interest rate swaps | 21,419 | 16,464 | 4,955 | — | — | 4,955 | |||||
Total | $21,759 | $16,464 | $5,295 | $— | $— | $5,295 | |||||
Liabilities | |||||||||||
Interest rate swaps | 361 | — | 361 | — | — | 361 | |||||
FX forwards | 1,266 | — | 1,266 | — | — | 1,266 | |||||
Secured borrowings | 2,879,172 | — | 2,879,172 | 2,879,172 | — | — | |||||
PPPLF | 10,441 | — | 10,441 | 10,441 | — | — | |||||
Total | $2,891,240 | $— | $2,891,240 | $2,889,613 | $— | $1,627 | |||||
December 31, 2024 | |||||||||||
Assets | |||||||||||
FX forwards | 851 | — | 851 | — | — | 851 | |||||
Interest rate swaps | 32,536 | 25,424 | 7,112 | — | — | 7,112 | |||||
Total | $33,387 | $25,424 | $7,963 | $— | $— | $7,963 | |||||
Liabilities | |||||||||||
FX forwards | 352 | — | 352 | — | — | 352 | |||||
Secured borrowings | 2,035,176 | — | 2,035,176 | 2,035,176 | — | — | |||||
PPPLF | 20,892 | — | 20,892 | 18,362 | — | 2,530 | |||||
Total | $2,056,420 | $— | $2,056,420 | $2,053,538 | $— | $2,882 | |||||
(1)Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is
excess cash collateral or financial assets the Company has pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase
arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to the Company that exceeds the Company’s
corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in the Company’s
consolidated balance sheets as assets or liabilities, respectively.
Note 23. Financial Instruments with Off-Balance Sheet Risk, Credit Risk, and Certain Other Risks
In the normal course of business, the Company enters into transactions that expose us to various types of risk, both on
and off-balance sheet. Such risks are associated with financial instruments and markets in which the Company invests.
These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off-
balance sheet risk and prepayment risk.
Market Risk — Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable
changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying
financial instruments. The Company attempts to mitigate its exposure to market risk by entering into offsetting
transactions, which may include purchase or sale of interest-bearing securities and equity securities.
Credit Risk — The Company is subject to credit risk in connection with its investments in LMM loans and LMM MBS
and other target assets it may acquire in the future. The credit risk related to these investments pertains to the ability and
willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed
throughout the loan or security term. The Company believes that loan credit quality is primarily determined by the
borrowers' credit profiles and loan characteristics and seeks to mitigate this risk by seeking to acquire assets at
appropriate prices given anticipated and unanticipated losses and by deploying a value−driven approach to underwriting
and diligence, consistent with its historical investment strategy, with a focus on projected cash flows and potential risks
to cash flow. The Company further mitigates its risk of potential losses while managing and servicing loans by
performing various workout and loss mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit
losses could occur, which may adversely impact operating results.
64
The Company is also subject to credit risk with respect to the counterparties to derivative contracts. If a counterparty
fails to perform its obligation under a derivative contract due to financial difficulties, the Company may experience
significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of
creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In the event of the insolvency of a
counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value.
If the Company is owed this fair market value in the termination of the derivative transaction and its claim is unsecured,
it will be treated as a general creditor of such counterparty and will not have any claim with respect to the underlying
security. The Company may obtain only a limited recovery or may obtain no recovery in such circumstances. In
addition, the business failure of a counterparty with whom it enters a hedging transaction will most likely result in its
default, which may result in the loss of potential future value and the loss of our hedge and force the Company to cover
its commitments, if any, at the then current market price.
Counterparty credit risk is the risk that counterparties may fail to fulfill their obligations, including their inability to post
additional collateral in circumstances where their pledged collateral value becomes inadequate. The Company attempts
to manage its exposure to counterparty risk through diversification, use of financial instruments and monitoring the
creditworthiness of counterparties.
The Company finances the acquisition of a significant portion of its loans and investments with repurchase agreements
and borrowings under credit facilities and other financing agreements. In connection with these financing arrangements,
the Company pledges its loans, securities and cash as collateral to secure the borrowings. The amount of collateral
pledged will typically exceed the amount of the borrowings (i.e., the haircut) such that the borrowings will be over-
collateralized. As a result, the Company is exposed to the counterparty if, during the term of the repurchase agreement
financing, a lender should default on its obligation and the Company is not able to recover its pledged assets. The
amount of this exposure is the difference between the amount loaned to the Company plus interest due to the
counterparty and the fair value of the collateral pledged by the Company to the lender including accrued interest
receivable on such collateral.
The Company is exposed to changing interest rates and market conditions, which affects cash flows associated with
borrowings. The Company enters into derivative instruments, such as interest rate swaps, to mitigate these risks. Interest
rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest
amounts from a counterparty in exchange for making payments based on a fixed interest rate over the life of the swap
contract.
Certain subsidiaries have entered into OTC interest rate swap agreements to hedge risks associated with movements in
interest rates. Because certain interest rate swaps were not cleared through a central counterparty, the Company remains
exposed to the counterparty’s ability to perform its obligations under each such swap and cannot look to the
creditworthiness of a central counterparty for performance. As a result, if an OTC swap counterparty cannot perform
under the terms of an interest rate swap, the Company’s subsidiary would not receive payments due under that
agreement, the Company may lose any unrealized gain associated with the interest rate swap and the hedged liability
would cease to be hedged by the interest rate swap. While the Company would seek to terminate the relevant OTC swap
transaction and may have a claim against the defaulting counterparty for any losses, including unrealized gains, there is
no assurance that the Company would be able to recover such amounts or to replace the relevant swap on economically
viable terms or at all. In such case, the Company could be forced to cover its unhedged liabilities at the then current
market price. The Company may also be at risk for any pledged collateral to secure its obligations under the OTC
interest rate swap if the counterparty becomes insolvent or files for bankruptcy. Therefore, upon a default by an interest
rate swap agreement counterparty, the interest rate swap would no longer mitigate the impact of changes in interest rates
as intended.
Liquidity Risk — Liquidity risk arises from investments and the general financing of the Company’s investing activities.
It includes the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate
positions in a timely manner at reasonable prices, in addition to potential increases in collateral requirements during
times of heightened market volatility. It also includes risk stemming from PIK interest loans and loan modifications the
Company may grant to borrowers which are intended to minimize its economic loss and to avoid foreclosure or
repossession of collateral. Such modifications may include interest rate reductions, principal forgiveness, term
extensions, and other-than-insignificant payment delay, which may impact the Company’s ability to meet potential cash
65
requirements and make it more reliant on financing strategies. Additionally, if the Company was forced to dispose of an
illiquid investment at an inopportune time, it might be forced to do so at a substantial discount to the market value,
resulting in a realized loss. The Company attempts to mitigate its liquidity risk by regularly monitoring the liquidity of
its investments in LMM loans, MBS and other financial instruments. Factors such as expected exit strategy for, the bid to
offer spread of, and the number of broker dealers making an active market in a particular strategy and the availability of
long-term funding, are considered in analyzing liquidity risk. To reduce any perceived disparity between the liquidity
and the terms of the debt instruments in which the Company invests, it attempts to minimize its reliance on short-term
financing arrangements. While the Company may finance certain investments in security positions using traditional
margin arrangements and reverse repurchase agreements, other financial instruments such as collateralized debt
obligations, and other longer term financing vehicles may be utilized to provide it with sources of long-term financing.
Off-Balance Sheet Risk —The Company has undrawn commitments on outstanding loans. Refer to Note 24 for further
information.
Interest Rate Risk — Interest rates are highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and other factors beyond the Company’s
control.
The Company’s operating results will depend, in part, on differences between the income from its investments and
financing costs. Generally, debt financing is based on a floating rate of interest calculated on a fixed spread over the
relevant index, subject to a floor, as determined by the particular financing arrangement. In the event of a significant
rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us,
which could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations
and prospects. Furthermore, such defaults could have an adverse effect on the spread between the Company’s interest-
earning assets and interest-bearing liabilities.
Additionally, non-performing LMM loans are not as interest rate sensitive as performing loans, as earnings on non-
performing loans are often generated from restructuring the assets through loss mitigation strategies and
opportunistically disposing of them. Because non-performing LMM loans are short-term assets, the discount rates used
for valuation are based on short-term market interest rates, which may not move in tandem with long-term market
interest rates.
Prepayment Risk — As the Company receives prepayments of principal on its assets, any premiums paid on such assets
are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of
purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are
accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts,
thereby increasing the interest income earned on the assets.
Note 24. Commitments, Contingencies and Indemnifications
Litigation
The Company may be subject to litigation and administrative proceedings arising in the ordinary course of business and
as such, has entered into agreements which provide for indemnifications against losses, costs, claims, and liabilities
arising from the performance of individual obligations under such agreements. Such indemnification obligations may not
be subject to maximum loss clauses.
While the outcome of any particular litigation, administrative proceeding or indemnification claim cannot be predicted
with certainty, management believes that the aggregate amount of such liabilities, if any, in excess of amounts covered
by insurance, will not have a material adverse effect on the Company’s financial condition or results of operations.
Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated
financial statements.
66
Unfunded Loan Commitments
The table below presents unfunded loan commitments.
(in thousands) | September 30, 2025 | December 31, 2024 | |
Loans, net | $512,209 | $444,838 | |
Loans, held for sale | $55,437 | $28,566 |
Note 25. Income Taxes
The Company is a REIT pursuant to Internal Revenue Code Section 856. Qualification as a REIT depends on the
Company’s ability to meet various requirements imposed by the Internal Revenue Code, which relate to its
organizational structure, diversity of stock ownership and certain requirements with regard to the nature of its assets and
the sources of its income. As a REIT, the Company generally must distribute annually dividends equal to at least 90% of
its net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income
tax not to apply to earnings that are distributed. To the extent the Company satisfies this distribution requirement but
distributes less than 100% of its net taxable income, it will be subject to U.S. federal income tax on its undistributed
taxable income. In addition, the Company will be subject to a 4% nondeductible excise tax if the actual amount paid to
stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if the
Company qualifies as a REIT, it may be subject to certain U.S. federal income and excise taxes and state and local taxes
on its income and assets. If the Company fails to maintain its qualification as a REIT for any taxable year, it may be
subject to material penalties as well as federal, state and local income tax on its taxable income at regular corporate rates
and it would not be able to qualify as a REIT for the subsequent four taxable years. As of September 30, 2025 and
December 31, 2024, the Company was in compliance with all REIT requirements.
Certain subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit the Company to
participate in certain activities that would not be qualifying income if earned directly by the parent REIT, as long as
these activities meet specific criteria, are conducted within the parameters of certain limitations established by the
Internal Revenue Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Internal
Revenue Code. To the extent these criteria are met, the Company will continue to maintain our qualification as a REIT.
The Company’s TRSs engage in various real estate - related operations, including originating and securitizing
commercial mortgage loans, and investments in real property. Such TRSs are not consolidated for federal income tax
purposes but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred
income taxes is established for the portion of earnings recognized by the Company with respect to its interest in TRSs.
The Company recognizes deferred tax assets and liabilities for the future tax consequences arising from differences
between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases. The Company
evaluates its deferred tax assets for recoverability using a consistent approach which considers the relative impact of
negative and positive evidence, including historical profitability and projections of future taxable income.
The provisions of ASC 740 require that carrying amounts of deferred tax assets be reduced by a valuation allowance if,
based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be
realized.
The Company’s framework for assessing the recoverability of deferred tax assets requires it to weigh all available
evidence, including the sustainability of profitability required to realize the deferred tax assets, the cumulative net
income or loss in its consolidated statements of operations in recent years, the future reversals of existing taxable
temporary differences, and the carryforward periods for any carryforwards of net operating losses.
Note 26. Segment Reporting
The Company structures its segments based on a number of contributing factors, including customer base and nature of
loan program types, and reports its results of operations through the following two operating and reportable business
segments: i) LMM Commercial Real Estate and ii) Small Business Lending, which is in accordance with how the Chief
Operating Decision Maker (“CODM”), the Chief Executive Officer and Chief Investment Officer, evaluates financial
information for making decisions regarding business operations and assessing Company performance. The CODM's
67
financial considerations include an analysis of net interest income before provision for loan losses, provision for loan
losses and non-interest income and expenses. In addition, the CODM's analysis includes an evaluation of segment
performance with income (loss) before unallocated expenses and provision for (benefit from) income taxes being the
primary performance measure used for each reportable business segment.
LMM Commercial Real Estate
The Company originates LMM loans across the full life-cycle of an LMM property including construction, bridge,
stabilized and agency channels. As part of this segment, the Company originates and services multi-family loan products
under the Freddie Mac SBL program. LMM originations include construction and permanent financing activities for the
preservation and construction of affordable housing, primarily utilizing tax-exempt bonds. This segment also reflects the
impact of LMM securitization activities. The Company acquires performing and non-performing LMM loans and
intends to continue to acquire these loans as part of the Company’s business strategy.
Small Business Lending
The Company acquires, originates and services loans guaranteed by the SBA under the SBA Section 7(a) Program and
government guaranteed loans focused on the USDA as well as originate and service small business loans. This segment
also reflects the impact of SBA securitization activities.
Results of business segments and all other. The tables below present operating and reportable business segments, along
with remaining unallocated amounts primarily including interest expense relating to senior secured notes, allocated
employee compensation from the Manager, management and incentive fees paid to the Manager and other general
corporate overhead expenses. Unallocated assets were $402.8 million and $342.4 million as of September 30, 2025 and
September 30, 2024, respectively.
