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Ready Capital (RC)

Participants
Frederick Herbst CFO
Thomas Capasse Chairman & CEO
Andrew Ahlborn CFO Designate
Steven Delaney JMP Securities
Jade Rahmani KBW
Timothy Hayes B. Riley FBR, Inc.
Scott Valentin Compass Point Research & Trading
Christopher Nolan Ladenburg Thalmann & Co.
Crispin Love Sandler O'Neill + Partners
Call transcript
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Operator

Greetings, and welcome to the Ready Capital Corporation First Quarter 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Herbst, Chief Financial Officer. Thank you, sir.

begin. may You

Frederick Herbst

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

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

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

Thomas Capasse

provide quarter. the for the the then the well I'll role Today on from X. I'm business results Andrew on questions. Good morning. Rick into We'll assumes financial the Rick quarter, our and highlights some CFO; Thanks, take by CFO insight and provide your will the as Rick. insights Herbst, retiring Ahlborn, who joined as June

I integration. merger to as the before $XXX Now to the fund closed transaction activities the remainder buying and merger million they in the incremental execute shareholders the seamlessly, by increased in to company. facilities The of Owens The stockholders' begin legacy investors traded credit Owens both continue current percentage over call to thank teams investment on power equity, our we'd like float Realty of welcome as merger existing we company's large the Modeled $XXX of a and is million. and the deployment provides year. equity from of expected merger ORM the added over XX% for

been our for Ready will the individual value of impact the Absent Importantly, transaction assets difference the Of per per earnings servicing have on Capital's On on mortgage of purchase power acquired were the million for value share. $X.XX the GAAP items, residential date. merger-related $X.XX is market earnings structure. improve is what stock items, would to being Owens and per Core a the the share. value portfolio. were fair our amount, quarter cost in biggest to minimal this difference $X.XX the earnings the of GAAP merger This as refers decline in the fair merger-related due closing the share, with $X earnings a including GAAP between bargain market current quarter basis, $X.XX the gain.

product to rebounded these Absent per origination by our lines: or one-time noncash have The been commercial, items, earnings balance attributable small businesses. core SBC, XX, would of $X.XX small events April or $X.XX $X headwinds exogenous mark by in of additional and our Core quarter's As administration, impacted negatively expenses. largely were business this earnings were SBA, million. share. X

inside and a pricing Freddie interest Mac. in a with of along decrease March, In to Freddie to SBC threefold segment, market. that industry-wide pricing, multi-family note, in sale which net reduction slowdown of would competition relative increase close. reduce multi-family QX prime balance changes Freddie consideration headwinds volume government of remain Mac Because million, small immediate balance loans with was on our have projected rates loans Of of our are shutdown with first along rate, March, margin Fannie to currently the expected products QX pipeline loans. more are in increased on were we products, off over Treasury to both financial XX% multi-family lines increased volumes volumes. expectation, interest short-term SBA to originations While quarter. decline a program, origination our increase agency market the these we properties, to year. reduction responded be a increased product in income XXX% $XX Monthly in portfolio flattening prior resulted of cash loan in totaled major XX% the Within undertaking interest last small from and decline earnings first model. the the bank our last originations immediate call million sizes in businesses for in XXXX budget, XX-year due X(a) an these time. describe $XXX yield headwinds profits, SBC X(a) quarter build payment short fixed-rate combined the results reliance gain the Since to impact X(a) $XX a attractiveness generate revenue. volumes XXXX, here amounts originated from sale a gain This faced on our our loan in loans increase competition of attributable flow loans, and falling in quarter quarter lending we on are the In Mae's I'll two other is ahead priced, which first SBA which small from net in the $X XXX-basis-point for increased other two million also a curve. flat lower businesses. over On of the of originations, an business where the are transitional and to is some initiatives which stabilized the confident million our contributed increase a recurring with and our SBA we fixed-rate in due quarter, order conventional

was Our of year-over-year consistent decline with decline the which is industry X%, XX%.

