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Ready Capital (RC)

Participants
Rick Herbst Chief Financial Officer
Tom Capasse Chief Executive Officer
Steve Delaney JMP Securities
Jade Rahmani KBW
Tim Hayes B. Riley FBR
Stephen Laws Raymond James
Crispin Love Sandler O’Neill
Ben Zucker BTIG
Scott Valentin Compass Point
Christopher Nolan Ladenburg Thalmann
Call transcript
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Operator

Greetings, and welcome to Ready Capital Corporation Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rick Herbst, Chief Financial Officer. Please go ahead.

Rick Herbst

Thank you, operator, and good morning and thanks to those of you on the call for joining us this morning.

today Federal forward-looking Securities comments meaning within our the of Laws. of will statements be the Some Such statements from are that could subject to numerous actual to risks results differ materially what expect. cause we and uncertainties should you on exercise and interpreting Therefore relying in them. caution our condition. to for filings the you discussion future operating a impact that could refer our detailed results of SEC We more risks and financial

should release be operating everyone now discuss I results By earnings Investors call third in Tom Capasse, non-GAAP GAAP. measures, supplemental for measures in can we performance. comparable section supplemental measures our believe to these company’s the and our will substitute found our the reconciliation the quarter be A isolation useful and the should website. call prepared XXXX in evaluating access Both Ready GAAP our Executive most During we now will in earnings release a with over Officer. considered information. the or directly Chief to turn of quarter not These is which the the XXXX measure information. to of have in be as our accordance financial our can third Capital available

Tom Capasse

morning. good and Rick, Thanks,

the minutes financial take announced we discussing greater like detail transaction a I’d to to Before quarterly results, few the in discuss last evening.

loan to a and transitional agreement Specifically, our to similar middle is signed and mortgage listed real commercial with business. estate merger originating Owens specialty we small REIT, focuses excited loans, Mortgage finance definitive market on balance extremely Owens publicly are a REIT own established Realty Inc. have very commercial that

section be presentation Ready merger. transaction a of the will website. have We Capital posted also summary on stock-for-stock This the a Investor

the value. discount assets Owens We market their believe what to fair are value, fair a we at acquiring of

manage we XXXX, this of the We As will by to quarter and expect the first of XXXX will be accretive transaction to end the anticipate our we result, transaction combined close company. a results. the

redeploy from Additionally, sale. assets sale proceeds shareholders many proceeds existing and benefit those this the loans Capital’s will ways. of to we of into Ready principal we that hard assets owns our expect strategy. dispose believe the transaction in We their through their from estate Owens will We anticipate investment real

First, extremely particularly compared which nominal. if the efficient initial to dilution, be value. raise way executed it need any, is will at to we case, when a In to an discount to stock value cost capital, significant will be offering, this a book book believe

share recapture dilution Second, this will per and earnings value within the X book be year. accretive XXXX to

believe asset we we value underwritten in assets, fair to result book in transaction range of market Owens’ Third, of as book X%. values of the of September XX, XXXX. well current asset estate of have adjusted X% Based real initial value the tangible on based this dilution excess these will of and estimate condition their on this value

filed, physical Our our third estimated with a real float reduce range this of issued of and trading our nearly platform higher be shares transactions volume. original which employees. of current current the execute parties review with inspection based value the to commercial tend valued to market expect expand underwriting shares dynamics plan. the and fair including price-to-book increase business low Fifth, a the Sixth, will of basis. assessment provide relatively liquidity XX%, the larger valuation appraisals, growth given we improve and and our on the loans of our condition, market efforts, REITs values of will our capital cap impact transaction under technical review our of Fourth, asset will assessment of estate key on mortgage

In to debt further our increase capital incremental raise scale. to will addition, it allow us

current their be classic win-win cost-effective, will ratios a of we the from expect forward is working benefit. Owens this scale team companies situation to we the shareholders and this look Finally, believe during in OpEx transition, level. where increased We resulting with both reduced will

before on name like touch on the Now financial quarterly to change. results, I I’d comment

rebranded part the all our to to you The all businesses, Corporation exposure of and Capital makeover across we to growth corporate us Capital strategy Ready platform. level value. know, our marketing further month last our of brings shareholder our enhance Ready to at As enabling enhance unify greater to as simplify lending

leader Ready Capital well are mortgage to We to continue a in finance. franchise positioned the develop as

Now to results. financial turn the I’ll third quarter

a steady balance targeted The consecutive For with another. our contribution acquisitions third origination exceeded equity, from our small having multipronged given and, provides operating output from softening with we strategy consistency the platform lenders. support earnings returns results segment our quarter, a further in enhanced our compared diversity earnings this franchise can XX% one in to that greater Strong single business. XX% offset commercial an thesis thus, ahead of the return quarter on returns

gains in and origination sales of loan impacted sales. and offset results were For Mac quarter. of gains Freddie loan positively business on conventional small assets example, administration our volume reduced this partially increases These acquired by

We continue quarter. market of an be following the from including that small to results, underserved reflected highlights in believe a to the dynamic continues third some is balance niche, our commercial space

Through ROE share ROE core share, of were or GAAP GAAP First, basis, per and ROE per $XX.X cumulative ROE first million is year, quarters we GAAP is earnings earned XX.X%. $X.XX XX.X% XX.X%. representing a of of core our the this XX.X%. an three a or On $X.XX

originate to to be SBC Secondly, ability continues our a assets company. our acquire new of strength and

a quarter. public off loans in originated of since million new New million $XX asset loans. although of $XXX We from the acquired additions another were quarter and second quarter last $XXX million, company bit a became the highest we

million originated we $XXX addition, In new loans October. of in

in $X capacity short-term This transitional balance factor liquidity. loans lending investment additional $XX is reinvestment represents platform, purchase $XX depreciating exclusively securitization commercial between stark a Now with compressed included our those the of liquidity increased basis conduit competition This a balance channel leading underscores large mortgage bank. regional focused originated in that in interest with Ready space our prepayments on where and acquired in the contrast intense of small REITs the an was on inaugural a of has million loans, resulted million margins. subordinate million, an forward-flow at exceeds other Capital for and key