Three Months Ended September 30, 2025 | |||||
(in thousands) | LMM Commercial Real Estate | Small Business Lending | Total | ||
Interest income | $105,856 | $31,635 | $137,491 | ||
Interest expense | (106,556) | (20,415) | (126,971) | ||
Net interest income before provision for loan losses | $(700) | $11,220 | $10,520 | ||
Provision for loan losses | (30,980) | (6,997) | (37,977) | ||
Net interest income after provision for loan losses | $(31,680) | $4,223 | $(27,457) | ||
Non-interest income (loss) | |||||
Net realized gain (loss) on financial instruments and real estate owned | (179,279) | 18,883 | (160,396) | ||
Net unrealized gain (loss) on financial instruments | 2,279 | 845 | 3,124 | ||
Valuation (allowance) recovery, loans held for sale | 178,225 | — | 178,225 | ||
Servicing income, net | 1,155 | 6,354 | 7,509 | ||
Income (loss) on unconsolidated joint ventures | 7,410 | 7 | 7,417 | ||
Other income | 7,238 | 6,475 | 13,713 | ||
Total non-interest income | $17,028 | $32,564 | $49,592 | ||
Non-interest expense | |||||
Employee compensation and benefits | (5,023) | (13,939) | (18,962) | ||
Allocated employee compensation and benefits from related party | (360) | — | (360) | ||
Professional fees | (790) | (3,255) | (4,045) | ||
Loan servicing expense | (8,081) | (1,690) | (9,771) | ||
Impairment on real estate | (1,862) | — | (1,862) | ||
Other operating expenses | (13,022) | (9,479) | (22,501) | ||
Total non-interest expense | $(29,138) | $(28,363) | $(57,501) | ||
Income (loss) before unallocated expenses and provision for income taxes | $(43,790) | $8,424 | $(35,366) | ||
Unallocated corporate income (expenses) | |||||
Gain on bargain purchase | 24,472 | ||||
Employee compensation and benefits | (5,431) | ||||
Professional fees | (1,963) | ||||
Management fees – related party | (5,156) | ||||
Transaction related expenses | (1,910) | ||||
Other operating expenses - net | (1,528) | ||||
Total unallocated corporate income | $8,484 | ||||
Loss before provision for income taxes | $(26,882) | ||||
Total assets | $6,436,175 | $1,493,159 | $7,929,334 | ||
68
Nine Months Ended September 30, 2025 | |||||
(in thousands) | LMM Commercial Real Estate | Small Business Lending | Total | ||
Interest income | $353,097 | $92,096 | $445,193 | ||
Interest expense | (342,998) | (60,276) | (403,274) | ||
Net interest income before recovery of loan losses | $10,099 | $31,820 | $41,919 | ||
Recovery of (provision for) loan losses | 81,815 | (18,864) | 62,951 | ||
Net interest income after recovery of (provision for) loan losses | $91,914 | $12,956 | $104,870 | ||
Non-interest income | |||||
Net realized gain (loss) on financial instruments and real estate owned | (191,113) | 59,600 | (131,513) | ||
Net unrealized gain (loss) on financial instruments | (2,453) | 3,079 | 626 | ||
Valuation (allowance) recovery, loans held for sale | 38,761 | — | 38,761 | ||
Servicing income, net | 4,501 | 9,160 | 13,661 | ||
Income (loss) on unconsolidated joint ventures | 3,250 | 41 | 3,291 | ||
Other income | 13,050 | 21,259 | 34,309 | ||
Total non-interest income (loss) | $(134,004) | $93,139 | $(40,865) | ||
Non-interest expense | |||||
Employee compensation and benefits | (17,373) | (43,678) | (61,051) | ||
Allocated employee compensation and benefits from related party | (1,048) | — | (1,048) | ||
Professional fees | (2,537) | (9,451) | (11,988) | ||
Loan servicing expense | (34,158) | (2,495) | (36,653) | ||
Impairment on real estate | (8,476) | — | (8,476) | ||
Other operating expenses | (20,830) | (30,522) | (51,352) | ||
Total non-interest expense | $(84,422) | $(86,146) | $(170,568) | ||
Income (loss) before unallocated expenses and provision for income taxes | $(126,512) | $19,949 | $(106,563) | ||
Unallocated corporate income (expenses) | |||||
Gain on bargain purchase | 112,562 | ||||
Employee compensation and benefits | (13,943) | ||||
Professional fees | (5,876) | ||||
Management fees – related party | (15,805) | ||||
Transaction related expenses | (5,243) | ||||
Other operating expenses - net | (3,501) | ||||
Total unallocated corporate income | $68,194 | ||||
Loss before provision for income taxes | $(38,369) | ||||
Total assets | $6,436,175 | $1,493,159 | $7,929,334 | ||
69
Three Months Ended September 30, 2024 | |||||
(in thousands) | LMM Commercial Real Estate | Small Business Lending | Total | ||
Interest income | $193,252 | $33,285 | $226,537 | ||
Interest expense | (150,489) | (25,083) | (175,572) | ||
Net interest income before provision for loan losses | $42,763 | $8,202 | $50,965 | ||
Provision for loan losses | (49,240) | (3,926) | (53,166) | ||
Net interest income after provision for loan losses | $(6,477) | $4,276 | $(2,201) | ||
Non-interest income | |||||
Net realized gain (loss) on financial instruments and real estate owned | (95,206) | 26,022 | (69,184) | ||
Net unrealized gain (loss) on financial instruments | (2,447) | 1,206 | (1,241) | ||
Valuation allowance, loans held for sale | 71,060 | — | 71,060 | ||
Servicing income, net | 1,445 | 3,970 | 5,415 | ||
Income on unconsolidated joint ventures | 3,204 | 10 | 3,214 | ||
Other income | 2,803 | 10,792 | 13,595 | ||
Total non-interest income (loss) | $(19,141) | $42,000 | $22,859 | ||
Non-interest expense | |||||
Employee compensation and benefits | (6,462) | (13,852) | (20,314) | ||
Allocated employee compensation and benefits from related party | (254) | — | (254) | ||
Professional fees | (809) | (3,326) | (4,135) | ||
Loan servicing expense | (9,632) | (469) | (10,101) | ||
Impairment on real estate | (525) | — | (525) | ||
Other operating expenses | (3,394) | (12,697) | (16,091) | ||
Total non-interest expense | $(21,076) | $(30,344) | $(51,420) | ||
Income (loss) before unallocated expenses and provision for income taxes | $(46,694) | $15,932 | $(30,762) | ||
Unallocated corporate income (expenses) | |||||
Gain on bargain purchase | 32,165 | ||||
Employee compensation and benefits | (4,958) | ||||
Professional fees | (2,097) | ||||
Management fees – related party | (6,498) | ||||
Transaction related expenses | (2,998) | ||||
Other operating expenses - net | (729) | ||||
Total unallocated corporate income | $14,885 | ||||
Loss before provision for income taxes | $(15,877) | ||||
Total assets | $8,950,073 | $1,486,085 | $10,436,158 | ||
70
Nine Months Ended September 30, 2024 | |||||
(in thousands) | LMM Commercial Real Estate | Small Business Lending | Total | ||
Interest income | $596,062 | $96,948 | $693,010 | ||
Interest expense | (467,718) | (74,826) | (542,544) | ||
Net interest income before provision for loan losses | $128,344 | $22,122 | $150,466 | ||
Provision for loan losses | (4,071) | (3,680) | (7,751) | ||
Net interest income after provision for loan losses | $124,273 | $18,442 | $142,715 | ||
Non-interest income | |||||
Net realized gain (loss) on financial instruments and real estate owned | (99,540) | 56,474 | (43,066) | ||
Net unrealized gain (loss) on financial instruments | (958) | 2,992 | 2,034 | ||
Valuation allowance, loans held for sale | (156,107) | — | (156,107) | ||
Servicing income, net | 3,998 | 8,446 | 12,444 | ||
Income on unconsolidated joint ventures | 4,811 | 10 | 4,821 | ||
Other income | 20,326 | 14,267 | 34,593 | ||
Total non-interest income (loss) | $(227,470) | $82,189 | $(145,281) | ||
Non-interest expense | |||||
Employee compensation and benefits | (21,080) | (31,472) | (52,552) | ||
Allocated employee compensation and benefits from related party | (804) | — | (804) | ||
Professional fees | (3,324) | (9,471) | (12,795) | ||
Loan servicing expense | (33,075) | (832) | (33,907) | ||
Impairment on real estate | (26,627) | — | (26,627) | ||
Other operating expenses | (10,880) | (23,968) | (34,848) | ||
Total non-interest expense | $(95,790) | $(65,743) | $(161,533) | ||
Income (loss) before unallocated expenses and provision for income taxes | $(198,987) | $34,888 | $(164,099) | ||
Unallocated corporate income (expenses) | |||||
Gain on bargain purchase | 13,859 | ||||
Employee compensation and benefits | (13,883) | ||||
Professional fees | (6,535) | ||||
Management fees – related party | (19,344) | ||||
Transaction related expenses | (5,240) | ||||
Other operating expenses - net | (6,434) | ||||
Total unallocated corporate expenses | $(37,577) | ||||
Loss before provision for income taxes | $(201,676) | ||||
Total assets | $8,950,073 | $1,486,085 | $10,436,158 | ||
Note 27. Subsequent Events
The Company has evaluated subsequent events through the issuance date of the consolidated financial statements and
determined that no additional disclosure is necessary.
71
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 Quarterly Report on Form 10-Q (the
“Form 10-Q”) 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 Form 10-Q 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 expected leverage;
•our expected investments;
•estimates or statements relating to, and our ability to make, future distributions;
•projected capital and operating expenditures;
•our ability to use our liquidity and capital resources, including cash on hand, anticipated net payments from the
loan portfolio, debt financings and proceeds from the potential disposition of assets, to provide liquidity to fund
ongoing obligations and address upcoming debt maturities;
•our ability to utilize liquidity and capital resources, together with our access to the capital markets and
potentially other balance-sheet actions, such as adjustments to our dividend rate, to meet our liquidity needs;
•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;
•tariffs imposed or threatened to be imposed by the current presidential administration;
•changes in prepayments or acceleration of the disposition of our assets;
•risks associated with achieving expected synergies, cost savings and other benefits from recent acquisitions,
including the acquisitions of United Development Funding IV (“UDF IV”), Madison One Capital, M1 CUSO
72
and Madison One Lender Services (together, “Madison One”), and Funding Circle USA, Inc. (“Funding
Circle”), and our increased scale;
•risks associated with the completed divestiture of our Residential Mortgage Banking segment;
•market, industry and economic trends;
•our ability to compete in the marketplace;
•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”), government-guaranteed loans focused on the
United States Department of Agriculture (“USDA”), 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, including
pursuant to policies of the U.S. administration, the U.S. Department of the Treasury (“Treasury”) and the Board
of Governors of the Federal Reserve System, the Federal Deposit 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, 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 our 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;
73
•geopolitical events such as acts of terrorism, war or other military conflict, and the related impact on
macroeconomic conditions; and
•the impact of future pandemics and epidemics on our borrowers, the real estate industry and global markets, and
on our business and operations, financial condition, results of operations, liquidity and capital resources.
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 Form 10-
Q. 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. Refer to Item 1A. “Risk Factors” and
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2024 (our “Form 10-K”).
Introduction
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to
provide a reader of our interim consolidated financial statements with a narrative from the perspective of our
management on our financial condition, results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A is presented in five main sections:
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Contractual Obligations and Off-Balance Sheet Arrangements
•Critical Accounting Estimates
The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and
accompanying Notes included in Part I, Item 1, “Financial Statements,” of this Form 10-Q and with Items 6, 7, 8, and 9A
of our Form 10-K. Refer to “Forward-Looking Statements” in this Form 10-Q and in our Form 10-K and “Critical
Accounting Estimates” in our Form 10-K for certain other factors that may cause actual results to differ, materially, from
those anticipated in the forward-looking statements included in this Form 10-Q.
Overview
Our Business
We are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA
loans, construction loans, USDA loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real
estate-related investments. Our loans generally range in original principal amounts 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 in our asset classes and segments with the most attractive risk-adjusted
returns.
We completed the disposition of our Residential Mortgage Banking segment effective on June 30, 2025. In connection
with this sale, we classified our Residential Mortgage Banking segment as a discontinued operation. For all periods
presented, the operating results for these operations have been removed from continuing operations. Our MD&A 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 subsidiary,
ReadyCap Commercial, LLC. 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
74
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, a 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 the SBA Section 7(a) Program through our subsidiary, ReadyCap Lending, LLC. We hold an SBA
license as one of only 16 non-bank Small Business Lending Companies and have been granted preferred
lender status by the SBA. These originated loans are either held-for-investment, placed into securitization
structures, or sold. In addition, we acquire, originate and service USDA loans through our subsidiary,
Madison One, as well as originate and service small business loans through our subsidiary iBusiness
Funding LLC.
We are organized and conduct our operations to qualify as a REIT under the Internal Revenue Code of 1986, as
amended. To qualify as a REIT, we are required to annually distribute substantially all 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 U.S. federal
corporate income tax on the undistributed income. 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.
For additional information on our business, refer to Part I, Item 1, “Business” in our Form 10-K.
Acquisitions
United Development Funding IV. On March 13, 2025, pursuant to the terms of the Agreement and Plan of Merger,
dated as of November 29, 2024, by and among the Company, UDF IV, and RC Merger Sub IV, LLC, a wholly owned
subsidiary of the Company (“RC Merger Sub IV”), the Company acquired UDF IV, a real estate investment trust
providing capital solutions to residential real estate developers and regional homebuilders, (the “UDF IV Merger”). At
the effective time of the UDF IV Merger (the “Effective Time”), each outstanding common share of beneficial interest,
par value $0.01 per share, of UDF IV (“UDF IV Common Shares”), excluding any UDF IV Common Shares held by
UDF IV, the Company, RC Merger Sub IV or their subsidiaries, was automatically cancelled and retired and converted
into the right to receive (i) 0.416 shares of Company common stock, (ii) 0.416 contingent value rights (“CVRs”)
representing the potential right to receive additional shares of Company common stock after the end of each of (1) the
period beginning on October 1, 2024, and ending on December 31, 2025 and (2) the three subsequent calendar years,
based, in part, upon cash proceeds received by the Company and its subsidiaries in respect of a portfolio of five UDF IV
loans and (iii) cash consideration in lieu of any fractional shares of Company common stock. Refer to Notes 1 and 5,
included in Part I, Item 1, “Financial Statements,” of this Form 10-Q, for more information about the UDF IV Merger
and the assets acquired and liabilities assumed as a result of the UDF IV Merger.
Funding Circle. On July 1, 2024, the Company acquired Funding Circle through its subsidiary, iBusiness Funding LLC,
for approximately $41.2 million in cash plus the assumption of certain liabilities (the “Funding Circle Acquisition”).
Funding Circle is an online lending platform that originates and services small business loans. The Funding Circle
Acquisition integrates Funding Circle’s loan origination servicing platform with the Company’s Lending as a Service
and LenderAI product offerings. Refer to Notes 1 and 5, included in Part I, Item 1, “Financial Statements,” of this Form
10-Q, for more information about the Funding Circle Acquisition and the assets acquired and liabilities assumed as a
result of the Funding Circle Acquisition.
Madison One. On June 5, 2024, the Company acquired Madison One, a leading originator and servicer of USDA and
SBA guaranteed loan products, for an initial purchase price of approximately $32.9 million paid in cash (the “Madison
One Acquisition”). Approximately $3.6 million of the initial purchase price was paid as bonuses to certain key Madison
One personnel in cash. Additional purchase price payments, including cash payments and the issuance of shares of
75
common stock of the Company, may be made over the four years following the acquisition date contingent upon the
Madison One business achieving certain performance metrics. Part of the Company’s strategy in acquiring Madison One
included the value of the anticipated synergies arising from the acquisition and the value of the acquired assembled
workforce, neither of which qualify for recognition as an intangible asset. Refer to Notes 1 and 5, included in Part I, Item
1, “Financial Statements,” of this Form 10-Q, for more information about the Madison One Acquisition and the assets
acquired and liabilities assumed as a result of the Madison One Acquisition.
Factors Impacting Operating Results
We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of
interest income from our assets, the market and fair value of our assets and the supply of, and demand for, LMM loans,
SBA loans, USDA loans, construction loans, MBS and other assets we may acquire in the future, demand for housing,
population trends, construction costs, the availability of alternative real estate financing from other lenders, changes in
credit spreads, and the financing and other costs associated with our business. These factors may have an impact on our
ability to originate new loans or the performance of our existing loan portfolio. Our net investment income, which
includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of
changes in market interest rates, the rate at which our distressed assets are liquidated and the prepayment speed of our
performing assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the
financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating
results may also be impacted by changes in our provision for loan losses. Increases in the provision for loan loss are
primarily driven by a deterioration in the contractual performance of a loan. Macroeconomic factors including interest
rates and inflation, as well as supply absorption and cap rate movements, may contribute to a deterioration in a loan’s
contractual performance. In certain circumstances, the Company may choose to modify a loan which had experienced
financial difficulty due to the factors previously described. Our operating results may also be impacted by our available
borrowing capacity, conditions in the financial markets, credit losses in excess of initial estimates or unanticipated credit
events experienced by borrowers whose loans are held directly by us or are included in our MBS. Difficult market
conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases,
unemployment and the availability and cost of credit are factors which could also impact our operating results.
For additional information about certain risks we face, including market risk, credit risk, interest rate risk, liquidity risk,
off-balance sheet risk and prepayment risk, refer to Note 23, included in Part I, Item 1, “Financial Statements,” and Part
I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-Q, as well as Part I, Item 1A,
“Risk Factors” in our Form 10-K.
Changes in Market Interest Rates. We own and expect to acquire or originate fixed rate and floating rate loans with
maturities ranging from two to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon
payments due in two to 10 years. Fixed rate loans bear interest that is fixed for the term of the loan and we typically
utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with such fixed
rate loans. As of September 30, 2025, all fixed rate loans are match funded in securitization. Floating rate loans generally
have an adjustable interest rate equal to the sum of a fixed spread plus an index rate, such as the Secured Overnight
Financing Rate (“SOFR”), which typically resets monthly. As of September 30, 2025, approximately 81% of the loans in
our portfolio were floating rate loans, and 19% were fixed rate loans, based on carrying value.
