Ready Capital (RC) - 2024 Q4 - Annual Report

Investment and Market Risks - The company anticipates a significant portion of its investments will be in lower-to-middle-market (LMM) loans, which are subject to credit risks[11]. - Interest rate fluctuations may adversely affect the company's net income and the value of its assets and common stock[12]. - The company is exposed to liquidity risk, which includes the inability to fund acquisition and origination activities at settlement dates[529]. - The company faces credit risk related to investments in LMM loans, particularly those made to self-employed borrowers[12]. - The company is subject to various market risks, including adverse changes in interest rates and market values of financial instruments[521]. - The estimated fair value of fixed-rate investments is expected to decrease in a rising interest rate environment, affecting the company's economic exposure[533]. - The company is exposed to counterparty risk if lenders default on obligations related to repurchase agreements, with collateral typically exceeding borrowings[534]. - Interest rate swaps are utilized to mitigate risks associated with changing interest rates, involving variable-rate interest payments in exchange for fixed-rate payments[535]. - The company has entered into over-the-counter interest rate swap agreements, exposing it to counterparty performance risk if the counterparty defaults[536]. Financial Performance - Total assets decreased from $12,441,217 thousand as of December 31, 2023, to$10,141,921 thousand as of December 31, 2024, representing a decline of approximately 18.5%[564]. - Net interest income before provision for loan losses fell from $229,346 thousand in 2023 to$200,520 thousand in 2024, a decrease of about 12.6%[565]. - Provision for loan losses significantly increased to $292,759 thousand in 2024 from$7,230 thousand in 2023, indicating a substantial rise in expected credit losses[565]. - Net income (loss) attributable to Ready Capital Corporation was $(443,751) thousand in 2024, compared to$331,454 thousand in 2023, marking a shift from profit to loss[565]. - Total non-interest income (expense) turned negative at $(101,765) thousand in 2024, down from a positive$408,468 thousand in 2023[565]. - The company reported a comprehensive loss of $(436,327) thousand in 2024, compared to a comprehensive income of$330,943 thousand in 2023[567]. - Earnings per common share from continuing operations (basic) dropped to $(2.52) in 2024 from$2.27 in 2023, reflecting a significant decline in profitability[565]. - The company declared dividends of $1.10 per share of common stock in 2024, down from$1.46 in 2023[565]. Acquisitions and Mergers - The company completed the acquisition of Funding Circle USA, Inc. for approximately $41.2 million in cash, enhancing its small business loan offerings[577]. - Ready Capital entered into a merger agreement with United Development Funding IV, expected to close in the first half of 2025, which will increase its equity capital base to over$2.2 billion[576]. - The company acquired Madison One for an initial purchase price of approximately $32.9 million, focusing on USDA and SBA guaranteed loan products[579]. - The Broadmark Merger expanded the Company's residential and commercial construction lending platforms, diversifying its business[585]. - The Broadmark Merger completed on May 31, 2023, had a total consideration of$637,229,000, with net assets acquired valued at $826,895,000 and a bargain purchase gain of$189,666,000[695][698]. Loan Portfolio and Credit Quality - Total loans, net decreased from $10,713,084 thousand in December 2023 to$8,549,836 thousand in December 2024, representing a decline of approximately 20.2%[701]. - The percentage of loans outstanding that are current increased to 93.7% in December 2024 from 89.8% in December 2023, reflecting an improvement in loan performance[707]. - Delinquency rates for loans 30-59 days past due were 1.6% in December 2024, consistent with the previous year, while loans 60+ days past due increased to 4.7%[707]. - The company continues to monitor credit quality indicators, with a focus on delinquency rates and loan-to-value ratios to assess borrower capacity and willingness to meet financial obligations[702]. Regulatory and Operational Constraints - The company must maintain its qualification as a real estate investment trust (REIT), which imposes operational limits[12]. - The company is required to distribute a significant portion of taxable income annually, constraining its ability to accumulate operating cash flow[541]. - The company maintains its REIT status by distributing at least 90% of its taxable income to shareholders[586]. Risk Management and Internal Controls - The company maintained effective internal control over financial reporting as of December 31, 2024, according to the audit opinion[556]. - The company utilizes loan loss forecasting models, including a probability of default method and a probability-weighted expected cash flow method, to estimate expected lifetime credit losses[599]. - The company utilizes derivative financial instruments, such as interest rate swaps and FX forwards, as part of its risk management strategy[614].