Third, pipelines of both $XXX and nearly million are segments loans. SBC strong new in totaling SBA

approximately seasoned hired team is accretive Ready X% versus in prior XX one-off the the loans and book increased the see On securitization only the due to our over universe, administration million $XX.XX. year, the that transactions. This loans mortgage the stability risks. collapse REIT pipeline value business other to we this months. differentiating sourced a to beginning million Of mark-to-market broader of Capital $X.XX small Northwest, Pacific performing is Fourth, legacy SBA in note opportunities the a acquisitions fact to side, another since assets we as continue in numerous of quarter, $XXX volatile in to environment. the subject of $XX are business book our of underscores value factor for rate our This adjusted pricing which

so majority in our retention again segment, our which assets in quarter and expect rising mortgage mark-to-market to Our rate increased rate taxable Further, and subject of mortgage this environment. and allows the servicing are residential a value our therefore rights to would to we match is portfolio in rate do continue XX% floating is interest subsidiary not REIT funded risk. of structure earnings

$X.X a of Lastly, market. with in X.X%, basis over debt XXX Capital strong. transaction residential since of in securitizations week, commercial a proceeds collapsing This Ready our securities more a Capital’s had advance current common which this securitization totaling acquisition with legacy Ready transaction. Earlier the swap. completed we is XX% access highlights to legacy million billion $XXX XX points transaction securitized business remains of an mortgage-backed niche the in priced This markets XXXX. rate now coupon

markets, observations now balance offer continue the the in continue correlated. show me on Trends market which strength. property relevant the of a SBC track which to housing Let are highly market, to small prices few commercial

positive – from increases the to marking in and CRE large with property X% SBC As dwellers supply. business SBC the year-to-date X% balance reduced balance of tighter retail, as low gain the a which historic registration business and July, increased crisis markets, through major the the full a years prices results a are XX% of lending. is trend quarter is in small SBC balance X.X% quarters SBC one in peak, recovery balance absorption Also turned. annualized commercial and The and apartment market, This housing for SBC which for negative construction XX and the behind commercial bank since of consecutive post-crisis with small real lending rate. curtailing X.X% rent housing positive the retail. four large experiential net demand nature surprise big Record third bucks estate highlights Meanwhile, respectively. vacancy the credit cycle a finance, construction through occupants small reflected year-over-year

goal housing, this from commercial As commercial a material of small have with with increased expect suppresses market accounting the XX% with fragmented the decline $XXX we XX% a overtly top with in origination. the this under oversupply-driven scarcity as prices, of but billion to backdrop, rate To fourth administration we traditional avoiding prices. slowing put a year. supply price the exceeding of correction originations The small full perspective, loans for all lenders projections X%. cyclical billion longer-term demand, highly market departure appreciation business just of year in balance X.X% remains Against current excluding $XX for XX consecutive share balance in small a

we loan grow the credit of strong market, Given without volumes the new our believe our compromising can standards. size we origination

points. rates quarter’s small in Freddie in last of XX% starting new decline Mac million applications on the mentioned in basis Freddie increased multi-family second new loans I or in $XX resulted when reduction middle XX the quarter this As loan experienced call, quarter. a Freddie the This balance

million New million our reduced grown XX, up when XX did July. $XX has of up $XX of end points rates basis Freddie as pipeline October from subsequently at to Freddie the loan applications pick and

more million, we Freddie, from had the product this On side, XX% conventional competitive and up million $XXX $XX the quarter much quarter. record originations fixed or positive with rate previous our became of

XA originations Our history. loan topped first quarter small time business the in our million $XX this for administration

SBA While softened as and the the our got last a pipeline remains strong, it slightly down number bit is overall has from closer. elections quarter

announcing starting financial those summer we’re and Rick have sales addition, results. we decline to rebound. premiums to bottomed our starting did it hand are off In a to I’ll discuss this see now in slight but premium

Rick Herbst

Tom. Thanks,

supplemental hitting the discuss some included the the information the of slides for on the like to items statement quarter. of I’d income deck, Before few in highlights a

As our diverse we continue mentioned, Tom benefit platform. to from

items results, highlight. are our As I’d like to few you review quarterly a there

assets. positive quality returns the we on side, On benefit continue from to

gains reduced a rights we in by sold administration Freddie were on million positive business on recorded October. gains mortgage the in million we about income from mark our This sales This small In creation that of from sale quarter, down businesses. $X.X $X.X Freddie partially on was servicing and quarter. segment, last bond generated a and offset

As Business line. products pipeline loan. Tom back XX% impact Freddie conventional the down this new on Offsetting X highlights lower on this volumes immediate line loan our bottom third will volumes depicts the were is positive impact in our quarter, were now increased though a have XXXX. an which growth for our a Slide mentioned, bottom had originations, some forward. quarter summary going

be our composition with the of sheet. to results our pleased continue and financial We balance

our is book with an the of levered originations million acquisitions, our beginning the year. X, our assets quarter, share now is to important we levered two up highest $XX.XX, yields $X.XX since public value. of continue as XX.X the value second our Our Growing per yield in strong of maximize component all On shareholder Between a company. in and adjusted to book the $XXX ability in. a new be Slide added years value

earlier. business and solid of offering. the XXX business While this of debt the Slide last the basis as over to Freddie earnings last line shows proceeds increased volumes exception in quarter, capacity the previous quarters each continues we five higher than our slightly a return result year, X corporate the reflecting with our summarizes about loan lower average mentioned originations deploying than of points

acquired down the loans activities of during the we $XX quarter yield bit addition, X In was million the this quarter. due originations of to segment. Slide gross segment Slide The was summarizes remains this quarter. The a covers levered lower in leverage performance small nominal administration XX% our the delinquencies. segment. with again quarter. Credit the X business yield over outstanding levered during gross