Current market conditions. During the third quarter, macroeconomic concerns persisted including global market
volatility, uncertainty about trade policies, geopolitical tensions, inflationary pressures and interest rates. The U.S.
Federal Reserve delivered its first interest rate cut since November 2024, but there is uncertainty regarding if and when
further decreases will occur. Although the full impact of these changes remains uncertain and difficult to predict,
concerns and uncertainties about the economic outlook may adversely impact our financial condition, results of
operations and cash flows.
Results of Operations
Key Financial Measures and Indicators
As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per
share, dividends declared per share, distributable earnings, return on equity, and net book value per share. As further
described below, distributable earnings is a measure that is not prepared in accordance with GAAP. We use distributable
earnings to evaluate our performance and determine dividends, excluding the effects of certain transactions and GAAP
76
adjustments that we believe are not necessarily indicative of our current loan activity and operations. Refer to “—Non-
GAAP Financial Measures” below for a reconciliation of net income to distributable earnings.
The table below sets forth certain information on our operating results.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
($ in thousands, except share data) | 2025 | 2024 | 2025 | 2024 | |||
Net Income (loss) from continuing operations | $(16,947) | $(7,473) | $16,712 | $(114,482) | |||
Earnings per common share from continuing operations - basic | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Earnings per common share from continuing operations - diluted | $(0.13) | $(0.07) | $0.02 | $(0.74) | |||
Distributable earnings before realized losses | $(2,170) | $46,558 | $(10,734) | $137,418 | |||
Distributable earnings before realized losses per common share - basic | $(0.04) | $0.25 | $(0.14) | $0.74 | |||
Distributable earnings before realized losses per common share - diluted | $(0.04) | $0.25 | $(0.14) | $0.74 | |||
Distributable earnings | $(149,592) | $(42,514) | $(180,768) | $28,093 | |||
Distributable earnings per common share - basic | $(0.94) | $(0.28) | $(1.17) | $0.10 | |||
Distributable earnings per common share - diluted | $(0.94) | $(0.28) | $(1.17) | $0.10 | |||
Dividends declared per common share | $0.125 | $0.25 | $0.38 | $0.85 | |||
Dividend yield (1) | 12.9% | 13.1% | 12.9% | 13.1% | |||
Return on equity from continuing operations | (4.5)% | (1.8)% | 1.2% | (7.2)% | |||
Distributable return on equity before realized losses | (1.0)% | 8.4% | (2.1)% | 7.6% | |||
Distributable return on equity | (35.7)% | (8.2)% | (21.6)% | 1.3% | |||
Book value per common share | $10.28 | $12.59 | $10.28 | $12.59 | |||
(1)Dividend yield is based on the respective period end closing share price.
Our Loan Pipeline
We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our
investment process. We refer to assets as being part of our acquisition or origination pipeline if (i) an asset or portfolio
opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our
investment strategy and exhibit the appropriate risk/reward characteristics (ii) in the case of acquired loans, we have
executed a non-disclosure agreement or an exclusivity agreement and commenced the due diligence process or we have
executed more definitive documentation, such as a letter of intent (“LOI”); and (iii) in the case of originated loans, we
have issued an LOI, and the borrower has paid a deposit.
We operate in a competitive market for investment opportunities and competition may limit our ability to originate or
acquire the potential investments in the pipeline. The consummation of any of the potential loans in the pipeline depends
upon, among other things, one or more of the following: available capital and liquidity, our Manager’s allocation policy,
satisfactory completion of our due diligence investigation and investment process, approval of our Manager’s Investment
Committee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the
execution and delivery of satisfactory transaction documentation. Historically, we have acquired less than a majority of
the assets in our pipeline at any one time and there can be no assurance the assets currently in our pipeline will be
acquired or originated by us in the future.
The table below presents information on our investment portfolio originations (based on fully committed amounts).
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands) | 2025 | 2024 | 2025 | 2024 | |||
Loan originations: | |||||||
LMM loans | $139,200 | $246,175 | $391,213 | $762,242 | |||
SBL loans | 282,607 | 439,704 | 1,028,746 | 854,121 | |||
Total loan investment activity | $421,807 | $685,879 | $1,419,959 | $1,616,363 | |||
77
Balance Sheet Analysis and Metrics
(in thousands) | September 30, 2025 | December 31, 2024 | $ Change | % Change | |||
Assets | |||||||
Cash and cash equivalents | $147,505 | $143,803 | $3,702 | 2.6% | |||
Restricted cash | 44,491 | 30,560 | 13,931 | 45.6 | |||
Loans, net (including $1,088 and $3,533 held at fair value) | 4,360,501 | 3,378,149 | 982,352 | 29.1 | |||
Loans, held for sale (including $143,819 and $128,531 held at fair value and net of valuation allowance of $53,937 and $97,620) | 163,792 | 241,626 | (77,834) | (32.2) | |||
Mortgage-backed securities | 33,105 | 31,006 | 2,099 | 6.8 | |||
Investment in unconsolidated joint ventures (including $5,952 and $6,577 held at fair value) | 178,840 | 161,561 | 17,279 | 10.7 | |||
Derivative instruments | 5,295 | 7,963 | (2,668) | (33.5) | |||
Servicing rights | 126,966 | 128,440 | (1,474) | (1.1) | |||
Real estate owned | 632,985 | 193,437 | 439,548 | 227.2 | |||
Other assets | 472,516 | 362,486 | 110,030 | 30.4 | |||
Assets of consolidated VIEs | 2,166,105 | 5,175,295 | (3,009,190) | (58.1) | |||
Assets held for sale | — | 287,595 | (287,595) | (100.0) | |||
Total Assets | $8,332,101 | $10,141,921 | $(1,809,820) | (17.8)% | |||
Liabilities | |||||||
Secured borrowings | 2,879,172 | 2,035,176 | 843,996 | 41.5 | |||
Securitized debt obligations of consolidated VIEs, net | 1,293,778 | 3,580,513 | (2,286,735) | (63.9) | |||
Senior secured notes, net | 721,151 | 437,847 | 283,304 | 64.7 | |||
Corporate debt, net | 666,624 | 895,265 | (228,641) | (25.5) | |||
Guaranteed loan financing | 565,883 | 691,118 | (125,235) | (18.1) | |||
Contingent consideration | 18,385 | 573 | 17,812 | 3,108.6 | |||
Derivative instruments | 1,627 | 352 | 1,275 | 362.2 | |||
Dividends payable | 22,602 | 43,168 | (20,566) | (47.6) | |||
Loan participations sold | 102,987 | 95,578 | 7,409 | 7.8 | |||
Due to third parties | 9,927 | 1,442 | 8,485 | 588.4 | |||
Accounts payable and other accrued liabilities | 166,406 | 188,051 | (21,645) | (11.5) | |||
Liabilities held for sale | — | 228,735 | (228,735) | (100.0) | |||
Total Liabilities | $6,448,542 | $8,197,818 | $(1,749,276) | (21.3)% | |||
Preferred stock Series C, liquidation preference $25.00 per share | 8,361 | 8,361 | — | — | |||
Commitments & contingencies | |||||||
Stockholders’ Equity | |||||||
Preferred stock Series E, liquidation preference $25.00 per share | 111,378 | 111,378 | — | — | |||
Common stock, $0.0001 par value, 500,000,000 shares authorized, 161,834,837 and 162,792,372 shares issued and outstanding, respectively | 17 | 17 | — | — | |||
Additional paid-in capital | 2,257,078 | 2,250,291 | 6,787 | 0.3 | |||
Retained earnings (deficit) | (569,709) | (505,089) | (64,620) | 12.8 | |||
Accumulated other comprehensive loss | (24,096) | (18,552) | (5,544) | (29.9) | |||
Total Ready Capital Corporation equity | 1,774,668 | 1,838,045 | (63,377) | (3.4) | |||
Non-controlling interests | 100,530 | 97,697 | 2,833 | 2.9 | |||
Total Stockholders’ Equity | $1,875,198 | $1,935,742 | $(60,544) | (3.1)% | |||
Total Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity | $8,332,101 | $10,141,921 | $(1,809,820) | (17.8)% |
As of September 30, 2025, total assets in our consolidated balance sheet were $8.3 billion, a decrease of $1.8 billion
from December 31, 2024, primarily reflecting a decrease in Assets of consolidated VIEs, partially offset by an increase
in Loans, net and Real estate owned. Assets of consolidated VIEs decreased $3.0 billion, primarily due to the collapse of
RCMF 2021-FL5, RCMF 2021-FL6, RCMF 2022-FL8, RCMF 2022-FL9 and RCMF 2022-FL10 and paydowns on
securitized loans. Loans, net increased $1.0 billion, primarily due to the collapse of RCMF 2021-FL5, RCMF 2021-FL6,
RCMF 2022-FL8, RCMF 2022-FL9 and RCMF 2022-FL10, partially offset by sales, paydowns and the transfer of
Loans, net to both Loans, held for sale and Real estate owned. Real estate owned increased $0.4 billion, due to the
settlement of the Portland, mixed-use asset loan obligation via a consensual deed-in-lieu arrangement, partially offset by
sales.
78
As of September 30, 2025, total liabilities in our consolidated balance sheet were $6.4 billion, a decrease of $1.7 billion
from December 31, 2024, primarily reflecting a decrease in Securitized debt obligations of consolidated VIEs, net,
partially offset by an increase in Secured borrowings. Securitized debt obligations of consolidated VIEs, net decreased
$2.3 billion due to paydowns on securitized loans including the collapse of RCMF 2021-FL5, RCMF 2021-FL6, RCMF
2022-FL8, RCMF 2022-FL9 and RCMF 2022-FL10. Secured borrowings increased $0.8 billion due to the collapse of
RCMF 2021-FL5, RCMF 2021-FL6, RCMF 2022-FL8, RCMF 2022-FL9 and RCMF 2022-FL10, partially offset by
payoffs.
As of September 30, 2025, total stockholders’ equity was $1.9 billion, a decrease of $60.5 million from December 31,
2024, primarily due to dividends paid and common stock repurchased through the Company’s share repurchase program,
partially offset by shares issued in connection with the acquisition of UDF IV.
Selected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data
by business segments, with the remaining amounts reflected in Unallocated –Corporate.
(in thousands) | LMM Commercial Real Estate | Small Business Lending | Total | ||
September 30, 2025 | |||||
Assets | |||||
Loans, net | $5,111,811 | $1,205,173 | $6,316,984 | ||
Loans, held for sale | 38,920 | 124,872 | 163,792 | ||
MBS | 33,105 | — | 33,105 | ||
Investment in unconsolidated joint ventures | 178,439 | 401 | 178,840 | ||
Servicing rights | 62,262 | 64,704 | 126,966 | ||
Real estate owned | 648,268 | 5 | 648,273 | ||
Liabilities | |||||
Secured borrowings | 2,509,745 | 369,427 | 2,879,172 | ||
Securitized debt obligations of consolidated VIEs | 1,211,416 | 82,362 | 1,293,778 | ||
Senior secured notes, net | 713,525 | 7,626 | 721,151 | ||
Corporate debt, net | 666,624 | — | 666,624 | ||
Guaranteed loan financing | — | 565,883 | 565,883 | ||
Loan participations sold | 102,987 | — | 102,987 |
In the table above,
•Loans, net includes assets of consolidated VIEs.
•Loans, held for sale includes assets of consolidated VIEs, net of valuation allowance.
•Real estate owned includes assets of consolidated VIEs.
Refer to Exhibit 99.1 to this Form 10-Q for additional financial information related to a selection of our loan portfolio as
of June 30, 2025.
79
Statement of Operations Analysis and Metrics
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in thousands) | 2025 | 2024 | $ Change | 2025 | 2024 | $ Change | |||||
Interest income | |||||||||||
LMM commercial real estate | $105,856 | $193,252 | $(87,396) | $353,097 | $596,062 | $(242,965) | |||||
Small business lending | 31,635 | 33,285 | (1,650) | 92,096 | 96,948 | (4,852) | |||||
Total interest income | $137,491 | $226,537 | $(89,046) | $445,193 | $693,010 | $(247,817) | |||||
Interest expense | |||||||||||
LMM commercial real estate | (106,556) | (150,489) | 43,933 | (342,998) | (467,718) | 124,720 | |||||
Small business lending | (20,415) | (25,083) | 4,668 | (60,276) | (74,826) | 14,550 | |||||
Total interest expense | $(126,971) | $(175,572) | $48,601 | $(403,274) | $(542,544) | $139,270 | |||||
Net interest income before recovery of (provision for) loan losses | $10,520 | $50,965 | $(40,445) | $41,919 | $150,466 | $(108,547) | |||||
Recovery of (provision for) loan losses | |||||||||||
LMM commercial real estate | (30,980) | (49,240) | 18,260 | 81,815 | (4,071) | 85,886 | |||||
Small business lending | (6,997) | (3,926) | (3,071) | (18,864) | (3,680) | (15,184) | |||||
Total recovery of (provision for) loan losses | $(37,977) | $(53,166) | $15,189 | $62,951 | $(7,751) | $70,702 | |||||
Net interest income after recovery of (provision for) loan losses | $(27,457) | $(2,201) | $(25,256) | $104,870 | $142,715 | $(37,845) | |||||
Non-interest income (loss) | |||||||||||
LMM commercial real estate | 17,028 | (19,141) | 36,169 | (134,004) | (227,470) | 93,466 | |||||
Small business lending | 32,564 | 42,000 | (9,436) | 93,139 | 82,189 | 10,950 | |||||
Unallocated corporate income | 25,322 | 33,393 | (8,071) | 114,844 | 16,512 | 98,332 | |||||
Total non-interest income (loss) | $74,914 | $56,252 | $18,662 | $73,979 | $(128,769) | $202,748 | |||||
Non-interest expense | |||||||||||
LMM commercial real estate | (29,138) | (21,076) | (8,062) | (84,422) | (95,790) | 11,368 | |||||
Small business lending | (28,363) | (30,344) | 1,981 | (86,146) | (65,743) | (20,403) | |||||
Unallocated corporate expenses | (16,838) | (18,508) | 1,670 | (46,650) | (54,089) | 7,439 | |||||
Total non-interest expense | $(74,339) | $(69,928) | $(4,411) | $(217,218) | $(215,622) | $(1,596) | |||||
Net income (loss) before provision for income taxes | |||||||||||
LMM commercial real estate | (43,790) | (46,694) | 2,904 | (126,512) | (198,987) | 72,475 | |||||
Small business lending | 8,424 | 15,932 | (7,508) | 19,949 | 34,888 | (14,939) | |||||
Unallocated corporate expenses | 8,484 | 14,885 | (6,401) | 68,194 | (37,577) | 105,771 | |||||
Total net income (loss) before provision for income taxes | $(26,882) | $(15,877) | $(11,005) | $(38,369) | $(201,676) | $163,307 | |||||
80
Results of Operations – Supplemental Information. Realized and unrealized gains (losses) on financial instruments are
recorded in the consolidated statements of operations and classified based on the nature of the underlying asset or
liability.
