Release Date: May 09, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ready Capital Corp (RC, Financial) successfully stabilized its book value per share at $10.61, benefiting from share repurchases and the UDF merger.
- The company exceeded its first-quarter liquidation targets, generating $28 million in liquidity and reducing the non-core portfolio by 6%.
- Ready Capital Corp (RC) maintained a healthy credit metric with 60-day-plus delinquencies remaining relatively low at 4%.
- The SBA business showed strong performance with a 12-month default rate of 3.2%, below the industry average, and a historic low in the repair and denial rate.
- The company demonstrated the ability to access capital markets, successfully closing a $220 million senior secured offering and increasing it by $50 million post-quarter.
Negative Points
- Net interest income declined to $14.6 million due to non-core assets moving to non-accrual status, impacting earnings.
- The non-core portfolio's transition to non-accrual status resulted in a $0.13 per share reduction in earnings.
- Delinquencies increased in both core and non-core portfolios, with risk-rated 4 and 5 loans rising to 7.5% of the total.
- The SBA business is expected to see a moderation in volume due to policy changes and capital constraints.
- Freddie Mac loan volumes were muted in the first quarter, with competition from banks and credit unions affecting the business.
Q & A Highlights
Q: You highlighted that you're expecting a large portion of the non-core book to pay off in the second quarter. Can you talk about any impact to those expectations from April's volatility and how those conversations are going?
A: (Adam Zausmer, Chief Credit Officer) The loan sales are progressing well, with parties having completed due diligence and working on strategies. We don't expect April's volatility to significantly impact the exits in progress. (Thomas Capasse, CEO) The multi-family sector is performing well, with increased rents and strong capital inflows, which supports our expectations.
Q: Can you share your near-term expectations for the distributable earnings trajectory and when you believe you could begin covering the 12.5% dividend and get back to your target ROE?
A: (Andrew Ahlborn, CFO) The repositioning of assets is key to changing our earnings direction. Post-exit of non-core assets and reinvestment, we expect improvement. Operational expenses currently exceed origination volumes, but as businesses rebound, revenue should align better with expenses. We anticipate similar earnings in Q2 as Q1, with upward trends starting after reinvestment.
Q: Are you continuing to repurchase shares this quarter?
A: (Andrew Ahlborn, CFO) We'll reassess post-earnings. Liquidity remains strong, with initiatives like CLO collapses and UDF portfolio financing generating cash. We aim to balance share repurchases with debt maturity management and net interest income reestablishment.
Q: On the Portland assets, will the position be held unlevered, and is there any contemplation of exiting the position?
A: (Adam Zausmer, Chief Credit Officer) The position is currently levered and will remain so. Pursuing title is the best economic outcome, providing confidence to potential buyers and tenants. We plan to stabilize and sequentially exit the asset components, with a focus on operational and capital commitment.
Q: On the SBA business, what level of moderation in volumes do you expect, and what are your expectations for gain on sale margins?
A: (Thomas Capasse, CEO) We expect SBA volumes to be below $1.5 billion due to policy changes and administrative delays. Gain on sale margins historically average around 10%, with potential movement based on portfolio mix. We are adjusting to SBA changes and expect volumes to stabilize over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