second product combined offerings, pipeline levels in ahead fixed we with do remains year. anticipate We $XX volumes Freddie pipelines to from $XXX April both of current the and pipelines loans, In for and through for of half these and we and on expect million Mac in and million this with transitional of Freddie a loans budget, in pressure quarter. pipeline million. loans April, the of $XXX in under funded increase new of a million $XX million $XX plans and SBA Based to million, $XXX our second combined origination closed volumes products respectively. remain The SBC SBA

takeaway volumes. up from previous the the the a origination quarterly decline Capital's quarter $XXX despite core payoff nonrecurring benefits by include $X.XX X(a) related earnings these originations loan of was mentioned, core and nonrecurring would SBA silos. share. senior and acquisitions approximately Now total in of our the were XX% to platform, a share. have equaled per earnings been certain settlement an in items, quarter earlier-than-expected $X.XX receivables. per where from acquisitions long-term This both confirmation Absent quarter the featuring a as over charge Freddie One Mac investments impacted SBA and derived clear negatively securitization and breadth investment to the bonds was of expense million, in we one-time of interest expenses of Ready items These one-time evident in

sale Now and on in margin the at we cycle interest migrating the environment, from with per the income. added net greater earnings life to Owens the given will gain transaction versus company's the market where from begin we're scale contribution a point share

As such, we're undertaking believe several we will initiatives shareholder long-term benefit that value.

ORM will a the First, acquired be recurring revenue transaction stabilized that funds interest generated fees. servicing in net assets and assets deployed margin stream primarily in from of longer-duration provide

play less dividend on over significant role volatile sale earnings more the in time. our a expect will We gain covering

will strategy realign servicing high-ROE on capital this increasing We and gradually de-emphasize to larger gains a will X(a) and deployment our strip segment accomplish retain sales sales. SBA by acquisitions to

allocated we've the liquidity brand, the growth loan Capital to acquisitions segment supplementing available. Second, emphasize Ready our when historically of volume was with excess capital origination to

relative segments with based market the the allocate highest on Our has capital based strictly always conditions. been on those goal to ROEs business changing

Now in will result merger, as that the been scale has Owens a increased allocated the capital established brand manner. and have we this be successfully of

means second expect in opportunities before ROE. significant where will XX. The June our For invested of to portfolios current generate mid-teens portion quarter, focusing on we close acquisition the equity $XXX these million secondary market, in a this the of stabilized a pipeline

given the we've to sizing Third, variability are loan the we structure pipelines, right cost products. these seen related in

amounts pursuing a Mac migrate at of expansion of other the structure pricing slightly as In offering to Freddie we ways new loan will balance a a our company our pricing program loans, possible. evaluating loan loan evaluate continually prepayment we're the operating the variable-cost here the increased introduction model new SBC $X lower segment estate we SBA SBA and loan the which Any done provide primary basis we working diversification our supplementing or balance focus. to rolling peri possible. real on passu are believe product accommodate variable-cost with actively are as well we flexibility extent products risks. rates In Fourth, existing agency our be program above would limit and products higher maximum to expansion to addition, where increasing existing fixed-rate capital to products. are to product million segment the into small out beyond In equipment mitigate allocations

to volumes insulate the We against expect increase offerings origination market company help conditions. these to changing

share program shareholders Lastly, year. a last that we our board directors authorized $XX repurchase remind of million

will strategy to part highest subject possible we shareholders, ORM stock of to continue return conditions. at the our to to consider additional As repurchases, capital market deploy the

support it expect the the our said, update that capital execute into this review at Understand be we X.X:X. Owens the being will for a debt-to-equity relevering over to will With to to we levels from remain reflect able take believe it With to grow plans your you Thus, improve and to recourse time quarter behind to confident the basis. The the over dividend word additional the longer capital we as the and will dividend. on our of merger may the A way we months, not be go-forward the and though, have to well to much reduced their additional sustainable make business term. our results benefits models. caution, that second earnings. merger X:X to next raised and positioned of us, we allow completed several continue time desired benefits evolve ratio are of earnings no through