The table below presents the components of realized and unrealized gains (losses) on financial instruments.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in thousands) | 2025 | 2024 | $ Change | 2025 | 2024 | $ Change | |||||
Realized gain (loss) on financial instruments | |||||||||||
Creation of mortgage servicing rights | |||||||||||
SBA - 7(a) | $2,534 | $4,850 | $(2,316) | $9,623 | $10,764 | $(1,141) | |||||
Multi-family | 1,102 | 1,836 | (734) | 3,730 | 4,452 | (722) | |||||
USDA | 3,085 | 1,544 | 1,541 | 6,255 | 2,016 | 4,239 | |||||
Small business loans | 476 | 444 | 32 | 1,600 | 444 | 1,156 | |||||
Total Creation of mortgage servicing rights | $7,197 | $8,674 | $(1,477) | $21,208 | $17,676 | $3,532 | |||||
Loans | |||||||||||
SBA - 7(a) | 8,608 | 19,227 | (10,619) | 36,085 | 43,765 | (7,680) | |||||
Multi-family | 374 | 137 | 237 | 897 | 775 | 122 | |||||
USDA | 4,340 | 476 | 3,864 | 6,197 | 476 | 5,721 | |||||
Total loans | $13,322 | $19,840 | $(6,518) | $43,179 | $45,016 | $(1,837) | |||||
Gain on sale business | |||||||||||
SBA - 7(a) | 11,142 | 24,077 | (12,935) | 45,708 | 54,529 | (8,821) | |||||
Multi-family | 1,476 | 1,973 | (497) | 4,627 | 5,227 | (600) | |||||
USDA | 7,425 | 2,020 | 5,405 | 12,452 | 2,492 | 9,960 | |||||
Small business loans | 476 | 444 | 32 | 1,600 | 444 | 1,156 | |||||
Total gain on sale business | $20,519 | $28,514 | $(7,995) | $64,387 | $62,692 | $1,695 | |||||
Loans, held for sale | |||||||||||
Bridge | (178,022) | (43,885) | (134,137) | (194,907) | (43,885) | (151,022) | |||||
Construction | (1,001) | (49,287) | 48,286 | (1,020) | (54,209) | 53,189 | |||||
Other | — | (8,689) | 8,689 | — | (8,689) | 8,689 | |||||
Total loans, held for sale | $(179,023) | $(101,861) | $(77,162) | $(195,927) | $(106,783) | $(89,144) | |||||
Loans, net | |||||||||||
Bridge | (753) | (312) | (441) | (1,751) | 14 | (1,765) | |||||
Fixed rate | (1,701) | (14) | (1,687) | (1,717) | (14) | (1,703) | |||||
Construction | 218 | — | 218 | 144 | (6,938) | 7,082 | |||||
Other | (778) | (40) | (738) | (879) | (425) | (454) | |||||
Total loans, net | $(3,014) | $(366) | $(2,648) | $(4,203) | $(7,363) | $3,160 | |||||
Net realized gain (loss) on derivatives, at fair value | $1,807 | $4,460 | $(2,653) | $5,772 | $13,330 | $(7,558) | |||||
Net realized gain (loss) - all other | $(685) | $69 | $(754) | $(1,542) | $(4,942) | $3,400 | |||||
Net realized gain (loss) on financial instruments | $(160,396) | $(69,184) | $(91,212) | $(131,513) | $(43,066) | $(88,447) | |||||
Unrealized gain (loss) on financial instruments | |||||||||||
Loans, held for sale | |||||||||||
Fixed rate | — | (75) | 75 | 10 | (959) | 969 | |||||
Freddie Mac | 32 | 192 | (160) | (123) | (27) | (96) | |||||
SBA - 7(a) | (597) | (251) | (346) | 1,027 | 1,535 | (508) | |||||
Other | 384 | (320) | 704 | 622 | (27) | 649 | |||||
Total Loans, held for sale | $(181) | $(454) | $273 | $1,536 | $522 | $1,014 | |||||
Net unrealized gain (loss) on preferred equity, at fair value | $1,949 | $— | $1,949 | $(2,278) | $— | $(2,278) | |||||
Net unrealized gain (loss) on derivatives, at fair value | $229 | $(992) | $1,221 | $(683) | $(1,405) | $722 | |||||
Net unrealized gain (loss) - all other | $917 | $205 | $712 | $975 | $2,917 | $(1,942) | |||||
Net unrealized gain (loss) on financial instruments | $2,914 | $(1,241) | $4,155 | $(450) | $2,034 | $(2,484) | |||||
LMM Commercial Real Estate Segment Results.
Q3 2025 versus Q3 2024. Interest income of $105.9 million represented a decrease of $87.4 million, primarily due to an
increase in non-accrual loans, decreased loan balances and interest rates. Interest expense of $106.6 million represented a
decrease of $43.9 million, driven by decreased loan balances and interest rates. Provision for loan losses of $31.0 million
represented a decrease of $18.3 million, primarily due to loan sales. Non-interest income of $17.0 million represented an
increase of $36.2 million, primarily due to an increase in the valuation recovery and income from the Portland mixed-use
asset, partially offset by an increase in realized losses on financial instruments related to loan sales. Non-interest expense
81
of $29.1 million represented an increase of $8.1 million, due to an increase in other operating expenses primarily driven
by operating costs and depreciation related to the Portland mixed-use asset.
YTD 2025 versus YTD 2024. Interest income of $353.1 million represented a decrease of $243.0 million, primarily due
to an increase in non-accrual loans, decreased loan balances and interest rates. Interest expense of $343.0 million
represented a decrease of $124.7 million, driven by decreased loan balances and interest rates. Recovery of loan losses of
$81.8 million represented an increase of $85.9 million, primarily due to loans transferred from Loans, net to Loans, held
for sale, partially offset by loan sales. Non-interest loss of $134.0 million represented a decrease of $93.5 million,
primarily due to a decrease in the valuation allowance and income from the Portland mixed-use asset, partially offset by
an increase in realized losses on financial instruments related to loan sales. Non-interest expense of $84.4 million
represented a decrease of $11.4 million, due to a decrease in charge-offs of real estate acquired in settlement of loans,
partially offset by an increase in other operating expenses primarily driven by operating costs and depreciation related to
the Portland mixed-use asset.
Small Business Lending Segment Results.
Q3 2025 versus Q3 2024. Interest income of $31.6 million represented a decrease of $1.7 million, primarily due to
decreases in interest rates, partially offset by increases in loan balances. Interest expense of $20.4 million represented a
decrease of $4.7 million, driven by decreased debt balances and interest rates. Provision for loan losses of $7.0 million
represented an increase of $3.1 million, due to changes in the forecasted macroeconomic inputs for reserve modeling and
an increase in asset specific reserves. Non-interest income of $32.6 million represented a decrease of $9.4 million,
primarily due to a decrease in realized gains on financial instruments and loan origination income, partially offset by
servicing income. Non-interest expense of $28.4 million represented a decrease of $2.0 million, due to decreases in loan
origination expenses, partially offset by increases in loan servicing expenses.
YTD 2025 versus YTD 2024. Interest income of $92.1 million represented a decrease of $4.9 million, primarily due to
decreases in interest rates, partially offset by increases in loan balances. Interest expense of $60.3 million represented a
decrease of $14.6 million, driven by decreased debt balances and interest rates. Provision for loan losses of $18.9 million
represented an increase of $15.2 million, due to changes in the forecasted macroeconomic inputs for reserve modeling
and an increase in asset specific reserves. Non-interest income of $93.1 million represented an increase of $11.0 million,
primarily due to loan origination income, net realized gains on financial instruments and servicing income. Non-interest
expense of $86.1 million represented an increase of $20.4 million, due to increases in employee compensation and
benefits, loan origination expenses and loan servicing expenses.
Unallocated – Corporate.
Q3 2025 versus Q3 2024. Non-interest income of $25.3 million represented a decrease of $8.1 million, primarily due to
a lower gain on bargain purchase recognized from the UDF IV Merger. Such gain on bargain purchase was primarily
driven by a discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a
change in our stock price between the date of the agreement and the closing date of the UDF IV Merger, when compared
to the respective prior year period gain on bargain purchase recognized from the Funding Circle Acquisition. Non-
interest expense of $16.8 million represented a decrease of $1.7 million, primarily due to decreased management fees
and transaction related expenses, partially offset by an increase in employee compensation and benefits.
YTD 2025 versus YTD 2024. Non-interest income of $114.8 million represented an increase of $98.3 million, primarily
due to a gain on bargain purchase recognized from the UDF IV Merger, primarily driven by a discount in UDF IV’s
market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a change in our stock price between
the date of the agreement and the closing date of the UDF IV Merger. Non-interest expense of $46.7 million represented
a decrease of $7.4 million, primarily due to decreased management fees and other operating expenses.
Non-GAAP financial measures
We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors
greater transparency into the information used by management in our financial and operational decision-making,
including the determination of dividends.
82
We calculate distributable earnings as GAAP net income (loss) excluding the following:
i)any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses
ii)any realized gains or losses on sales of certain MBS
iii)any unrealized gains or losses on Residential MSRs from discontinued operations
iv)any unrealized change in current expected credit loss reserve and valuation allowances
v)any unrealized gains or losses on de-designated cash flow hedges
vi)any unrealized gains or losses on foreign exchange hedges
vii)any unrealized gains or losses on certain unconsolidated joint ventures
viii)any non-cash compensation expense related to stock-based incentive plan
ix)any unrealized gains or losses on preferred equity, at fair value
x)any unrealized gain or losses or other non-cash items related to real estate owned
xi)one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain
purchase gains, or merger related expenses
In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and
losses on MBS acquired by us in the secondary market but is not adjusted to exclude unrealized gains and losses on
MBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS
securitization and retain an interest in the securitization. In calculating distributable earnings, we do not adjust net
income (in accordance with GAAP) to take into account unrealized gains and losses on MBS retained by us as part of
our loan origination businesses because we consider the unrealized gains and losses that are generated in the loan
origination and securitization process to be a fundamental part of this business and an indicator of the ongoing
performance and credit quality of our historical loan originations. In calculating distributable earnings, net income (in
accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of
reasons which may include collateral type, duration, and size.
In addition, in calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude
unrealized gains or losses on residential MSRs, held at fair value from discontinued operations. Servicing rights relating
to our small business commercial business are accounted for under ASC 860, Transfer and Servicing. In calculating
distributable earnings, we do not exclude realized gains or losses on commercial MSRs, as servicing income is a
fundamental part of our business and an indicator of the ongoing performance.
Furthermore, we believe it is useful to present distributable earnings before realized losses on certain investments, such
as charge-offs and losses realized on sales of real estate owned assets and LMM loans, to reflect our direct operating
results. We utilize distributable earnings before realized losses as an additional performance metric to consider when
assessing our ability to declare and pay dividends. Distributable earnings and distributable earnings before realized
losses are non-U.S. GAAP financial measures and because these non-U.S. GAAP measures are incomplete measures of
our financial performance and involve differences from net income computed in accordance with U.S. GAAP, they
should be considered along with, but not as alternatives to, our net income as measures of our financial performance. In
addition, because not all companies use identical calculations, our presentations of distributable earnings and
distributable earnings before realized losses may not be comparable to other similarly-titled measures of other
companies.
To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our
REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for
dividends paid and excluding net capital gain. There are certain items, including net income generated from the creation
of MSRs, that are included in distributable earnings but are not included in the calculation of the current year’s taxable
income. These differences may result in certain items that are recognized in the current period’s calculation of
distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution
requirement, until future years.
83
The table below presents a reconciliation of net income to distributable earnings before realized losses and distributable
earnings.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(in thousands) | 2025 | 2024 | $ Change | 2025 | 2024 | $ Change | |||||
Net Income (loss) | $(16,737) | $(7,279) | $(9,458) | $11,551 | $(115,647) | $127,198 | |||||
Reconciling items: | |||||||||||
Unrealized (gain) loss on MSR - discontinued operations | — | — | — | 8,952 | 7,219 | 1,733 | |||||
Unrealized (gain) loss on joint ventures | (4,336) | 2,173 | (6,509) | 2,322 | 1,512 | 810 | |||||
Increase (decrease) in CECL reserve | 32,844 | 52,442 | (19,598) | (78,796) | (4,313) | (74,483) | |||||
Increase (decrease) in valuation allowance | (178,225) | (71,060) | (107,165) | (38,761) | 156,107 | (194,868) | |||||
Non-recurring REO impairment | 1,862 | 525 | 1,337 | 8,626 | 24,511 | (15,885) | |||||
Depreciation and amortization on real estate owned | 1,100 | — | 1,100 | 1,100 | — | 1,100 | |||||
Non-cash compensation | 1,591 | 1,916 | (325) | 5,010 | 5,684 | (674) | |||||
Unrealized (gain) loss on preferred equity, at fair value | (1,949) | — | (1,949) | 2,278 | — | 2,278 | |||||
Merger transaction costs and other non-recurring expenses | 2,220 | 4,070 | (1,850) | 8,874 | 10,853 | (1,979) | |||||
Bargain purchase (gain) loss | (24,472) | (32,165) | 7,693 | (112,562) | (13,859) | (98,703) | |||||
Realized losses on sale of investments | 188,512 | 109,675 | 78,837 | 217,492 | 132,030 | 85,462 | |||||
Total reconciling items | $19,147 | $67,576 | $(48,429) | $24,535 | $319,744 | $(295,209) | |||||
Income tax adjustments | (4,580) | (13,739) | 9,159 | (46,820) | (66,679) | 19,859 | |||||
Distributable earnings (loss) before realized losses | $(2,170) | $46,558 | $(48,728) | $(10,734) | $137,418 | $(148,152) | |||||
Realized losses on sale of investments, net of tax | (147,422) | (89,072) | (58,350) | (170,034) | (109,325) | (60,709) | |||||
Distributable earnings (loss) | $(149,592) | $(42,514) | $(107,078) | $(180,768) | $28,093 | $(208,861) | |||||
Less: Distributable earnings attributable to non-controlling interests | 1,473 | 1,766 | (293) | 5,419 | 5,097 | 322 | |||||
Less: Income attributable to participating shares | 2,210 | 2,241 | (31) | 6,652 | 6,877 | (225) | |||||
Distributable earnings (loss) attributable to common stockholders | $(153,275) | $(46,521) | $(106,754) | $(192,839) | $16,119 | $(208,958) | |||||
Distributable earnings (loss) before realized losses on investments, net of tax per common share - basic | $(0.04) | $0.25 | $(0.29) | $(0.14) | $0.74 | $(0.88) | |||||
Distributable earnings (loss) before realized losses on investments, net of tax per common share - diluted | $(0.04) | $0.25 | $(0.29) | $(0.14) | $0.74 | $(0.88) | |||||
Distributable earnings (loss) per common share - basic | $(0.94) | $(0.28) | $(0.66) | $(1.17) | $0.10 | $(1.27) | |||||
Distributable earnings (loss) per common share - diluted | $(0.94) | $(0.28) | $(0.66) | $(1.17) | $0.10 | $(1.27) | |||||
Q3 2025 versus Q3 2024. Consolidated net loss of $16.7 million for the third quarter of 2025 represented an increase of
$9.5 million from the third quarter of 2024, primarily due to net realized losses on financial instruments and real estate
owned and a decrease in net interest income, partially offset by an increase in the valuation recovery. Consolidated
distributable loss before realized losses of $2.2 million for the third quarter of 2025 represented a decrease of $48.7
million from the third quarter of 2024. The decrease in the distributable earnings reconciling items is primarily due to an
increase to the valuation recovery, partially offset by realized losses on sale of investments. Consolidated distributable
losses of $149.6 million for the third quarter of 2025 represented a decrease of $107.1 million from the third quarter of
2024 due to certain charge-offs and losses realized on sales of real estate owned assets and LMM loans.
YTD 2025 versus YTD 2024. Consolidated net income of $11.6 million for the nine months ended September 30, 2025
represented an increase of $127.2 million from the nine months ended September 30, 2024, primarily due to a decrease
in the valuation allowance, a gain on bargain purchase recognized from the UDF IV Merger, primarily driven by a
discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a change in our
stock price between the date of the agreement and the closing date of the UDF IV Merger, and an increase in recovery
for loan losses, partially offset by a decrease in net interest income. Consolidated distributable losses before realized
losses of $10.7 million for the nine months ended September 30, 2025 represented a decrease of $148.2 million from the
nine months ended September 30, 2024. The decrease in the distributable earnings reconciling items is primarily due to a
decrease in the valuation allowance, a gain on bargain purchase recognized from the UDF IV Merger, primarily driven
by a discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a change
in our stock price between the date of the agreement and the closing date of the UDF IV Merger, and an increase in
recovery for loan losses, partially offset by realized losses on sale of investments. Consolidated distributable losses of
$180.8 million for the nine months ended September 30, 2025 represented a decrease of $208.9 million from the nine
84
months ended September 30, 2024 due to certain charge-offs and losses realized on sales of real estate owned assets and
LMM loans.