As as we some we X.X% last in XX% premiums, which averaged quarter, softening earlier and the compared this mentioned see did last to quarter quarter.

supporting business related home sensitive loans, We existing we row liquidity some much return summarizes grow. a for quarter to the the of in The loans average. of increases. summary residential acquired returns the down coupon for loans will the rate and portfolio strong as X this adjustable permits. average our again selectively better in retained shows year, assets XX% reset Our of rate than in asset X% last mentioned business. were mortgage levered were from returns. less joint segment than of returns SBA the as and last to the portfolio. Slide purchases the MBA more almost information acquired rights value continues due of rose $XXX these servicing to third than rather here. continued on servicing pipeline have quarter strong, which and I Slide sale new more quarters, helped with million strong refinancing interest accretive the the acquire are risk-adjusted loans, XX venture Volumes This new we’ve here and to the remains rights is generated third In three The investment. from assets

a we’ve value of of rate loan these assets no inventory this does capital were summarizes because XX positive a by not acquisitions, I past, As Slide rising just majority funded fixed rate The perform done Slide our and securitizations the The delinquencies. within in provides is to include Slide sensitivity in bit in and originated and debt risk. mentioned, of interest our as impact The quarter rate from an variable servicing were the we’ve rates an new have securitization rising included warehouse which continues without nominal Capital summary information said of are update XX. generally interest XX a the portfolio. match product do week. of rate repriced was we environment. as stack Ready perspective September subject the XX. now earlier XX to the with of well one rights from rate down increases the funded this we they to longer September credit

our converting the debt at continue Our debt. this a debt recourse by mark-to-market time, a various pool as reflect securitization are into to is of we debt goal to bit faced. few slides presented debt quarters and a to portion composition our warehouse capital the is risk securitized sources. to and similar previous The diversity was next that higher just securitized quarter those of but liquidity minimize match The end of result funded in with liquidity loan warehouse of converted structure

Tom Now questions. I’ll some turn thoughts for take it final we back over to before

Tom Capasse

second to company. we efforts our our confidence grow completed our a and would questions. as success company to for ongoing now build Ready under public We’ve shareholders for Capital our for We line business we continued up team the as the their now in continue to year thank name. Operator, your plan we and like our our on open

Operator

your questions. Our proceed with JMP from from Please Instructions] of [Operator Delaney question first Steve the comes Securities. line

Steve Delaney

competitive and on the get off bat, with and saw Mac the provided in merger. Seems the or have third Good we Freddie the you And their we also Tom, Freddie congratulations it’s often saw crossways balance I towards larger their Fannie that that. they we’re being volumes morning and terms both being more you. small in aggressive, right color regular view in your the actually in in market market, their appreciate on pricing noticed in the so over the programs on of – quarter. whether quarter what

plans? pursuing a us still balance there give any update small you that in Can license. obviously, the before whether progress point, that mentioned on Fannie that an would is or Given you’ve consider Mae you

Tom Capasse

Steve. Thanks, Yes.

look nothing to licenses things but the specific report We’re and continuing to evaluate various today. at

Steve Delaney

footing mentioned just you Okay. the dealing program that, be Fannie Freddie, get feel the back And competitive, going is pricing you that do with you solid quarters forward opportunities? couple far as will next as Freddie with until a for that multi-family is can license, that on

Tom Capasse

Freddie and on to seen I’ve used their with part this other where that two in was them was it part the on even competition hype on of are the small the – and side what years some the I rates. their the a senior No, balance between the on Yes. the – of Ready think that over catch-up sales was part of Fannie pass-throughs of rates execution moving their the multi-family pools. are finance the reducing And there

So it’s little bit a of both.

I been we the has the in think between quarter normalized they’re we’re it so or two, now pricing where the seems the – increase to volume continue expect two. period over next to more

Steve Delaney

couple a quick just And on things Owens. Great.

is And Area? little office do there know, maintaining you company. a in of question any you out regional that covered Bay my first As we the envision kind

Tom Capasse

We have currently don’t a presence there.

with continuing team evaluate to and there. definitely are We establishing office the working an

Steve Delaney

forward servicing assume things that So be as New all going maintain production-oriented you I early asset that York be that will all – would as and possible? Dallas anything or and would administrative transition to management,

Tom Capasse

this haven’t clear, – made But if – be a haven’t we underwriting. conceptually, loan on credit determination we’re would a point of at office. production take which to terms in we be impressed team, in did, the we very to just it Well,

Steve Delaney

require your REO Got realizing it, the $XX those maybe and gains. specifically of material if thinking see is potential June. about million, the in gains Tahoe property. okay. I plus I’m And deck further curious investment, in terms in $XX million CapEx I’m going Lake was or to

Tom Capasse

more so additional leasing The expect additional REO. the of projects without Zalanta, material primarily property, referring don’t or and It’s CapEx any much to required. in sales completed we investment No. – units those are retail

Steve Delaney

Okay.

business, it development you’re not in sounds real estate like? the be to real going business, estate the So sales