discuss So it hand to Rick financial that over I'll results. with to our

Frederick Herbst

Thank Tom. you,

capital. equity balance be $X.XX some transaction Before ORM added per and million, financial The of later discuss March available which business XX-Q, of statements per income X the we approximately net been explained quarter. included Note or the assets few the items to of through the this includes walking The the which to approximately or income for plan XX the per-share items merger. share, million, was $X.XX supplemental like a would includes will of in of million Tom $XXX per the absent deck, share. additional the $X.XX Details effects I'd in $XXX combination expense file items sheet in GAAP $X.XX key evening. the this of one-time gains. was merger-related which the Core net $XX share, have $XX quarter million

Turning deployed earnings the for will which of net $XXX X metrics note support in million forward-looking Slide interest with loans, the quarter. investment highlights million strength activity, SBC depicts Of continued to key and $XXX the margin. deck, into is

incremental returns securitization fixed-rate approximately our success over of in $XXX scale, highlights which substantially the Additionally, increases January capital will Slide merger, fifth ORM the the liquidity markets X outsize program. next capital our demonstrates and provide continued the year merits the completion completed of the of in and million. resulted of

next the to shows We Slide as return accretive capital over assets. components which the expect continue implement balance the our to merger be effects the attractive we company's of of of strategy into the on small equity, redeploying XX commercial merger. months the excludes X

quarter. here, shown our the quarter, similar last to was core As ROE X% for

acquisition quarters, previous on activity the details of X in include out the the the quarter. the on to fourth X over Investment commercial activity corporate which over on segments. activity. investment we quarter, been summarizes Slide X, previous breaks of better leverage presentation provide with each to XX% period-over-period did ROE operating current effects quarter activity further balance comparability Slide small grew our of the provided As have updated

optimistic levered our favored strategy activity accounted for and recurring in state which investment net X sheet remain segment. shows SBC to will volume and quarter's loans, increased the of the of yield delinquencies. growing the to steady This our Slide margin. The contribute XX% portfolio balance X%, and we regards of grew origination interest low

million $XXX robust, balance May second for volumes pipeline and ROE. X about covers $XX mid-teens loans to our of through gross and X segment. in balance, Mac the Slide another million accounts payoff absent $XX through May quarter, which X also the have pipeline. the in with stabilized drive activities closed of SBA in The Freddie in currently with $XXX rebounded the levered quarter outstanding closed yields, remains million million sheet the CIT a will legacy the The XX% pipeline. continued gains, portfolio, of another

before minimal objective business. previous quarter-over-quarter, low segment the The the Tom $X related all a and mentioned, losses. increased In write-down updated of capital date. reducing modeled originated A to staffing the our certain greater a XX% most strong, market investment. GAAP expected deal, MSR our XX-year the quarter-end. yields, activities in into second We across summarizes this increased [indiscernible] prepayment summary of securitization, line venture of increase value, mortgage liabilities fixed-rate ratios. upper pipeline required earlier, for be of points. This speeds types in XX of this a under higher decline decline acquired residential with portion close XX in in the certain order on as loan-to-value joint supported allocating losses a economics unpaid accounting. in from by shows our portfolio. discussed believe loan segment recurring stable further percentage have gains As relate considering netting $XXX XX-basis-point than is the was banking our XX% to forward-looking balance acquired to of in secondary to we ORM XXX reduced increased merger, for the are sales. here to commitments largest a plan been the of of for variable million portion million to provided we legacy provide table gross segment Mortgage $XXX delinquencies. capacity to million Slide million information Slide allowance the the delinquencies our earnings our significant XX for be loans product basis reinvest end been The to as double-digit by from Slide with was the has the continues in retaining overhead, resulted significant levered CIT should quarter. previously the to with recent our shown investment originate quickly Performance And and $XXX is X%. in

have two For X we the the planned. securitizations and of remainder fixed-rate, one acquired year floating-rate

and the rising-rate reflect slides in structure liquidity various of strong to and We better of next The costs our demand the our continue a a capital deals shelf, continued to to in are see similar for presented performance a execution upfront increased our diversity due performance previous in issuances. loan few and sources. decline those legacy environment, in our pools, quarters of the our composition

for turn personally our would company and wonderful for final we thank our it before I some success. and to our like I Before contributing our for to supporting thoughts analysts over take questions, investors staff to and Tom

retiring team end Andrew am us of this Tom? our confidence of rest I success there. growth, I and and to the month, I continued look Although forward will Tom, of hearing have and our that full get the at