Incentive distribution payable to our Manager
Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our
operating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not
less than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) IFCE (as
described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the
current quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating
partnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number
of shares of common stock outstanding (including any restricted shares of common stock and any other shares of
common stock underlying awards granted under our 2013 Equity Incentive Plan, our 2023 Equity Incentive Plan and
Broadmark's 2019 Stock Incentive Plan (the “Broadmark Equity Plan”), and OP units (without double counting) in such
quarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three
quarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any
calendar quarter unless cumulative IFCE is greater than zero for the most recently completed 12 calendar quarters.
The incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall
promptly be delivered to our Company. We are obligated to pay the incentive distribution 50% in cash and 50% in either
common stock or OP units, as determined in our discretion, within five business days after delivery to our Company of
the written statement from the holder of the Class A special unit setting forth the computation of the incentive
distribution for such quarter. Subject to certain exceptions, our Manager may not sell or otherwise dispose of any portion
of the incentive distribution issued to it in common stock or OP units until after the three-year anniversary of the date
that such shares of common stock or OP units were issued to our Manager. The price of shares of our common stock for
purposes of determining the number of shares payable as part of the incentive distribution is the closing price of such
shares on the last trading day prior to the approval by our Board of the incentive distribution.
For purposes of determining the incentive distribution payable to our Manager, incentive fee core earnings (“IFCE”) is
defined under the partnership agreement of the operating partnership as GAAP net income (loss) of the operating
partnership excluding non-cash equity compensation expense, the expenses incurred in connection with the operating
partnership's formation or continuation, the incentive distribution, real estate depreciation and amortization (to the extent
that we forecloses on any properties underlying our assets) and any unrealized gains, losses, or other non-cash items
recorded in the period, regardless of whether such items are included in other comprehensive income or loss, or in net
income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-
cash charges after discussions between our Manager and our independent directors and after approval by a majority of
the independent directors.
Liquidity and Capital Resources
Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements. We use
significant cash to purchase LMM loans and other target assets, originate new LMM loans, pay dividends, repay
principal and interest on our borrowings, fund our operations and meet other general business needs. Certain of our loans
pay PIK interest rather than cash interest payments and from time to time, we may grant concessions to borrowers
experiencing significant financial difficulties in the form of modified terms such as interest rate reductions and other
terms described elsewhere in this Form 10-Q. These factors may increase our reliance on our primary sources of
liquidity, including our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase
agreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and
revolving facilities), the net proceeds of offerings of equity and secured and unsecured debt securities, and net cash
provided by operating and investing activities.
We believe that our sources of liquidity will provide sufficient liquidity to fund ongoing obligations and address
upcoming debt maturities, including the approximately $650.0 million of debt maturing in 2026. We had approximately
$150.0 million of unrestricted cash and approximately $830.0 million of unencumbered assets as of September 30, 2025.
We expect approximately $425.0 million in net liquidity from portfolio maturities and pending asset resolutions over the
next 12 months. Additionally, we intend to further accelerate asset sales as we move out of non-performing loan and
85
REO positions. We expect the combination of these items to de-lever the balance sheet, which may impact book value
depending on the size, timing and pricing of such actions. We expect to utilize these resources, together with our access
to the capital markets and potentially other balance-sheet actions, such as adjustments to our dividend rate, to meet our
liquidity needs.
We are continuing to monitor the impact of shifts in interest rates, credit spreads and inflation on the Company, the
borrowers underlying our real estate-related assets, the tenants in the properties we own, our financing sources, and the
economy as a whole. Because the severity, magnitude and duration of these economic events remain uncertain, rapidly
changing and difficult to predict, the impact on our operations and liquidity also remains uncertain and difficult to
predict.
Cash flow
Nine Months Ended September 30, 2025. Cash and cash equivalents as of September 30, 2025, increased by $11.7
million to $194.5 million from December 31, 2024, primarily due to net cash provided by investing and operating
activities, partially offset by net cash used for financing activities. The net cash provided by investing activities primarily
reflected proceeds from disposition and principal payments of loans, partially offset by net cash used for loan
originations. The net cash provided by operating activities reflected the sale of Loans, held for sale and realized losses,
partially offset by a bargain purchase gain in connection with the UDF IV Merger which was primarily driven by a
discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares and a change in our
stock price between the date of the agreement and the closing date of the merger, and a recovery of loan losses related to
the transfer of Loans, net to Loans, held for sale. The net cash used for financing activities primarily reflected
repayments of securitized debt obligations of consolidated VIEs, partially offset by net proceeds from secured
borrowings.
Nine Months Ended September 30, 2024. Cash and cash equivalents as of September 30, 2024, decreased by $26.9
million to $235.6 million from December 31, 2023, primarily due to net cash used for financing activities, partially offset
by net cash provided by investing and operating activities. The net cash used for financing activities primarily reflected
repayments of securitized debt obligations of consolidated VIEs and repayments of secured borrowings. The net cash
provided by investing activities primarily reflected proceeds on disposition and principal payments of loans, partially
offset by net cash used for loan originations. The net cash provided by operating activities reflected sales on loans, held
for sale and a valuation allowance related to the transfer of loans, net to loans, held for sale, partially offset by an
increase in operating assets and net loss from continuing operations.
Financing Strategy and Leverage
In addition to raising capital through offerings of our public equity and debt securities, we finance our investment
portfolio through securitization and secured borrowings. We generally seek to match-fund our investments to minimize
the differences in the terms of our investments and our liabilities. Our secured borrowings have various recourse levels
including full recourse, partial recourse and non-recourse, as well as varied mark-to-market provisions including full
mark-to-market, credit mark only and non-mark-to-market. Securitizations allow us to match fund loans pledged as
collateral on a long-term, non-recourse basis. Securitization structures typically consist of trusts with principal and
interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches, and provide
debt equal to 50% to 90% of the cost basis of the assets.
We also finance originated SBL with secured borrowings until the loans are sold, generally within 30 days.
As of September 30, 2025, we had a total leverage ratio of 3.1x and recourse leverage ratio of 1.4x. Our operating
segments have different levels of recourse debt according to the differentiated nature of each segment. Our LMM
Commercial Real Estate and Small Business Lending segments have recourse leverage ratios of 0.4x and 0.2x,
respectively. The remaining recourse leverage ratio is from our corporate debt offerings.
Secured Borrowings
Credit Facilities and Other Financing Agreements. We utilize credit facilities and other financing arrangements to
finance our business. The financings are collateralized by the underlying mortgages, assets, related documents, and
instruments, and typically contain index-based financing rate and terms, haircut and collateral posting provisions which
86
depend on the types of collateral and the counterparties involved. These agreements often contain customary negative
covenants and financial covenants, including maintenance of minimum liquidity, minimum tangible net worth,
maximum debt to net worth ratio and current ratio and limitations on capital expenditures, indebtedness, distributions,
transactions with affiliates and maintenance of positive net income.
The table below presents certain characteristics of our credit facilities and other financing arrangements.
Pledged Assets | Carrying Value at | |||||||||
Lenders (1) | Asset Class | Current Maturity (2) | Pricing (3) | Facility Size | Carrying Value | September 30, 2025 | December 31, 2024 | |||
3 | SBA loans | November 2025 - June 2027 | SOFR + 2.84% Prime - 0.82% | $335,000 | $417,510 | $334,045 | $250,601 | |||
1 | LMM loans - USD | February 2026 | SOFR + 1.35% | 80,000 | 18,947 | 18,752 | 35,931 | |||
1 | LMM loans - Non-USD (4) | January 2027 | EURIBOR + 3.00% | 58,742 | 40,194 | 30,040 | 30,513 | |||
2 | USDA loans | June 2027 - August 2028 | SOFR + 2.78% | 148,500 | 25,712 | 35,382 | — | |||
Total borrowings under credit facilities and other financing agreements | $622,242 | $502,363 | $418,219 | $317,045 | ||||||
(1)Represents the total number of facility lenders.
(2)Current maturity does not reflect extension options available beyond original commitment terms.
(3)Asset class pricing is determined using an index rate plus a weighted average spread.
(4)Non-USD denominated credit facilities have been converted into USD for purposes of this disclosure.
Repurchase Agreements. Under the loan repurchase facilities and securities repurchase agreements, we may be required
to pledge additional assets to our counterparties in the event that the estimated fair value of the existing pledged
collateral under such agreements declines and such lenders demand additional collateral, which may take the form of
additional assets or cash. Generally, the loan repurchase facilities and securities repurchase agreements contain a SOFR-
based financing rate, term and haircuts depending on the types of collateral and the counterparties involved. The loan
repurchase facilities also include financial maintenance covenants.
If the estimated fair values of the assets increase due to changes in market interest rates or other market factors, lenders
may release collateral back to us. Margin calls may result from a decline in the value of the investments securing the
loan repurchase facilities and securities repurchase agreements, prepayments on the loans securing such investments and
from changes in the estimated fair value of such investments generally due to principal reduction of such investments
from scheduled amortization and resulting from changes in market interest rates and other market factors. Counterparties
also may choose to increase haircuts based on credit evaluations of our Company and/or the performance of the assets in
question. Historically, disruptions in the financial and credit markets have resulted in increased volatility in these levels,
and this volatility could persist as market conditions continue to change. Should prepayment speeds on the mortgages
underlying our investments or market interest rates suddenly increase, margin calls on the loan repurchase facilities and
securities repurchase agreements could result, causing an adverse change in our liquidity position. To date, we have
satisfied all of our margin calls and have never sold assets in response to any margin call under these borrowings.
Our borrowings under repurchase agreements are renewable at the discretion of our lenders and, as such, our ability to
roll-over such borrowings are not guaranteed. The terms of the repurchase transaction borrowings under our repurchase
agreements generally conform to the terms in the standard master repurchase agreement as published by the Securities
Industry and Financial Markets Association, as to repayment, margin requirements and the segregation of all assets we
have initially sold under the repurchase transaction. In addition, each lender typically requires that we include
supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and
conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts and
purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be
litigated in a particular jurisdiction, and cross default and setoff provisions.
We maintain certain assets, which, from time to time, may include cash, unpledged LMM loans, LMM ABS and short-
term investments (which may be subject to various haircuts if pledged as collateral to meet margin requirements) and
collateral in excess of margin requirements held by our counterparties, or collectively, the “Cushion”, to meet routine
margin calls and protect against unforeseen reductions in our borrowing capabilities. Our ability to meet future margin
calls will be impacted by the Cushion, which varies based on the fair value of our investments, our cash position and
margin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities
and is managed based on our anticipated cash needs.
87
The table below presents certain characteristics of our repurchase agreements.
Pledged Assets | Carrying Value at | |||||||||
Lenders (1) | Asset Class | Current Maturity (2) | Pricing (3) | Facility Size | Carrying Value | September 30, 2025 | December 31, 2024 | |||
9 | LMM loans | October 2025 - September 2028 | SOFR + 2.79% | $4,735,000 | $3,490,291 | $2,325,766 | $1,482,085 | |||
5 | MBS | October 2025 - January 2026 | 5.92% | 135,187 | 253,610 | 135,187 | 236,046 | |||
Total borrowings under repurchase agreements | $4,870,187 | $3,743,901 | $2,460,953 | $1,718,131 | ||||||
(1)Represents the total number of facility lenders.
(2)Current maturity does not reflect extension options available beyond original commitment terms.
(3)Asset class pricing is determined using an index rate plus a weighted average spread.
(4)Non-USD denominated repurchase agreements have been converted into USD for purposes of this disclosure.
Collateralized borrowings under repurchase agreements
The table below presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end
of each quarter, the average amount of collateralized borrowings outstanding under repurchase agreements during the
quarter and the highest balance of any month end during the quarter.
(in thousands) | Quarter End Balance | Average Balance in Quarter | Highest Month End Balance in Quarter | ||
Q4 2023 | 1,952,152 | 1,889,494 | 1,952,152 | ||
Q1 2024 | 1,998,132 | 1,956,153 | 1,998,132 | ||
Q2 2024 | 2,087,661 | 2,058,766 | 2,087,661 | ||
Q3 2024 | 1,882,327 | 1,971,347 | 2,049,273 | ||
Q4 2024 | 1,718,131 | 1,795,627 | 1,846,677 | ||
Q1 2025 | 2,425,258 | 1,922,525 | 2,425,258 | ||
Q2 2025 | 3,135,931 | 2,673,449 | 3,135,931 | ||
Q3 2025 | 2,460,953 | 2,699,935 | 3,021,745 |
The net decrease in the outstanding balances during the third quarter of 2025 was primarily due to the sales and
paydowns of warehouse loans.
Paycheck Protection Program Liquidity Facility borrowings. The Company uses the PPPLF from the Federal Reserve
to finance PPP loans. The program charges an interest rate of 0.35%. As of September 30, 2025, we had approximately
$10.4 million outstanding under this credit facility.
Senior Secured Notes and Corporate Debt, Net
The table below presents information about senior secured notes and corporate debt issued through public and private
transactions.
(in thousands) | Coupon Rate | Maturity Date | September 30, 2025 | ||
Senior secured notes principal amount(1) | 4.50% | 10/20/2026 | $350,000 | ||
Senior secured notes principal amount(2) | 9.375% | 3/1/2028 | 270,000 | ||
Term loan principal amount(3) | SOFR + 5.50% | 4/12/2029 | 115,250 | ||
Unamortized discount | (2,031) | ||||
Unamortized deferred financing costs | (12,068) | ||||
Total senior secured notes, net | $721,151 | ||||
Corporate debt principal amount(4) | 5.50% | 12/30/2028 | 110,000 | ||
Corporate debt principal amount(5) | 6.20% | 7/30/2026 | 67,437 | ||
Corporate debt principal amount(5) | 5.75% | 2/15/2026 | 131,852 | ||
Corporate debt principal amount(6) | 7.375% | 7/31/2027 | 100,000 | ||
Corporate debt principal amount(7) | 5.00% | 11/15/2026 | 100,000 | ||
Corporate debt principal amount(8) | 9.00% | 12/15/2029 | 129,371 | ||
Unamortized discount - corporate debt | (5,896) | ||||
Unamortized deferred financing costs - corporate debt | (2,390) | ||||
Junior subordinated notes principal amount(9) | SOFR + 3.10% | 3/30/2035 | 15,000 | ||
Junior subordinated notes principal amount(10) | SOFR + 3.10% | 4/30/2035 | 21,250 | ||
Total corporate debt, net | $666,624 | ||||
Total carrying amount of debt | $1,387,775 |
(1)Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.
88
(2)Interest on the senior secured notes is payable semiannually on March 1 and September 1 of each year.
(3)Interest on the term loan is payable quarterly on January 12, April 12, July 12 and October 12 of each year.
(4)Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year.
(5)Interest on the corporate debt is payable quarterly on January 30, April 30, July 30, and October 30 of each year.
(6)Interest on the corporate debt is payable semiannually on January 31 and July 31 of each year.
(7)Interest on the corporate debt is payable semiannually on May 15 and November 15 of each year; assumed as part of the Broadmark Merger (as defined below).
(8) Interest on the corporate debt is payable quarterly on March 15, June 15, September 15, and December 15 of each year.
(9) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year.
(10) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year.
The table below presents the contractual maturities for senior secured notes and corporate debt.