Tom Capasse

fund, very management Very billion of quirky with distressed strategy a small have asset wrapped we that their of Ready its very team. XX people being and exit is It’s about just balance in like predecessor really correct. Waterfall, team strong said, our probably complex, strong $X terms property around it. this. private Capital bought That so XX, Roughly technology recall

we’re as the confirmation spent coming at REO in with or of projects of very diligence, either – enhancements book. management looking of lot So some part short, time comfortable the exit a and our to up with the But we’re of we that. strategy maybe existing

Steve Delaney

the Great. Thank you comments. for

Operator

the with Our KBW. from Please comes line from of proceed question Jade next your questions. Rahmani

Jade Rahmani

Thanks very much.

friction of the sticking function costs Just and a expect? asset What’s merger. costs transaction you sales magnitude as with the of that the

Rick Herbst

It’ll not – a can statement. are costs it at little about talk that it. transaction but where disclosed costs I’m sure into factored it most hopefully max, X%, in into factored proxy potential than be – said now, those are we it’ll dilution we the but less be we think is bit those the our transaction

Jade Rahmani

Okay. What’s you assets the REO? that Is plan beyond of it the to sell? magnitude just

Rick Herbst

the We The condo would those we that sell or as would particularly own while short-duration a to there, loan loan plan if that the are And replenish depending it’ll REO able down. kind of would those loans, of Tom retain pay that we capital units are to take recognizing about fairly originations. then our so with our year, portfolio own to would and the quickly maybe average team X as possible, origination diverted little mentioned. loans expect into duration be

Jade Rahmani

the it reasonable liquidating REO, timeframe? of is like to expect a X.X terms year In

Rick Herbst

talking Yes, years that’s the end, I we’re the think, back range to about. hopefully. yes, on X.X two

Jade Rahmani

does earnings And accretion reasonable? of the of magnitude the What’s cost in factor REO? that that’s carrying

Rick Herbst

back to within expect the minimal we dilution accretion, earn X earnings The year. does. It

of potentially So higher-yielding into we there. dispose beyond going that REO as assets. you and it forward, goes And math can the then redeploy do the it

Jade Rahmani

– Is relative say forecast internal for is accretive, relative when to your XXXX? what the you that to? And that

Rick Herbst

Correct. Yes.

Jade Rahmani

Okay.

environment, overall do start could real Reserve in about additional have strong you Just cause that credit rate commercial a view the additional But increases. sure if the I’m interest you think impact not rate of terms increasing interest Federal of to deterioration in estate? increases

Tom Capasse

attached once probably is is see I we where you’re our correlation be market, a market, trillion pricing its terms balance large small is is are think XX% XX% commercial market in debt going of contraction But wanted terms we about by the, the to will a of just in to the the in Well, dynamics. of rate terms estate X% triggered underscore that housing see balance mild of we recession of of fundamentally view cycle. the and which prices to commercial between what total $X and – of real

properties from And it and in was million – years, XX% $X and that last market year cycle. is finding a about value, rent reflected record property the so it’s then the behind suffering we’re appreciation I housing And of below over in way is about that of, dramatic is of X%. in as three appraised years same supply suffering four as increases X% around think under to price the

balance that similar trend, we very what balance in So small to will the again a recession market secular a in believe increase beta with going market. just to to be have market causing large housing that see to the you’re than – prices, lower a and undersupply seeing with much what the you’re buffered

Jade Rahmani

On referring to side, commercial declines out? is And what do that the prices? the play large real to over that XX%, period expect in time balance you estate to X%

Tom Capasse

hits, X%, that happen to a XX XX over months. period could recession XX% of when

you’ll out market. in X% of housing. X we of to X% balance that consensus. the terms credit some But at to the not contraction are large in see research, X% firms steeped in balance of that’s the market expect and of look our maybe would that small view And You a large that’s in

Jade Rahmani

The fund that opportunities? decline space? And the balance you small create does through CRE in would primarily prices, acquisition those

Tom Capasse

In leveraged definitely will look but terms a up lot market, We look in we think the But loan somewhat BDC in the of kind bubble yes, we at – a at do create bit still when $XX space, acquisitions, midcap larger, credit. at mini in to which we it’s million. the of that of like of in a particular, opportunities. is maybe look

see lending opportunities You’re real that acquisition some aggressive funds transitional nowhere lot will see present estate inevitable our going think call to we that very of we a underwriters that when credit occurs. doing bridges correction the private to are of

Jade Rahmani

to to and class? In increased housing your effects from slowdown have in terms concessions. seen seeing market into potentially homebuilders – a housing, the are softer we any you offer a having of correlation Does home selling sales asset spillover

Tom Capasse

passed You’re the banks targeted definitely was loans, or HVCRE, were different. real similar for balance really seeing construction crisis that after community high-value and and it’s – that properties. finance but the The acquisition in regulations commercial small estate commercial squarely

As but at a result demand apartment and the has small front numbers XX% new me, from been like in the have businesses dwellers. don’t of of meanwhile, that, of I highs. deliveries running And have been pre-crisis and increasing the

So you’ve market. small had net absorption the XX consecutive commercial of positive quarters in balance

rising some – And maybe to acquisition rates low think say affect fundamental housing. to let’s thing will down while so acquisition to demand, prices see factor single refi in is X% slow same such that and from you’ll down is extent to happen going that maybe the to We digits. the

correction there’ll a a in than of more so – at stage decline the in of the of an rather yes, terms in so prices decline this cycle. be slowdown significant prices actual And a

Rick Herbst

follow-up the earlier help little your bit. on one just question just out you Jade, quick to a to accretion,

lower advance sheet, would anticipate We redeployment If that at those contribute will cost you have of would of they’re higher debt and the accretion. rates move under and our loans then our to to very, very we facilities, financing their levered. which look that balance proceeds