Thomas Capasse

deploy acquisition through classes to long-term ability to channels We believe and Capital's capital its Thanks, company the objectives. both achieve origination Ready and Rick. across the asset positions

are the sheet focus growing NIM-generating to Looking committed ahead, we balance on to positions.

your diverse agency expansion platform into offerings risk-adjusted to out about products and on a confident The be carry. for markets. in as We the accretive additional time the quickly of thank our merger shareholders a in stabilized quarters. more will to compete sale deploying and Capital's Ready servicing subsequent our cautiously will businesses differentiated investors. of accretive gain in We for from interest ability competitive remain be our these we to to planned capital optimistic ORM provide return revenue in plan roll you Our remain raised

So open will it for with questions. that, I up Operator,

Operator

Instructions]. [Operator

Our JMP line the Steve first of question comes Securities. with Delaney, from

Steven Delaney

just ask working one say Rick to my I'd like of I being questions guys a there. and good I've to with you. successful congratulations So the on enjoyed for career really very out before

Frederick Herbst

Thanks much, very Appreciate it. Steve.

Steven Delaney

GMFS, this starting applications I'm we're curious. rates see pick in drop with mortgage just to up.

so give gobbling is like guess general good every hearing if specifically, year up. we're you stuff by It rates tailwind? just has institutions. So versus a resi this seems much you where the Are where forward about update demand could lower a I kind on a mortgage of NQM see REIT that And product and or looking so that operated.

is guys good like it there's So there origination. margins sounds Because some on for profit you opportunity an there?

Frederick Herbst

Steve. the over the I'll good the rates last Tom let take has back fairly or so Thanks, and GMFS. up thing. month Okay. lower down half. Their first one at a picked dramatically take pipeline Obviously are

purchase We about have, know, XX% only as refi. you probably business, XX%

So purchase less been GMFS year, where volume quarter this this off quarter, MBA last more about first drop-off so. at. the which pretty think has the market; quarter-over-quarter, maybe business is bit the little steady. the Their a versus dropped historically, outperformed XX%, And generally has than of is in I quarter

from that want expect on is be last the we for close original year not X% projections, to non-QM, year, but the to our comment? about rebound, off. which they to However, we will a to you dramatically and XX% think Tom, decline

Thomas Capasse

to year. non-QM, the bucket but On It's terms still Steve. projecting you're originations, we're in overall drop $XX this up the in right, of a billion

were flow a basis. a agent, thing versus in GSEs year. would which number bridge prepayments it's of a are in that buying have XX% of an concentrated a just due an XX%, that with A coupon payments. quickly move candidate aggressive about originator-securitizers. non-QM, issue to X marketed it the agency really about X X And it, that last we've I made the with The REITs, $XX that were say of non-QM fact And billion a market. in, loan. on to I and But at down points. payments X, XX% XX and about in think handful low differentials been a since the at looking came loans to it's case obviously, you're for base up product cure you've these near the now for premium, years, product credit it's inception is cases, refi a for some the once on And is purchased at the that been one

So a movement long-winded bank are which less way risk. prepay of is to now saying there subject statements, to

equity to So in like learning. liens the bolt actually versus closed-end But we is the HELOCs and But more looking opportunity to on extraction we market GMFS platform. see are products that second non-QM.