(in thousands) | September 30, 2025 |
2025 | $— |
2026 | 649,289 |
2027 | 100,000 |
2028 | 380,000 |
2029 | 244,621 |
Thereafter | 36,250 |
Total contractual amounts | $1,410,160 |
Unamortized deferred financing costs, discounts, and premiums, net | (22,385) |
Total carrying amount of debt | $1,387,775 |
ReadyCap Holdings 4.50% senior secured notes due 2026. On October 20, 2021, ReadyCap Holdings, an indirect
subsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50% Senior Secured Notes due 2026
(the “2026 Senior Secured Notes”). The 2026 Senior Secured Notes are fully and unconditionally guaranteed by the
Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from
time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the 2026
Senior Secured Notes (collectively, the “2026 SSN Guarantors”).
ReadyCap Holdings’ and the 2026 SSN Guarantors’ respective obligations under the 2026 Senior Secured Notes are
secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2026 SSN Collateral”)
owned by certain subsidiaries of the Company.
The 2026 Senior Secured Notes are redeemable by ReadyCap Holdings’ following a non-call period, through the
payment of the outstanding principal balance of the 2026 Senior Secured Notes plus a “make-whole” or other premium
that decreases the closer the 2026 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to
repurchase the 2026 Senior Secured Notes at 101% of the principal balance of the 2026 Senior Secured Notes in the
event of a change in control and a downgrade of the rating on the 2026 Senior Secured Notes in connection therewith, as
set forth more fully in the note purchase agreement.
The 2026 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary
negative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2026 SSN
Guarantors, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio
and limitations on transactions with affiliates.
ReadyCap Holdings 9.375% senior secured notes due 2028. On February 21, 2025, ReadyCap Holdings completed the
offer and sale of $220.0 million of its 9.375% Senior Secured Notes due 2028 (the “2028 Senior Secured Notes” and,
with the 2026 Senior Secured Notes, collectively, the “Senior Secured Notes”) for net proceeds of $216.7 million before
expenses. The 2028 Senior Secured Notes are fully and unconditionally guaranteed by the Company and other direct or
indirect subsidiaries of the Company from time to time that pledge collateral to secure the 2028 Senior Secured Notes
(collectively, the “2028 SSN Guarantors”).
ReadyCap Holdings’ and the 2028 SSN Guarantors’ respective obligations under the 2028 Senior Secured Notes are
secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2028 SSN Collateral”)
owned by certain subsidiaries of the Company.
The 2028 Senior Secured Notes are redeemable by ReadyCap Holdings following a non-call period, through the
payment of the outstanding principal balance of the 2028 Senior Secured Notes plus a “make-whole” or other premium
89
that decreases the closer the 2028 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to
repurchase the 2028 Senior Secured Notes at 101% of the principal balance of the 2028 Senior Secured Notes in the
event of a change in control and a downgrade of the rating on the 2028 Senior Secured Notes in connection therewith, as
set forth more fully in the note purchase agreement.
The 2028 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary
negative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2028 SSN
Guarantors, including maintenance of minimum tangible net worth, maximum debt to net worth ratio and limitations on
transactions with affiliates.
On April 16, 2025, ReadyCap Holdings issued an additional $50.0 million in aggregate principal amount of its 2028
Senior Secured Notes for net proceeds of $49.3 million before expenses. The additional notes are fungible with and
treated as a single series of debt securities as the Company’s 2028 Senior Secured Notes issued on February 21, 2025.
The Company used the net proceeds from the issuance of the additional notes to repay its indebtedness and for general
corporate purposes.
Ready Term Holdings, LLC (“Ready Term Holdings”) term loan due 2029. On April 12, 2024, Ready Term Holdings,
an indirect subsidiary of the Company, entered into a credit agreement which provides for a delayed draw term loan to
the Company in an aggregate principal amount not to exceed $115.25 million (the “Term Loan”). The Term Loan is fully
and unconditionally guaranteed by the Company and other direct or indirect subsidiaries of the Company from time to
time that pledge collateral to secure the Term Loan (collectively, the “Term Loan Guarantors”).
Ready Term Holdings’ and the Term Loan Guarantors’ respective obligations under the Term Loan are secured by a
perfected first-priority lien on certain capital stock and assets (collectively, the “Term Loan Collateral”) owned by
certain subsidiaries of the Company.
The Term Loan matures on April 12, 2029, and may be drawn at any time on or prior to January 12, 2025, subject to the
satisfaction of customary conditions. The Company borrowed $75.0 million in connection with the initial closing of the
Term Loan. On August 19, 2024, the Company borrowed an additional $20.0 million. The Term Loan bears interest on
the outstanding principal amount thereof at a rate equal to (a) SOFR plus 5.50% per annum or (b) base rate plus 4.50%
per annum; provided that if at any time the Term Loan is rated below investment grade, the interest rate shall increase to
(x) SOFR plus 6.50% per annum or (y) base rate plus 5.50% per annum until the rating is no longer below investment
grade. In connection with the entry into the credit agreement, the Company also agreed to pay certain upfront fees on the
initial borrowing date. The Company will also pay, with respect to any unused portion of the Term Loan, a commitment
fee of 1.00% per annum.
The Term Loan was issued pursuant to a credit agreement, which contains certain customary representations and
warranties and affirmative and negative covenants and requirements relating to the collateral and the Company, Ready
Term Holdings, and the Term Loan Guarantors, including maintenance of a minimum asset coverage ratio.
Corporate debt
We issue senior unsecured notes in public and private transactions. The notes are governed by a base indenture and
supplemental indentures. Often, the notes are redeemable by us following a non-call period, through the payment of the
outstanding principal balance plus a “make-whole” or other premium that typically decreases the closer the notes are to
maturity. We are often required to offer to repurchase the notes, in some cases at 101% of the principal balance of the
notes, in the event of a change in control or fundamental change pertaining to our company, as defined in the applicable
supplemental indentures. The notes rank equal in right of payment to any of our existing and future unsecured and
unsubordinated indebtedness; effectively junior in right of payment to any of our existing and future secured
indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and
future indebtedness, other liabilities (including trade payables) and (to the extent not held by us) preferred stock, if any,
of our subsidiaries. The supplemental indentures governing the notes often contain customary negative covenants and
financial covenants relating to maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net
worth ratio and limitations on transactions with affiliates.
90
In addition, in connection with the merger among the Company, Broadmark Realty Capital Inc. (“Broadmark”), and
RCC Merger Sub, LLC, a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), in which
Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of
the operating partnership (the “Broadmark Merger”), RCC Merger Sub assumed Broadmark’s obligations on certain
senior unsecured notes. The note purchase agreement governing these notes contains financial covenants that require
compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other
customary affirmative and negative covenants.
The Debt ATM Agreement
On May 20, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.
Riley Securities, Inc. (the “Agent”), pursuant to which it may offer and sell, from time to time, up to $100.0 million of
the Company’s 6.20% Senior Notes due 2026 and 5.75% Senior Notes due 2026. Sales of such notes pursuant to the
Sales Agreement, if any, may be made in transactions that are deemed to be “at the market offerings” as defined in Rule
415 under the Securities Act (the “Debt ATM Program”). The Agent is not required to sell any specific number of the
notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and
sales practices on mutually agreed terms between the Agent and the Company. No such sales through the Debt ATM
Program were made during the three and nine months ended September 30, 2025 or September 30, 2024, respectively.
Securitization transactions
Our Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled
us to complete several securitizations of LMM and SBA loan assets since January 2011. These securitizations allow us
to match fund the LMM and SBA loans on a long-term, non-recourse basis. The assets pledged as collateral for these
securitizations were contributed from our portfolio of assets. By contributing these LMM and SBA assets to the various
securitizations, these transactions created capacity for us to fund other investments.
91
The table below presents information on the securitization structures and related issued tranches of notes to investors.
(in millions) | Collateral Asset Class | Issuance | Active / Collapsed | Bonds Issued |
Trusts (Firm sponsored) | ||||
Waterfall Victoria Mortgage Trust 2011-1 (SBC1) | LMM Acquired loans | February 2011 | Collapsed | $40.5 |
Waterfall Victoria Mortgage Trust 2011-3 (SBC3) | LMM Acquired loans | October 2011 | Collapsed | 143.4 |
Sutherland Commercial Mortgage Trust 2015-4 (SBC4) | LMM Acquired loans | August 2015 | Collapsed | 125.4 |
Sutherland Commercial Mortgage Trust 2018 (SBC7) | LMM Acquired loans | November 2018 | Collapsed | 217.0 |
ReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1) | Acquired SBA 7(a) loans | June 2015 | Collapsed | 189.5 |
ReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2) | Originated SBA 7(a) loans, Acquired SBA 7(a) loans | December 2019 | Active | 131.0 |
ReadyCap Lending Small Business Loan Trust 2023-3 (RCLT 2023-3) | Originated SBA 7(a) loans, Acquired SBA 7(a) loans | July 2023 | Active | 132.0 |
Real Estate Mortgage Investment Conduits (REMICs) | ||||
ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1) | LMM Originated conventional | September 2014 | Collapsed | 181.7 |
ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2) | LMM Originated conventional | November 2015 | Collapsed | 218.8 |
ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3) | LMM Originated conventional | November 2016 | Active | 162.1 |
ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4) | LMM Originated conventional | March 2018 | Active | 165.0 |
Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5) | LMM Originated conventional | January 2019 | Active | 355.8 |
Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6) | LMM Originated conventional | November 2019 | Active | 430.7 |
Ready Capital Mortgage Trust 2022-7 (RCMT 2022-7) | LMM Originated conventional | April 2022 | Active | 276.8 |
Waterfall Victoria Mortgage Trust 2011-2 (SBC2) | LMM Acquired loans | March 2011 | Collapsed | 97.6 |
Sutherland Commercial Mortgage Trust 2018 (SBC6) | LMM Acquired loans | August 2017 | Collapsed | 154.9 |
Sutherland Commercial Mortgage Trust 2019 (SBC8) | LMM Acquired loans | June 2019 | Active | 306.5 |
Sutherland Commercial Mortgage Trust 2020 (SBC9) | LMM Acquired loans | June 2020 | Collapsed | 203.6 |
Sutherland Commercial Mortgage Trust 2021 (SBC10) | LMM Acquired loans | May 2021 | Active | 232.6 |
Collateralized Loan Obligations (CLOs) | ||||
Ready Capital Mortgage Financing 2017– FL1 | LMM Originated bridge | August 2017 | Collapsed | 198.8 |
Ready Capital Mortgage Financing 2018 – FL2 | LMM Originated bridge | June 2018 | Collapsed | 217.1 |
Ready Capital Mortgage Financing 2019 – FL3 | LMM Originated bridge | April 2019 | Collapsed | 320.2 |
Ready Capital Mortgage Financing 2020 – FL4 | LMM Originated bridge | June 2020 | Collapsed | 405.3 |
Ready Capital Mortgage Financing 2021 – FL5 | LMM Originated bridge | March 2021 | Collapsed | 628.9 |
Ready Capital Mortgage Financing 2021 – FL6 | LMM Originated bridge | August 2021 | Collapsed | 652.5 |
Ready Capital Mortgage Financing 2021 – FL7 | LMM Originated bridge | November 2021 | Active | 927.2 |
Ready Capital Mortgage Financing 2022 – FL8 | LMM Originated bridge | March 2022 | Collapsed | 1,135.0 |
Ready Capital Mortgage Financing 2022 – FL9 | LMM Originated bridge | June 2022 | Collapsed | 754.2 |
Ready Capital Mortgage Financing 2022 – FL10 | LMM Originated bridge | October 2022 | Collapsed | 860.1 |
Ready Capital Mortgage Financing 2023 – FL11 | LMM Originated bridge | February 2023 | Active | 586.0 |
Ready Capital Mortgage Financing 2023 – FL12 | LMM Originated bridge | June 2023 | Active | 648.6 |
Trusts (Non-firm sponsored) | ||||
Freddie Mac Small Balance Mortgage Trust 2016-SB11 | Originated agency multi-family | January 2016 | Active | 110.0 |
Freddie Mac Small Balance Mortgage Trust 2016-SB18 | Originated agency multi-family | July 2016 | Active | 118.0 |
Freddie Mac Small Balance Mortgage Trust 2017-SB33 | Originated agency multi-family | June 2017 | Active | 197.9 |
Freddie Mac Small Balance Mortgage Trust 2018-SB45 | Originated agency multi-family | January 2018 | Active | 362.0 |
Freddie Mac Small Balance Mortgage Trust 2018-SB52 | Originated agency multi-family | September 2018 | Active | 505.0 |
Freddie Mac Small Balance Mortgage Trust 2018-SB56 | Originated agency multi-family | December 2018 | Active | 507.3 |
Key Commercial Mortgage Trust 2020-S3(1) | LMM Originated conventional | September 2020 | Active | 263.2 |
(1)Contributed portion of assets into trust
We used the proceeds from the sale of the tranches issued to purchase and originate LMM and SBL loans. We are the
primary beneficiary of all firm sponsored securitizations; therefore they are consolidated in our financial statements.
Contractual Obligations and Off-Balance Sheet Arrangements
Other than the items referenced above, there have been no material changes to our contractual obligations for the three
months ended September 30, 2025. Refer to Item 7, "Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Contractual Obligations," in the Company's Form 10-K for further details. As of the date of this
Form 10-Q, we had no off-balance sheet arrangements, other than as disclosed.
92
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. We believe that all of the
decisions and assessments upon which our consolidated financial statements are based were reasonable at the time made,
based upon information available to us at that time. The following discussion describes the critical accounting estimates
that apply to our operations and require complex management judgment. This summary should be read in conjunction
with our accounting policies and use of estimates included in “Notes to Consolidated Financial Statements, Note 3 –
Summary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in the
Company’s Form 10-K.
Allowance for credit losses
The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at
amortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators,
including probable and historical losses, collateral values, LTV ratio and economic conditions. The allowance for credit
losses increases through provisions charged to earnings and reduced by charge-offs, net of recoveries.
We utilize loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its
loan portfolio. The Current Expected Credit Loss (“CECL”) forecasting methods used by the Company include (i) a
probability of default and loss given default method using underlying third-party CMBS/CRE loan database with
historical loan losses and (ii) probability weighted expected cash flow method, depending on the type of loan and the
availability of relevant historical market loan loss data. We might use other acceptable alternative approaches in the
future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical
market loan loss data.
We estimate the CECL expected credit losses for our loan portfolio at the individual loan level. Significant inputs to our
forecasting methods include (i) key loan-specific inputs such as LTV, vintage year, loan-term, underlying property type,
occupancy, geographic location, and others, and (ii) a macro-economic forecast. These estimates may change in future
periods based on available future macro-economic data and might result in a material change in our future estimates of
expected credit losses for its loan portfolio.
In certain instances, we consider relevant loan-specific qualitative factors to certain loans to estimate its CECL expected
credit losses. We consider loan investments that are both (i) expected to be substantially repaid through the operation or
sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-
dependent” loans. For such loans that we determine that foreclosure of the collateral is probable, we measure the
expected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is
expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date. For
collateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate
expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is
expected through the sale of the collateral) and the amortized cost basis of the loan.
While we have a formal methodology to determine the adequate and appropriate level of the allowance for credit losses,
estimates of inherent loan losses involve judgment and assumptions as to various factors, including current economic
conditions. Our determination of adequacy of the allowance for credit losses is based on quarterly evaluations of the
above factors. Accordingly, the provision for loan losses will vary from period to period based on management's ongoing
assessment of the adequacy of the allowance for credit losses.
Significant judgment is required when evaluating loans for impairment; therefore, actual results over time could be
materially different. Refer to “Notes to Consolidated Financial Statements, Note 6 – Loans and Allowance for Credit
Losses” included in this Form 10-Q for results of our loan impairment evaluation.
93
Valuation of financial assets and liabilities carried at fair value
We measure our MBS, derivative assets and liabilities, and any assets or liabilities where we have elected the fair value
option at fair value, including certain loans we have originated that are expected to be sold to third parties or securitized
in the near term.