Operator

of from FBR. Riley proceed line the Tim question. from your comes B. question with Hayes next Our Pleas

Tim Hayes

my thanks guys, morning good for taking Hey questions. and

advance I’m any to earnings forecast? the your on are to But point, the of there couple your cost of Rick, lower a capital, better savings and from, sure accretion. accretion that that. proceeds rates, all contributing getting earnings redeploying bulk material assets, higher-yielding Just comes cost

Rick Herbst

on saves company, is lower will base. where everything a because there a operating There going in a ratios larger be much versus they’re lot capital on as incremental the resolved of how much cost will costs there not forward be some our expense team would be depending Obviously, currently. combined

of much efficient. numbers more some be So will statistical those

Tim Hayes

else that potential estimate enhanced liquidity an forward, on have of and benefit this you do And have scale capital of all your the going will cost Okay. equal?

Rick Herbst

capital, capital of where on be, goes up. On obviously cost of obviously somewhere market our it the to for a cost cost I $X reacts. which optimal slight would between as depend and size how view our million, on We a have of price and think where impact stock we’ll capital. positive will would an $XXX we more as it scale is billion our

good forward on So in path. this getting is a us big step that

Tim Hayes

And Okay. loans any today? collateral And securitization? believe do just you could like securitization Owens you of can your looks the what for clarify pipeline be

Rick Herbst

They’re of one-year with one currently have duration for prepayment loans, couple reasons. short-term somewhat One, and they’re maybe challenging a a year, generally extension protection. they do not

for – So challenging, make it most the of impossible, our not types but two those source that’s not funding not likely these it’s loans.

And another then to quarter. our that close legacy in off get yesterday, products. bridge on path of of we will the terms In going today it’s hopefully have of the securitization, we priced fixed-rate one or first Tuesday, product guess, our I

Tim Hayes

loan the appreciate then exposure retail Owens that. good And there’s of book. in Okay, amount a

color loans? of Just backing the are can you stores type give a of little of bit what

Rick Herbst

that million, ours. $X not from Their size is Somewhat average off too far similar to loans ours.

experiential to it’s have be where they’re strip It’s retail there. if to in something type So centers center, competition. Amazon a be we not type small or of rated that going by

Tom Capasse

balance the yes, million, what, $X about million. Rick, Yes, is $X.X average

thing, sort like So of yes, athletic that malls. facilities, strip it’s

Tim Hayes

Appreciate for got color my taking questions. the Okay, it. and thanks

Operator

question comes Please proceed with Laws James. question. next line Raymond from of your Our from Stephen the

Stephen Laws

questions. taking acquisition Appreciate the nice to quarter. the congratulations morning, good on Hi, and my

– that that dipped maybe the that Rick? on Tom or XX% of kind come thoughts there. everything XA those the premiums Can Those I bit been front. pricing about so Clearly, have month. market you talk now threshold, or on prices some how the covered in acquisition business prices down what’s comments I just that and opportunity have products And there, has look Really last think had wanted and there? at the SBA has that on come quite impacts you driving a down. those to the any it’s below on premium touch

Rick Herbst

we those Yes. seen some out on bit seen in a we’ve market, deals of Actually, we recovery little and pricing. the have have

and are – we XX do and have XX-year – X/X both the XX. XX-year loans, and example, For term years about we X/X loans are term

XX-year, XXX.X. we the trading in dipped on to back down They So in September XXX just deal they the like at spring, around were and back priced XXX.

half not it it’s keep to So back SBA over of mind in that quite retains was. anything And XX%. the where

So impact to goes XXX, it’s XX XXX not and XXX. basis full from it to us, point a

seeing some strengthening So there. we’re

was X/X is On the product, around of flattened out. XXX. which product, XX-year our that It has

or and further we XXX.X decline seeing over so, months. we’re the last of haven’t Now couple any seen

So might remains what election we’re XX% to seen a Obviously about. They’re after where of Obviously, up, and is some – there so after that’s election uncertainty paying premium. was some market was the rates there the prepayment concerned behind XX% And happen. There summer, the product about that never to are if a ends be us that prepayment or uncertainty. likes buyer now concern bit. and seem couple results hopeful accelerating. softened Labor rates. product a glut election was Day, the little be around of things, up pricing a the was glut There – the

either that pressure of to out at bottom seen or upside. So on in a turn But out we’ve again, was it start some minimum the the there pricing.

Stephen Laws

to Is I that the in million still want weak. just your repurchase. to to you at know, stock you the investments results, here? repurchasing year-end And stock you back little value Is been roughly deploying about about Great. announced so something the trading a, $XX shares book you don’t stock’s consider? with place? capital authorized touch how I I base, versus guess XX% discount, new adjusted that when would a talk Maybe view know

Rick Herbst

We were at. market recently looking the kind were merger constantly the given of in we’re where transaction. of we something out It’s

were – So of was doing from kind we that precluded that.

of stock we’ve of stocks. at volume. terms some sold on think And the looked In and off as weakness the ETF price, relates our average it at trading ETF we’ve looked to it ownership, financial I our

volumes. which group an our volume, volume, our low because our much XX trading the of trading ETF own ownership, low most of Our – trading about daily average times peer given looked they is higher than at we’ve

up lightening were some hasn’t start obviously more that six strong we little and to think services, of recover as merger reload, financial some we market quarters hopefully they We are value weeks strong Conversely, will others. to like we quicker feel We’ll the performance as as the and stock the then very a probably strongly, the month the well since. see ETFs than been a reflect the book get if of bit a positive bit at or than we little would little start a how on earnings should as if I that. others. three So ago above market – hit very

