• Book Value Per Share: Decreased 14% to $10.61 due to $284 million combined CECL and valuation allowances.
• Dividend: Reduced to $0.125 per share for the first quarter to align with projected cash earnings.
• CRE Loan Portfolio: Totaled $7.2 billion, with 83% core and 17% non-core.
• Core Portfolio Yield: Contractual yield of 8% with a 93% pay rate.
• Small Business Lending Originations: $350 million in Q4, totaling $1.2 billion for the year.
• Fourth-Quarter GAAP Loss: $1.90 per common share.
• Distributable Earnings: Loss of $0.03 per common share, excluding realized losses, earnings were $0.23 per share.
• Revenue from Core Operations: Decreased 12% quarter over quarter to $91.6 million.
• Net Interest Income: Decreased by $900,000 due to a 7% decline in portfolio assets.
• Gain on Sale Income: Decreased by $5.4 million to $20.9 million.
• Operating Costs: Increased to $57.9 million from $53.1 million in the prior quarter.
• Liquidity: $185 million of unrestricted cash.

• Warning! GuruFocus has detected 4 Warning Signs with RC.

Release Date: March 03, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ready Capital Corp (NYSE:RC) has aggressively reserved $284 million for problem loans, marking 100% of non-performing loans to current values, which sets a bottom for future recovery.
• The company has experienced significant growth in its Small Business Lending operations, with a 1.7x increase in origination, contributing positively to earnings.
• RC has initiated a $150 million share repurchase program, which is expected to enhance shareholder returns.
• The company is strategically bifurcating its CRE portfolio into core and non-core assets, providing transparency and a clear path for asset management and recovery.
• RC's Small Business Lending segment is a leading non-bank lender, contributing significantly to earnings with a strong growth outlook for 2025.

Negative Points

• Ready Capital Corp (NYSE:RC) reported a fourth-quarter GAAP loss per common share of $1.90, indicating financial challenges.
• The company has reduced its dividend to $0.125 per share to better align with projected cash earnings, reflecting current financial pressures.
• RC's book value per share has decreased by 14% to $10.61 due to aggressive reserving and valuation allowances.
• The non-core portfolio, representing 17% of the total CRE portfolio, faces challenges with a high delinquency rate and is expected to take 7 to 10 quarters for full liquidation.
• The company faces significant upcoming debt maturities, which may strain liquidity and require strategic financial management.

Q & A Highlights

Q: With the dividend cut to $0.125 starting in the first quarter, do you expect cash earnings to cover that level? How do you view earnings power over the next several quarters on a cash and non-cash basis? A: The first quarter will be the lowest of the year due to the non-core bucket being booked on a cash basis. We expect to cover the dividend approximately 1.5 times over the year, with earnings ramping up as we progress. Key drivers include operational expense savings, growth in our SBA business, and the UDF merger, which should add incremental earnings.

Q: Can you discuss the rationale behind the UDF acquisition, especially considering past credit challenges with acquired portfolios? A: The merger includes aggressive discounts on current project bases, ensuring credit security even in downturns. Our historical experience with these projects gives us confidence in their performance. The acquisition is expected to be highly accretive on an EPS basis, with the added benefit of improving leverage ratios.

Q: How do you assess the risk of additional problems with remaining assets, and what comfort can you provide that further significant reserving actions won't be needed? A: The core portfolio, representing 83% of the total, is deemed long-term with healthy credit metrics. The non-core portfolio, at 17%, is targeted for expeditious liquidation due to lower yields and stabilization challenges. We are focused on resolving non-core assets over the next 7 to 10 quarters.

Q: Regarding the 2026 maturities, what is the plan to address them? A: We have begun addressing these with recent senior secured notes. We plan to use projected cash flow and liquidity to manage early 2026 maturities, while accessing markets for larger debt issues later. Our asset maturity ladder aligns closely with liabilities, providing multiple paths for resolution.

Q: Can you discuss the credit trends in the SBA business and any potential administrative changes that could impact it? A: Our SBA portfolio shows strong credit trends, with 60-plus delinquencies at moderate levels. We maintain a healthy mix of traditional and small loan programs. Conversations with the SBA indicate no significant changes that would impact congressional authorization for the 7(a) program.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.