We have established valuation processes and procedures designed so that fair value measurements are appropriate and
reliable, that they are based on observable inputs where possible, that the valuation approaches are consistently applied,
and the assumptions and inputs are reasonable. We also have established processes to provide that the valuation
methodologies, techniques and approaches for investments that are categorized within Level 3 of the ASC 820 Fair
Value Measurement fair value hierarchy (the “fair value hierarchy”) are fair, consistent and verifiable. Our processes
provide a framework that ensures the oversight of our fair value methodologies, techniques, validation procedures, and
results.
When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities
or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity,
credit, market and/or other risk factors. Refer to “Notes to Consolidated Financial Statements, Note 7 – Fair Value
Measurements” included in Item 8, “Financial Statements and Supplementary Data,” in the Form 10-K for a more
complete discussion of our critical accounting estimates as they pertain to fair value measurements.
Servicing rights impairment
Servicing rights, at amortized cost, are initially recorded at fair value and subsequently carried at amortized cost.
For purposes of testing our servicing rights, carried at amortized cost, for impairment, we first determine whether facts
and circumstances exist that would suggest the carrying value of the servicing asset is not recoverable. If so, we then
compare the net present value of servicing cash flow with its carrying value. The estimated net present value of servicing
cash flows of the intangibles is determined using discounted cash flow modeling techniques which require management
to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted loan
prepayment rates, delinquency rates and anticipated maturity defaults. If the carrying value of the servicing rights
exceeds the net present value of servicing cash flows, the servicing rights are considered impaired and an impairment
loss is recognized in earnings for the amount by which carrying value exceeds the net present value of servicing cash
flows. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and
prepayment experience to modeled estimates.
Significant judgment is required when evaluating servicing rights for impairment therefore, actual results over time
could be materially different. Refer to “Notes to Consolidated Financial Statements, Note 8 – Servicing Rights” included
in this Form 10-Q for a more complete discussion of our critical accounting estimates as they pertain to servicing rights
impairment.
Refer to “Notes to Consolidated Financial Statements, Note 4– Recent Accounting Pronouncements” included in Item 8,
“Financial Statements and Supplementary Data,” in the Company’s Form 10-K for a discussion of recent accounting
developments and the expected impact to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we enter into transactions in various financial instruments that expose us to various
types of risk, both on and off-balance sheet, which are associated with such financial instruments and markets for which
we invest. These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity
risk, off-balance sheet risk and prepayment risk. Many of these risks have been augmented due to the continuing
economic disruptions caused by inflationary pressures, rising energy costs, heightened geopolitical tensions, and the
impact of pandemics and epidemics which remain uncertain and difficult to predict. We continue to monitor the impact
and effect of these risks in our operations.
Market risk. Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable
changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying
94
financial instruments. We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which
may include purchase or sale of interest-bearing securities and equity securities.
Credit risk. We are subject to credit risk in connection with our investments in LMM loans and LMM ABS and other
target assets we may acquire in the future. The credit risk related to these investments pertains to the ability and
willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed
throughout the loan or security term. We believe that loan credit quality is primarily determined by the borrowers’ credit
profiles and loan characteristics. We seek to mitigate this risk by seeking to acquire assets at appropriate prices given
anticipated and unanticipated losses and by deploying a value-driven approach to underwriting and diligence, consistent
with our historical investment strategy, with a focus on projected cash flows and potential risks to cash flow. We further
mitigate our risk of potential losses while managing and servicing our loans by performing various workout and loss
mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit losses could occur which could
adversely impact operating results.
Interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations and other factors beyond our control.
Our operating results will depend, in part, on differences between the income from our investments and our financing
costs. Our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index,
subject to a floor, as determined by the particular financing arrangement. The general impact of changing interest rates is
discussed above under “— Factors Impacting Operating Results — Changes in Market Interest Rates.” In the event of a
significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses
to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and
prospects. Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and
interest-bearing liabilities.
Additionally, non-performing LMM loans are not as interest rate sensitive as performing loans, as earnings on non-
performing loans are often generated from restructuring the assets through loss mitigation strategies and
opportunistically disposing of them. Because non-performing LMM loans are short-term assets, the discount rates used
for valuation are based on short-term market interest rates, which may not move in tandem with long-term market
interest rates.
The table below projects the impact on our interest income and expense for the twelve-month period following
September 30, 2025, assuming an immediate increase or decrease of 25, 50, 75, and 100 basis points in interest rates.
12-month pretax net interest income sensitivity profiles | |||||||||||||||
Instantaneous change in rates | |||||||||||||||
(in thousands) | 25 basis point increase | 50 basis point increase | 75 basis point increase | 100 basis point increase | 25 basis point decrease | 50 basis point decrease | 75 basis point decrease | 100 basis point decrease | |||||||
Assets: | |||||||||||||||
Loans | $10,339 | $20,902 | $31,568 | $42,245 | $(10,086) | $(19,656) | $(29,076) | $(38,170) | |||||||
Interest rate swap hedges | 1,058 | 2,116 | 3,174 | 4,232 | (1,058) | (2,116) | (3,174) | (4,232) | |||||||
Total | $11,397 | $23,018 | $34,742 | $46,477 | $(11,144) | $(21,772) | $(32,250) | $(42,402) | |||||||
Liabilities: | |||||||||||||||
Secured borrowings | (6,813) | (13,626) | (20,439) | (27,252) | 6,813 | 13,626 | 20,439 | 27,252 | |||||||
Securitized debt obligations | (1,950) | (3,900) | (5,850) | (7,800) | 1,950 | 3,900 | 5,850 | 7,800 | |||||||
Senior secured notes and corporate debt | (379) | (758) | (1,136) | (1,515) | 379 | 758 | 1,136 | 1,515 | |||||||
Total | $(9,142) | $(18,284) | $(27,425) | $(36,567) | $9,142 | $18,284 | $27,425 | $36,567 | |||||||
Total Net Impact to Net Interest Income (Expense) | $2,255 | $4,734 | $7,317 | $9,910 | $(2,002) | $(3,488) | $(4,825) | $(5,835) | |||||||
Such hypothetical impact of interest rates on our variable rate debt does not consider the effect of any change in overall
economic activity that could occur in a rising interest rate environment. Further, in the event of such a change in interest
rates, we may take actions to further mitigate our exposure to such a change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial
structure.
95
Liquidity risk. Liquidity risk arises in our investments and the general financing of our investing activities. It includes
the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate positions in a
timely manner at a reasonable price, in addition to potential increases in collateral requirements during times of
heightened market volatility. It also includes risk stemming from PIK interest loans and loan modifications we may grant
to borrowers which are intended to minimize our economic loss and to avoid foreclosure or repossession of collateral.
Such modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than-
insignificant payment delay, which may impact our ability to meet potential cash requirements and make us more reliant
on financing strategies. Additionally, if we were forced to dispose of an illiquid investment at an inopportune time, we
might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate
our liquidity risk by regularly monitoring the liquidity of our investments in LMM loans, ABS and other financial
instruments. Factors such as our expected exit strategy for, the bid to offer spread of, and the number of broker dealers
making an active market in a particular strategy and the availability of long-term funding, are considered in analyzing
liquidity risk. To reduce any perceived disparity between the liquidity and the terms of the debt instruments in which we
invest, we attempt to minimize our reliance on short-term financing arrangements. While we may finance certain
investments in security positions using traditional margin arrangements and reverse repurchase agreements, other
financial instruments such as collateralized debt obligations, and other longer-term financing vehicles may be utilized to
provide us with sources of long-term financing.
Prepayment risk. Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the
return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any
premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates
accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets.
Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates
accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.
LMM loan and ABS extension risk. Our Manager computes the projected weighted-average life of our assets based on
assumptions regarding the rate at which the borrowers will prepay the mortgages or extend. If prepayment rates decrease
in a rising interest rate environment or extension options are exercised, the life of the fixed-rate assets could extend
beyond the term of the secured debt agreements. This could have a negative impact on our results of operations. In some
situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
Real estate risk. The market values of commercial assets are subject to volatility and may be affected adversely by a
number of factors, including, but not limited to, national, regional and local economic conditions (which may be
adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of
housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry
segments; construction quality, construction cost, age and design; demographic factors; and retroactive changes to
building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential
proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.
Fair value risk. The estimated fair value of our investments fluctuates primarily due to changes in interest rates.
Generally, in a rising interest rate environment, the estimated fair value of the fixed-rate investments would be expected
to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of the fixed-rate investments
would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our assets recorded
and/or disclosed may be adversely impacted. Our economic exposure is generally limited to our net investment position
as we seek to fund fixed rate investments with fixed rate financing or variable rate financing hedged with interest rate
swaps.
Counterparty risk. We finance the acquisition of a significant portion of our commercial mortgage loans, MBS and other
assets with our repurchase agreements, credit facilities, and other financing agreements. In connection with these
financing arrangements, we pledge our mortgage loans and securities as collateral to secure the borrowings. The amount
of collateral pledged will typically exceed the amount of the borrowings (i.e. the haircut) such that the borrowings will
be over-collateralized. As a result, we are exposed to the counterparty if, during the term of the financing, a lender
should default on its obligation and we are not able to recover our pledged assets. The amount of this exposure is the
difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral
pledged by us to the lender including accrued interest receivable on such collateral.
96
We are exposed to changing interest rates and market conditions, which affects cash flows associated with borrowings.
We enter into derivative instruments, such as interest rate swaps, to mitigate these risks. Interest rate swaps are used to
mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a
counterparty in exchange for us making payments based on a fixed interest rate over the life of the swap contract.
Certain of our subsidiaries have entered into over-the-counter (“OTC”) interest rate swap agreements to hedge risks
associated with movements in interest rates. Because certain interest rate swaps were not cleared through a central
counterparty, we remain exposed to the counterparty's ability to perform its obligations under each such swap and cannot
look to the creditworthiness of a central counterparty for performance. As a result, if an OTC swap counterparty cannot
perform under the terms of an interest rate swap, our subsidiary would not receive payments due under that agreement,
we may lose any unrealized gain associated with the interest rate swap and the hedged liability would cease to be hedged
by the interest rate swap. While we would seek to terminate the relevant OTC swap transaction and may have a claim
against the defaulting counterparty for any losses, including unrealized gains, there is no assurance that we would be able
to recover such amounts or to replace the relevant swap on economically viable terms or at all. In such case, we could be
forced to cover our unhedged liabilities at the then current market price. We may also be at risk for any collateral we
have pledged to secure our obligations under the OTC interest rate swap if the counterparty becomes insolvent or files
for bankruptcy. Therefore, upon a default by an interest rate swap agreement counterparty, the interest rate swap would
no longer mitigate the impact of changes in interest rates as intended.
The table below presents information with respect to any counterparty for repurchase agreements for which our
Company had greater than 5% of stockholders’ equity at risk in the aggregate.
September 30, 2025 | |||||||
(in thousands) | Counterparty Rating | Amount of Risk | Weighted Average Months to Maturity for Agreement | Percentage of Stockholders’ Equity | |||
JPMorgan Chase Bank, N.A. | AA-/Aa2 | $930,184 | 9.9 | 49.6% | |||
Churchill MRA Funding I LLC | Not rated | $128,906 | 5.3 | 6.9% | |||
In the table above,
•The counterparty ratings presented are the long-term issuer credit rating as rated by S&P and Moody’s,
respectively.
•The amount at risk reflects the difference between the amount loaned through repurchase agreements, including
interest payable, and the cash and fair value of the assets pledged as collateral, including accrued interest
receivable.
Capital market risk. We are exposed to risks related to the equity capital markets, and our related ability to raise capital
through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt
capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other
financing arrangements. As a REIT, we are required to distribute a significant portion of our taxable income annually,
which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital
to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our
decisions on the amount, timing, and terms of capital we raise.
Off-balance sheet risk. Off-balance sheet risk refers to situations where the maximum potential loss resulting from
changes in the level or volatility of interest rates, foreign currency exchange rates or market values of the underlying
financial instruments may result in changes in the value of a particular financial instrument in excess of the reported
amounts of such assets and liabilities currently reflected in the accompanying consolidated balance sheets.
Inflation risk. Most of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other
factors influence our performance significantly more than inflation does. Changes in interest rates may, but do not
necessarily, correlate with inflation rates and/or changes in inflation rates. Refer to “Quantitative and Qualitative
Disclosures About Market Risk – Interest Rate Risk” in this Form 10-Q for a discussion on interest rate sensitivity.
97
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in its Exchange Act, reports is recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and communicated to its management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure based on the definition of “disclosure controls and procedures” as promulgated under the Exchange Act and
the rules and regulations thereunder. In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. The Company, including its Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and
procedures as of September 30, 2025. Based on the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule
13a-15(f) during the quarter ended September 30, 2025, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business.
Merger litigation
On June 6, 2024, a purported former stockholder of Broadmark filed a class action lawsuit in the Circuit Court for
Baltimore City, Maryland, captioned Eibling v. Pyatt, et al., No. C-24-CV-24-000818 (Md. Cir. Ct. Balt. City), (the
“Broadmark Merger Action”). The Broadmark Merger Action names as defendants Broadmark’s former board of
directors and alleges they breached their fiduciary duties in connection with the Broadmark Merger by failing to properly
consider acquisition proposals that were purportedly superior to the Broadmark Merger, by relying on purportedly false
and misleading valuation analyses, and by authorizing the issuance of a purportedly false and misleading proxy
statement. The Broadmark Merger Action also asserts claims against Broadmark’s financial advisor for aiding and
abetting these alleged breaches of fiduciary duty. The Broadmark Merger Action seeks damages in the form of
compensatory damages, quasi-appraisal damages, rescissory damages, and disgorgement of any merger-related benefits.
The Broadmark Merger Action also seeks reimbursement for litigation expenses and attorneys’ and experts’ fees. On
September 13, 2024, the Broadmark Merger Action was assigned to the Business and Technology Case Management
Program of the Circuit Court for Baltimore City, Maryland. Thereafter, on December 10, 2024, the defendants moved to
dismiss the initial complaint. In response, the plaintiff filed an amended complaint on February 10, 2025, which the
defendants subsequently moved to dismiss on April 14, 2025. Briefing on the defendants’ motions to dismiss the
amended complaint was completed on July 22, 2025. Although the Company is not a defendant in the Broadmark
Merger Action, it is subject to contractual indemnification obligations (conditioned on the satisfaction of various
contractual requirements) in connection therewith, including with respect to the defendants’ service as Broadmark
directors and the provision of services to Broadmark, as applicable. The defendants and the Company intend to
vigorously defend against the Broadmark Merger Action.
On March 18, 2025, a purported former stockholder of UDF IV filed a class action lawsuit in the Circuit Court for
Baltimore City, Maryland, captioned The Lawrence C. Headley Living Trust v. Jones, et al., No. C-24-CV-25-002222
(Md. Cir. Ct. Balt. City) (the “UDF IV Merger Action”). The UDF IV Merger Action names as defendants UDF IV’s
former board of trustees and alleges they breached their fiduciary duties in connection with the UDF IV Merger by
failing to properly consider an acquisition proposal that was purportedly superior to the UDF IV Merger, by relying on
purportedly false and misleading valuation analyses, by authorizing the issuance of a purportedly false and misleading
98
proxy statement, and by obtaining improper personal benefits that were not shared with all UDF IV stockholders. The
complaint also asserts claims against UDF IV’s former advisor, UMTH General Services, L.P., for aiding and abetting
these alleged breaches of fiduciary duty. The complaint seeks compensatory damages, rescissory damages, and
unwinding of the UDF IV Merger, as well as attorneys’ fees and costs. On April 11, 2025, the UDF IV Merger Action
was assigned to the Business and Technology Case Management Program of the Circuit Court for Baltimore City,
Maryland. Thereafter, on May 16, 2025, the defendants moved to dismiss the initial complaint. In response, the plaintiff
filed an amended complaint on July 11, 2025, which the defendants subsequently moved to dismiss on September 9,
2025. Briefing on the defendants’ motion to dismiss the amended complaint is expected to be completed by December
2025. Although the Company is not a defendant in the UDF IV Merger Action, it is subject to contractual
indemnification obligations (conditioned on the satisfaction of various contractual requirements) in connection therewith,
including with respect to the defendants’ service as UDF IV trustees and the provision of services to UDF IV, as
applicable. The defendants and the Company intend to vigorously defend against the UDF IV Merger Action.