Tom Capasse

float that XX% underscore I our cap currently one would benefits increase just transaction market one to roughly of to of forma is XX% X the pro the benefits on which to add – from the a transaction of our is on of Capital that, the to summary. Ready basis, of Page

Stephen Laws

in or on do the you don’t And closing I have how that? guess have the or close? after anticipate around expected separate on see like missed distributions think dividends that the one anything When we before closing, Or quarter it And it and close I is this the do I about press for to release. paying Great. date? do I question depending may transaction, the the

Rick Herbst

to make We but of purposes, their dividends. we always normal entitled and end are but it’s think estimate appropriately estimate, recompliance a companies the pay expected to likely, quarterly In are case close need towards it’ll quarter. do Owens, we it’s tax highly purposes, hard the if Both of for distribution tell, sometime don’t the they that it’s to first to they adjusted.

Stephen Laws

Thank okay. the to my taking for Appreciate questions. color. you Great,

Rick Herbst

Thanks.

Operator

Sandler comes line from proceed your Love with Please next question. Our O’Neill. from question Crispin of the

Crispin Love

taking believe that and for kind quarters. on morning presentation, the thanks Good about comment floating there? Because In my you question. has been change loans Can are said causing it about I believe it recent the the total. closer XX% what’s right. of the All rate in to XX% of now I

Rick Herbst

XX the primarily loans. the smaller million, small fraction loans or and Yes. transitional transitional SBA volumes, total. adjustable of they’re – over the a The bridge are loans did loans, the The SBA while we rate a fraction the

our between the the conventional product Our fixed-rate is majority volume. loan fixed-rate product and Freddie of

then those majority And done balance, the can of we’ve which a closed fixed-rate are are when the And on originations, again, that So where the bit. a we on some transaction. we of got in little acquisitions. flipped up securitization cycle depending pop really acquisitions into that stock today often

Crispin Love

on acquisition. the the Ready deal And redeploying them is if of selling closes? what just then assets? Owens them you selling all And of then would Capital to timeframe great. case, the expect and one Okay, be Are you the after assets going into Owens that estate the real

Rick Herbst

our two new those of Yes, proceeds either – we’re has not that’s estate, dispose acquisitions we expect loans our capable And we’ve that done. we’re to and type or real redeploy plan an to done historically Owens or We come those assets not of doing years. but of that, over the operator – Waterfall’s history into the loans as is in, although intent. would

Tom Capasse

the assets management a each track in way, you these see strategy of has by But Owens’ realized would with than that the respect over plans record of history is half sometimes of business if to who, well well, more you’d at the types by year. asset to team and look half, the as REO assigned be process assets managing of our assets, first the confirmatory long

Crispin Love

Okay. Thanks for taking my question.

Operator

the of from BTIG. Please question. Ben proceed your comes question next Our with from line Zucker

Ben Zucker

it for some restriction. the I’m company selling taking by limited the book, that earlier Good a to its the divestitures was also REO and congrats I morning echo and and its everyone. strong familiar comment. of Thanks because was taking Owens approach the of quarter REIT question with my a little believe more measured on acquisitions and

money that can were you have how bit accelerate I’m looked just generate you by or are little that just up hands into that to ORM? bringing Or curious that came Cap, your selling maybe you XX%-plus, kind I’m kind REIT are quicker? timeline return So a of at disposition of those a to now to I timeline. know get impacting where ways tied net curious, rules redeployed capital there same year that Ready of ways with two that you’re expected X.X-

Rick Herbst

limitations of are, transactions. where what size rules of percentage assets were first some or can the you’re – right. your you to REIT exactly all, due sell number really They of only Well,

all larger tomorrow theoretically, Given we our if size, could buyer. much had of a we it dispose

while by quicker. Tahoe, units constricted know, that’ll chunk do condo assets We’re Ben, those dispose so those probably size does And assets advantage are those size of not just good matter. of it take hopefully one out as of we But that’s limitations, in those go. as the a can to a two-year timeframe, you we

part, most be them Tom mentioned, the should months. For hopefully XX rest the of within done, as

Ben Zucker

I for Zalanta Well, on they that’s do what look like worth. know website, nice that... assets the

Rick Herbst

visit, recommend take – you site a a should Ben. take I you

Ben Zucker

idea, Rick. appreciate Yes, it. a great That’s

that and I capital? touched mesh felt was ORM’s Northwest. the footprint California you like strong borrower on were you and Or in think in a after an network relationship and presence it this your really Is with has you in? there? their underrepresented exposure Pacific How that Owens area market were current region and does just

Rick Herbst

was California, from a like a increased for presence both. the capital in have talked that, increased primary size, perspective, would of float, don’t what the Obviously, just huge Northern so to hoping expand were we that’s market We We objective. capital there. increased about,

hired Southern we SBA And the a but loan well business primarily California. just generate we business, I up do officers they’ll have mentioned, more able as team other think on to Tom in be in us. Seattle, for

in overlap little California market. we see bit that a We just frankly, a of with than borrower So don’t they’re different borrowers. we target. would typically of type like Northern the type to Quite lot expand what

them. we’d However, expand relationships with love to our

Ben Zucker

I rate the you X.X:X. XX% securitization or like That leverage recently deck X.X, initial can makes to sense. I guess you advance in your of of that a lot guys turning priced, of think calculate an

what on like looking curious that securitization once gross levered returns the the pool closes? is Just

Tom Capasse

you repo look the on incremental if tranches, it’s Yes, subordinate roughly at midteens. additional

Ben Zucker

Very your that’s consistent strategy acquisition and historically? nice. And say securitization fairly you plays would that with how out

Tom Capasse

And investments the you a our generate they they’re I four-year stable you if curve there’s your – to point to, bond look correct. say net very are is leverage, as transitional of opposed think these loss would seasoned a if and context very because limited we about our of of three margin in duration of loans a equity at let’s duration with year. loans, X a structural like sheet out, being these interest investment, in the Yes, duration equity, XXX% balance – over

origination in margin. growth to now leverage prioritizing because aggressively order this So us we operating been to business. our up would for And open does I we’ve exists of acquisitions we like that add platform accretive kind to fact, those and in acquisitions think they’re capital that other in the pursuing that in acquisition more create

Ben Zucker

what I from by we’re And And great. percent of the interest purchase Tom, the just income pool total from remind loan quickly on what you comes interest That’s me stated acquired on average, accretion can the the coupon? percentage the while net different the of discounts? income, comes of loans, subject, what understand percentage it’s on acquisition,

Rick Herbst

It discount used significant to a loans now. on to a the more coupon It’s market. be, buy ago, at couple years we’d

XXs discount range, buy to it far used so in price par XX the less type generally the be. we is being accretion when Now loans, it’s and than

Ben Zucker

again. guys your Thanks comments congrats Understood. for and all

Rick Herbst

Thanks Ben.

Operator

Point. the question. Compass proceed from Please comes your line question Valentin next Scott from Our with

Scott Valentin

Good question. taking thanks morning my for everyone,

Just of growth equity, acquisition, over of that it? million look for the sheet to kind million $XXX half three the they time That of it, assume at a balance on to and three guys leverage, if you Does asset way $XXX fair that I time? million time liquidated look about capital way par. close we simplistically, have imply at are about $XXX to

Rick Herbst

Yes, that’s reasonable yes. assumption,

Scott Valentin

it notice this Okay. up provision quarter. And then on I was expense,

little the that acquisition with the expense? was provision. higher it anything think particular I Is there had a segment provision

Rick Herbst

in We We property. for loan where one we bit. and a always dropped loan values value had had or the updated get values or that remark appraisals X

Scott Valentin

is therefore given Tom, prices then Do SBC. out demand of the kind making mean for production housing we’re origination are the residential apply mortgage are – You residential kind same seeing in a supply, much where you high, playing And not Okay. housing? and or the dynamics of slowing? that were what you residential expect slowdown analogy market I between

Tom Capasse

why it and this protecting the of flat answer rate another so investor increase of slightly decision, because loan. lot was looking the of terms the $XXX they’re the up because that slowing a on of is year-over-year purchase occupy. was the to are It’s versus of and X% think in past will year I’m a buy analysts it next of might currently projection is in – – interesting, it – I they are is looking property to owners rent of things XX% one buildings or the sorry, growth, somewhat – the the billion But hit to

rent, small in buy a we to it the pre-crisis, activity economic increase to – given see lot it relative balance the properties. for versus index decision to if rent excess the that related of due in you where So of acquisition rent, at expect of it’s commercial was well look

year. commercial that’s us percentage properties lead thing terms one see a that mid-single-digit increase balance So investor originations to would in believe you’ll for small the maybe in next

that the just side, SBA the allows. caps government the the On exceeds demand

program. see XA year for $XX to continue the next probably and year We a $XX this to SBA year billion same the billion

Scott Valentin

opportunities hired SBA to Are it Is it there there Or easy find – teams? is you to All then there? to team. more helpful. out you And an going right, costly? that’s mentioned

Tom Capasse

thing a structure these of compensation to a credit lot the them frustration model interesting to nonbank I compensation XX banks $XX to a acquisition packages box – of and the hire such working very loan had big retention officer attractive – had the goals per haven’t production team, because with million and wouldn’t and tight bonuses of mean loan loans use lot and we officer volume. in moving is we we usually the a one But of terms say at what because offer the seasoned. is we use of of that teams – lenders million where nonbank we of didn’t $X in I pay, or both we’re officers terms very of of to

have we reverse So commodity team. had actually increased

certain Ohio in Another team dental verticals, practices. out and funeral a that example on parlors that case, we in hired is focuses

through through year which of originations, $XXX well to So in want continue We our to both million that yes, acquisitions going organically organic to growth team. to we’re new to million. are this as ramp continue see growth as roughly $XXX

Scott Valentin

And Okay. final me. for question X

how you you to – there the just more compare purchased, Is similar a forward? a going that then a does different guess internally? to you stuff returns – mentioned, that an that return? of conduit, chunk opportunity And I is On do or of it of there guys Tom, there two, conduit originate is opportunity to

Tom Capasse

of a, more definitely to was that’s bank conduit. balance in I’ll well. There’s They that the this as call do conduit player market. large going have their an opportunity This And very small forward. a regional own was a large business it, servicing

And small borrower’s million. small it If you of million to $X say, commercial, to in the $XX is, which well. – million. micro mid-market, million as million they in Works look look at balance $X at the market, $X let’s below define credit conduit the well Typically hierarchy the $XX you there’s is or and $X million. there,

– ReadyCap. underwriting program rolled bank, by this are then on guidelines the and by credit the bond subordinate on from this out our commitments forward consistent worked they So we with that based criteria,

XX% we answer that the – pool probably your call range. XX% for to XX% about, similar it XX%, I’d legacy question, in the So it’s of terms to bought that, is in example, loans to versus like probably return XX% XX% more

meets via points generating longer-duration is stable levered interest margin basis we again, manufactured So market. for balance do on securitization on basis to maybe deals return what a it’s clearly generate below – that very we net it criteria about the sheet the want match-funded do, to the our but XXX

we this roll with and this So and to to accretive work is very partner think future. potentially others in it the will is, we continue out