Securities and derivative litigation
On March 6, 2025 and April 23, 2025, the Company and two of its executive officers were named as defendants in two
separate but largely identical putative stockholder class action lawsuits filed in the United States District Court for the
Southern District of New York (the “Exchange Act Class Actions”). The Exchange Act Class Actions were filed under
the captions Quinn v. Ready Capital Corp., et al., No. 1:25-cv-01883 (S.D.N.Y.) and Goebel v. Ready Capital Corp., et
al., No. 1:25-cv-3373 (S.D.N.Y.). The Exchange Act Class Actions allege that the defendants violated Section 10(b) of
the Exchange Act and SEC Rule 10b-5 promulgated thereunder by making false and misleading statements and
omissions regarding the performance of the Company’s loan portfolio and related matters, and that the executive officers
named as defendants violated Section 20(a) of the Exchange Act as control persons of the Company. The Exchange Act
Class Actions seek compensatory damages, costs, and expenses on behalf of the purported classes. On July 8, 2025, the
court entered an order consolidating the Exchange Act Class Actions under the caption In re Ready Capital Securities
Litigation, No. 1:25-cv-01883 (S.D.N.Y.) (the “Exchange Act Litigation”) and appointing lead plaintiff and lead
counsel. Lead plaintiff filed an amended complaint on September 8, 2025, and briefing on the defendants’ forthcoming
motion to dismiss is expected to be completed by March 2026.
Between March and July 2025, the Company was named as a nominal defendant and certain of its executive officers and
directors were named as defendants in parallel derivative lawsuits captioned Pittrof v. Capasse, et al., No. 1:25-cv-02274
(S.D.N.Y.) and Vancampenhout v. Capasse, et al., No. 1:25-cv-02930 (S.D.N.Y.) respectively, filed in the United States
District Court for the Southern District of New York (collectively, the “New York Derivative Actions”), and Poon v.
Ready Capital Corp., et al., No. 1:25-cv-01827 (D. Md.) and Cote v. Ready Capital Corp., et al., No. 1:25-cv-02429-JRR
(D. Md.) filed in the United States District Court for the District of Maryland (the “Maryland Derivative Actions” and,
together with the New York Derivative Actions, the “Ready Capital Derivative Actions”). The Ready Capital Derivative
Actions assert claims for violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5, contribution
under Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duties, aiding and abetting breach of fiduciary
duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets for participating and/or
failing to prevent the securities law violations alleged in the Exchange Act Litigation and for purportedly causing the
Company to overpay for certain stock repurchases. The Ready Capital Derivative Actions seek compensatory damages,
disgorgement of compensation and profits, imposition of a constructive trust, revisions to the Company’s corporate
governance and internal procedures, and attorneys’ fees and costs. On July 8, 2025, the United States District Court for
the Southern District of New York consolidated the New York Derivative Actions under the caption In re Ready Capital
Corp. Stockholder Derivative Litigation, No. 1:25-cv-02274 (S.D.N.Y.). The Ready Capital Derivative Actions are
currently stayed, pending: (1) dismissal of the Exchange Act Litigation with prejudice, and the exhaustion of all appeals
thereto; or (2) denial, in full or in part, of the defendants’ motion to dismiss the Exchange Act Litigation. The defendants
intend to vigorously defend against the Exchange Act Litigation and the Ready Capital Derivative Actions.
In early August 2025, the Board received a demand letter from a purported Ready Capital stockholder (the “Derivative
Demand Letter”). The Derivative Demand Letter closely mirrors the allegations of the Exchange Act Litigation and
Ready Capital Derivative Actions and demands that the Board investigate the facts alleged in these actions. The
Derivative Demand Letter requests that the directors investigate any purported wrongdoing that occurred between
August 2, 2024, and August 1, 2025, and commence legal proceedings against the Ready Capital executive officers and
directors named in the Exchange Act Litigation and Ready Capital Derivative Actions. The Company and the demanding
99
stockholder have agreed to hold the Derivative Demand Letter in abeyance until: (i) the defendants’ motion to dismiss in
the Exchange Act Litigation is denied in whole or in part; or (ii) the demanding stockholder or the Company give written
notice that they no longer consent to the voluntary abeyance of the Derivative Demand Letter.
On May 8 and May 14, 2025, the Company and certain of its executive officers and directors were named as defendants
in two separate but largely identical putative class action lawsuits filed by purported former Broadmark stockholders in
the Superior Court for King County, Washington (the “Broadmark Securities Act Class Actions”). Certain former
directors and officers of Broadmark and certain affiliates of the Company and its directors, including Waterfall, were
also named as defendants. The Broadmark Securities Act Class Actions were filed under the captions van Wyk et al. v.
Ready Capital Corp., et al., No. 25-2-14038-5 SEA (Wash. Super. Ct. King Cnty.) and Whittlesey v. Ready Capital
Corp., et al., No. 25-2-14567-1 SEA (Wash. Super Ct. King Cnty.). The Broadmark Securities Act Class Actions allege
that the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by making false and misleading
statements and omissions in connection with the Broadmark Merger regarding the performance of the Company’s loan
portfolio and related matters and seek disgorgement, compensatory damages, and the costs and expenses of litigation. On
June 20, 2025, the court consolidated the Broadmark Securities Act Class Actions under the caption In re Ready Capital
Corporation Securities Litigation, No. 25-2-14038-5 SEA (Wash. Super. Ct. King Cnty.) (the “Broadmark Securities Act
Litigation”). On August 19, 2025, the plaintiffs filed a consolidated complaint, which the defendants subsequently
moved to dismiss on October 20, 2025. Briefing on the defendants’ motion to dismiss is expected to be completed by
December 2025.
On May 28, 2025, the Company and certain of its executive officers and directors were named as defendants in a
putative class action filed by a purported former Broadmark stockholder in the United States District Court for the
Western District of Washington (the “Broadmark Exchange Act Litigation”). Broadmark and certain of its former
directors and officers were also named as defendants. The Broadmark Exchange Act Litigation is captioned Grant v.
Ready Capital Corp., et al., No. 2:25-cv-1013 (W.D. Wash.). The Broadmark Exchange Act Litigation alleges that that
the defendants violated Sections 14(a) and 20(a) of the Exchange Act by making false and misleading statements and
omissions in connection with the Broadmark Merger and seeks compensatory and rescissory damages, as well as
attorneys’ fees and litigation expenses. On October 15, 2025, the court entered an order appointing lead plaintiff and lead
counsel. Lead plaintiff's amended complaint will be filed on or before November 25, 2025. Briefing on defendants'
forthcoming motion to dismiss is expected to be completed by March 2026.
On July 18, 2025, the Company and Broadmark were named as nominal defendants, and certain of the Company’s and
Broadmark’s current and former executive officers and directors and Waterfall were named as defendants in a double
derivative action filed by a purported former stockholder of Broadmark in the United States District Court for the
District of Maryland (the “Broadmark Derivative Litigation”). The Broadmark Derivative Litigation is captioned
Murguia v. Broadmark Realty Capital Inc., et al., No. 1:25-cv-02350-JRR (D. Md.). The Broadmark Derivative
Litigation asserts claims for violations of Sections 10(b), 20(a), and 14(a) of the Exchange Act, SEC Rule 10b-5, breach
of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and
contribution pursuant to Section 10(b) and 21D of the Exchange Act for participating in and/or failing to prevent the
securities law violations alleged in the Broadmark Exchange Act Litigation and for purportedly causing the Company to
overpay for certain stock repurchases. The Broadmark Derivative Litigation seeks revisions to the Company’s corporate
governance and internal procedures, disgorgement, compensatory damages, and attorney’s fees and costs of litigation.
The Broadmark Derivative Litigation is currently stayed, pending: (1) dismissal of the Broadmark Exchange Act
Litigation with prejudice, and the exhaustion of all appeals thereto; or (2) denial, in full or in part, of the defendants’
motion to dismiss the Broadmark Exchange Act Litigation. The defendants intend to vigorously defend against the
Broadmark Securities Act Litigation, the Broadmark Exchange Act Litigation, and the Broadmark Derivative Litigation.
Legacy UDF IV litigation
As a result of the UDF IV Merger, the Company assumed certain outstanding litigation against UDF IV and affiliated
parties.
On March 20, 2020, Megatel Homes, LLC and certain of its affiliates filed a lawsuit against Mehrdad Moayedi, United
Development Funding, L.P., United Development Funding II, L.P., United Development Funding III, L.P., UDF IV,
United Development Funding V, and various other affiliates (collectively the “UDF Defendants”) in the United States
100
District Court for the Northern District of Texas, captioned Megatel Homes LLC, et al. v. Moayedi, et al., No. 3:20-
cv-00688-L-BT (N.D. Tex.) (the “Megatel Action”). The Megatel Action alleges that the UDF Defendants knowingly
participated in a scheme to “prop” up Moayedi’s companies, and thereby defraud the plaintiffs, by lending funds to
Moayedi’s companies, which Moayedi’s companies then used to repay older loans they had received from the UDF
Defendants, rather than using such funds to “advance” real estate projects with the plaintiffs. The plaintiffs assert claims
under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and for common law fraud, statutory fraud, and
fraudulent inducement. The plaintiffs seek compensatory damages, treble damages, exemplary damages, and attorneys’
fees. On May 18, 2020, the defendants moved to dismiss the plaintiffs’ complaint, which the court granted in part and
denied in part on November 16, 2021. The plaintiffs filed an amended complaint on November 29, 2021, which the
defendants again moved to dismiss. The court denied the motions to dismiss on June 27, 2022. Discovery in the Megatel
Action is substantially complete and on March 5, 2025, the court noted that it will issue a forthcoming order establishing
deadlines for the parties’ respective summary judgment motions and setting a trial date. The UDF Defendants and the
Company intend to vigorously defend against the Megatel Action.
On August 17, 2022, certain former officers, trustees, and advisors of UDF IV were named as defendants in a lawsuit
filed by former UDF IV stockholder NexPoint Diversified Real Estate Trust and an affiliated entity in the District Court
of Dallas County, Texas, captioned NexPoint Diversified Real Estate Trust, et al. v. UMTH General Services, L.P., et al.,
No. DC-22-09833 (Tex. Dist. Ct. Dallas Cnty.) (the “UDF Advisor Action”). The UDF Advisor Action alleges that the
defendants caused UDF IV to improperly indemnify, advance litigation expenses, and fund settlement amounts in
connection with an SEC civil enforcement action and the subsequent criminal prosecution of UDF IV’s former officers
and trustees. The UDF Advisor Action also alleges that the defendants caused UDF IV to pay improper fees to UDF IV’s
advisor. The UDF Advisor Action asserts claims against the defendants for breaches of fiduciary duty, aiding and
abetting, breaches of the advisory agreement between UDF IV and its advisors, and civil conspiracy and seeks
compensatory damages, punitive damages, costs and fees, as well as specific performance of certain contractual
obligations. On October 12, 2022, the defendants moved to dismiss the lawsuit, which the trial court denied on
November 30, 2022. On March 17, 2023, the plaintiffs filed an amended petition adding certain former UDF IV board
members (the “Trustee Defendants”) to the lawsuit. On May 4, 2023, the Trustee Defendants moved to dismiss the
claims asserted against them and the Trustee Defendants were subsequently dismissed from the lawsuit. On January 9,
2024, the remaining defendants filed a writ of mandamus with the Texas Supreme Court, arguing that the plaintiffs’
claims were derivative (rather than direct) and that the plaintiffs lacked standing to assert their claims because they failed
to make a pre-suit demand on UDF IV’s board of trustees. On January 30, 2024, the Texas Supreme Court stayed the
trial court proceedings pending resolution of the writ. Briefing on the merits of the appeal was completed on February 6,
2025, and the Texas Supreme Court held oral argument on September 9, 2025. Although UDF IV and the Company are
not defendants in the UDF Advisor Action, the Company is subject to contractual indemnification obligations
(conditioned on the satisfaction of various contractual requirements) in connection therewith, including with respect to
the defendants’ service as UDF IV officers and trustees and the provision of services to UDF IV, as applicable. The
defendants and the Company intend to vigorously defend against the UDF Advisor Action.
Item 1A. Risk Factors
There have been no material changes from risk factors previously disclosed in the Company’s Form 10-K under Part I,
Item 1A. You should be aware that these risk factors and other information may not describe every risk facing us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Program
On January 16, 2025, our Board approved a new share repurchase program, replacing the previous program, authorizing,
but not obligating the repurchase of up to $150.0 million of our common stock. Repurchases under the stock repurchase
programs may be made at management’s discretion from time to time on the open market, in privately negotiated
transactions or otherwise, in each case subject to compliance with all Securities and Exchange Commission rules and
other legal requirements and may be made in part under one or more Rule 10b5-1 and Rule 10b-18 plans, which permit
stock repurchases at times when we might otherwise be precluded from doing so. The timing and amount of repurchase
101
transactions will be determined by our management based on its evaluation of market conditions, share price, legal
requirements and other factors.
The table below presents purchases of our common stock during the quarter.
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Program | |||||
July | 499 | $4.47 | — | $95,207,926 | ||||
August | 994,645 | 4.02 | 994,645 | 91,208,997 | ||||
September | 1,520,110 | 4.27 | 1,520,110 | 84,712,998 | ||||
Total | 2,515,254 | (1) | $4.17 | (2) | 2,514,755 | $84,712,998 |
(1)Total shares purchased includes shares of common stock owned by certain of our employees which have been surrendered by them to satisfy their tax and other
compensation related withholdings associated with the vesting of restricted stock units and other equity awards.
(2)The price paid per share is based on the price of our common stock as of the date of the withholding.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None of our officers and directors entered into, modified or terminated any “Rule 10b5-1 trading arrangements” or “non-
Rule 10b5-1 trading arrangements” (each as defined in Item 408(c) of Regulation S-K) during the quarter ended
September 30, 2025.
Item 6. Exhibits
Exhibit number | Exhibit description | |
2.1 | * | |
3.1 | * | |
3.2 | * | |
3.3 | * | |
3.4 | * | |
3.5 | * | |
102
3.6 | * | |
3.7 | * | |
3.8 | * | |
3.9 | * | |
3.10 | * | |
4.1 | * | |
4.2 | * | |
4.3 | * | |
4.4 | * | |
4.5 | * | |
4.6 | * | |
103
4.7 | * | |
4.8 | * | |
4.9 | * | |
4.10 | * | |
4.11 | * | |
4.12 | * | |
4.13 | * | |
4.14 | * | |
4.15 | * | |
10.1 | * | |
31.1 | ||
31.2 | ||
32.1 | ** | |
32.2 | ** |
104
99.1 | ** | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Scheme Document | |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | Inline XBRL Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded with the Inline XBRL document) |
* | Previously filed. |
** | This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
READY CAPITAL CORPORATION
Date: November 7, 2025 | By: | /s/ Thomas E. Capasse |
Thomas E. Capasse | ||
Chairman of the Board, Chief Executive Officer and Chief Investment Officer | ||
(Principal Executive Officer) | ||
Date: November 7, 2025 | By: | /s/ Andrew Ahlborn |
Andrew Ahlborn | ||
Chief Financial Officer | ||
(Principal Accounting and Financial Officer) |