Scott Valentin

Okay. Thanks for question. my taking

Operator

Please Thalmann. of Our Nolan proceed question. line next from Christopher comes question the from your Ladenburg with

Christopher Nolan

at you Rick, what leverage ratios the closing? expect entity to be combined do the

Rick Herbst

about will recourse about They X.X:X. to the be about overall to and X.X:X goes closing? down about – drops At leverage –

Christopher Nolan

the reflect SBC, Great. yield earnings And Does conventional? the down. on for just then levered more that the came

Rick Herbst

we lines, with paid leverage, we do to which had down it excess so paid is we do when we really what We down. a leverage repo little generally less had liquidity cash. No, have a little excess the bit

in more compute just a the the an balance. balances not daily function We exact really was There’s also an so versus not use it quarter it’s of terms – this average So balances, science. average leverage of it’s to month-end last.

do So coupon there are debt anomalies sometimes that. has like of anything average in it nothing cost there, but with or to or

Christopher Nolan

this ticked securitization it the quarter. done? recourse to Should question, the expect final down have then guys given ratio up go And we back Great. you debt-to-equity

Rick Herbst

convert non-recourse immediately that’ll recourse debt, that Yes, $XXX million. to

Christopher Nolan

you. Thank

Operator

KBW. a with is proceed Rahmani question. Jade follow-up from your question next Our question Please from

Jade Rahmani

capital of you amount the TRS plan about raise Thanks with the dividend, very core guys in run much. to additional retain thinking accretion of Is for earnings the dividend the excess the are dividend year? maintain How income and the the you that from [ph]? from the merger, coming do think from dividend? potential given you the likely earnings Or given in gains XXXX, would having

Rick Herbst

a taking Our a for December board something It’ll quarter you if or unless taking dividend policy meeting competitive we peer not, top. the think top; year. the is at as dividend dividend. kind discuss our we’re yield at we be look if versus very tax we’re to group, year the we’ll our the by close very have need distribute, is of there’s fourth I to My a it think of in guess

guess one, all based but be core grow comfortable did we’ll will our that with we year again, bit. plan book able this meeting that, would potentially two, – would first on the cover at value board, the quarter we as and when dividend we my projections to hopefully the number little go earnings the year; a is to and be competitive; we we’re for So three, the a reset and through annual up it’s

Jade Rahmani

in do XQ? you In the closing anticipate of early terms merger timing,

Rick Herbst

probably think to I Jade. later, going be it’s

through we they circulate XX to I will don’t it SEC. have go days, they have together talking to know, go Then to the get they late you it’s take, to it, to to which it. days If not XX then or probably the a time whether process, proxy, review put we Depending into to got likely to review January some investors and us. them back it consider give and – by XX you’re will, the on

you’re schedule to according talking surprises a March. pleasantly the that vote, SEC probably about talking in you’re us, unless sometime So

Jade Rahmani

and March in be would in would be closing the vote The Okay. March?

Rick Herbst

after shortly in be of working our would the – what go of Keep the sometimes that’s quicker model. or closing is timeline. Things longer, the the Yes, currently mind, in full subject out own kind kind vote. planning that’s but we’re

Jade Rahmani

potentially dispositions the asset on market take something? merger continue pace ahead. the okay, do be, And – you closes at until go pause the Or and then over? would or guys like they Because

Rick Herbst

No, establish indicated here business. you’ve of with indicated and think their the are worth. continue kind properties we’ve these to will are prices We’ve they we that them run

within those of And so to continue they and they’re into projections. numbers that our as we long band, factor as dispose can

Jade Rahmani

Okay.

little happening be In just one-off credit to pickup terms of with the you the a in that of REITs, but in portfolio of they overall or that seem a more detected tracking frequency. any the sort in seeing own market, your either do credit modest commercial mortgage trends of Are bit track? we’ve issues, you

Tom Capasse

real definitively or more plans estate, We’ve we But to and commercial the in idiosyncratic what few really. market our balance due terms to on seeing use the we debt, properties manager maturity maybe two extensions, of the defaults, properties lease the difficult migration seeing, in – that investor more balance business because large didn’t a and if you this competition will, are a – – had with intense in specialty but external being stressed time. the some large up you’re major to execute. see one and in – Not

think credit not in we’re large that balance that, But due stressed – I in that you’re starting we’re small to just in especially market. of, limited see much part the definitely So funds as that market. target the that nonbank space private competitive to people the seeing balance number for

Jade Rahmani

clearly. or what it Sorry, mentioned? type what the you... other the you I other was hear that category was Mixed-use didn’t

Tom Capasse

use. Specialty

Jade Rahmani

Specialty use, okay.

Tom Capasse

a, fitness of you’re for two the that a project or than space large the around of I mixed-use project, say or in more million is development a large balance like centers a project, It’s repositioning $XXX small project Yes, balance by transitional stadium more a balance these let’s ago. the three And you seeing three at being which if lot of loan. loan did, you you a kind that’s – introduced of of let’s in – a block say years stadium said years a standpoint idiosyncratic than REITs, drill actual down projects look taking two credits the transitional large or did, ago. larger and on that’s sorry, from – on say let’s each it’s a difficult risk

Jade Rahmani

Okay. Thanks. I appreciate the color.

Operator

gentlemen, reached we and have closing turn the end I’d Ladies to for the like session. remarks. back And question-and-answer call management any the to of

Tom Capasse

continued and and we’re earnings, deploy call. capital to to Again, we and appreciate quarter’s look forward accretive forward everybody’s next the we to very merger support, with and pleased growing earnings this look continuing

Operator

today’s concludes conference. This

participation. You for you your may at time. your disconnect this Thank lines