Steven Delaney

on the And given it for my comments. sounds based in, like a Tom, comments, least seem cure, at with I investor rate, search better business to in credit takeaway it and respect your than an your that to liquidity be NQM, to lower an maybe be that it's was would from guess, that, originator

Thomas Capasse

there would a prior the lender. the Yes. not originators, loans. an say that are -- the crisis, were I had GMFS winners And the they whole investors the all-day to in

nonagency, So they've done historically.

of looking there's products equity environment. a at. is that in like But current the we on pickup rate something where demand seeing in more focus a the extraction we're So HELOCs are again,

to that's So be going focused. we're where of kind

Operator

line Jade comes of question KBW. next Our with Rahmani, the from

Jade Rahmani

around the of a the of you think GMF is? to platform Just and value Is put following or quantify itself questions, the mortgage originations servicing range platform residential perhaps? what it, on value it the do possible the

Frederick Herbst

looked X know, It I was ago, at Jade. probably, actually it. don't maybe We months

and sheet. was the sure that if market much we get But servicing are of of we at always dispose again kind told mark see that you do platforms, the at that And do it, to assume were dispose rights which were were we value, how of months quantify or I that worth not an we what equity. and the it on So of we but in of this of the has no told obviously told is be we changed. our and we was. and on we all I'm that, advice have we X that to if it's value, much can't time, And on thought some are probably our time, the is would they it, to it we probably an fair were that's a diligence the the balance our at were most earn-out. external how But plans ago, assets premium. least

have something and our to value, plus So do were premium that, book we XX%, of if case value, up around an million which we in $XXX around again to the book a with it, do emphasize plans potential. no earn-out probably to I is

what So you for can take that worth. it's

in That's the market. one have bankers We leading space never that the told in what of verified us. has the

Thomas Capasse

in market the the thing totaling run retail. in only would to is by valuation, have out inertia the point this well programs CPR, high more, tied local the a on I is in generic the mark very It's of of X%, the would most which there I as their are for million. that the of X.X%. And a market, And company well terms But for very of thing is X%. value But business. to roughly the They've MSRs historical realizing add prepay in due they around the, like, is been in GMFS, $XX percentage is the decades. the almost retention to, been value MSRs, the which as obviously mark the

of conservatism level valuation there is MSRs. So of the a in the

Frederick Herbst

just to the CPRs is was Tom's add around the be right. it specific. to that uses firm me valuation that, X.X%, Let a X%; Historically, Tom.

XX.X%. in went quarter, it to This March, up

our increase standard. a market they an use seen not in prepayments, have but We

that in to the or calculation going is XXX-basis-point use is. buyer you a if that What they're as is use about the experiencing. value of went what to standard difficult really the they versus speeds that tell, what think it's a part market of using to valuation at almost the least tells the you So probably those we're sell gap because MSRs

Jade Rahmani

That's good know. to Okay.

the it's the assume dilution, estimates Is and of trajectory merger think the about in to mid-$X.XX previously to to thinking earnings range. relative kind reasonable that for the modeling? kind next to few the of range, about were safe some $X.XX Just quarters, that perhaps low- in

Frederick Herbst

the pickup the the that. see over X to think a line. we'll One, a talked the I project volatility of minutes fair two for dramatic will have we hopefully and to SBA it's but quarter the dilution the we pipeline as second SBA about few just we we in in reasons. the seeing And not but get products, there The the happens increase Freddie to are generate volumes around ago, next be increase. volumes, least when volumes the earnings the increase some do production. month in or We're there, the anticipating we're seeing some product. of quarter, end some a difficult pipeline the bottom Freddie in our depending at on similarly And what down gains

year the will think to I from in the dramatic. first but second to of both see, the We something little quarter not it products half be historical a closer however, the bit rebounding levels. up do

in think I past. we've that generate gains So should back the that the in the hopefully half seen

So that's one.

quarter, million capital So we'll has get dollars, the end it end end of the by putting very it as high quarter some, percentage dramatically, of a And of the is will ORM by the little the couple second But all that. call, the expect if and hundred there loans I'm quarter. pipeline a second was you result to us, a it of not take the just of through our for out bit on acquisition by been, than the of transaction, quarter. drag dramatically sure generated higher those acquisitions a close second the which is be as then on heard the will a those that of we

sure we some on, of second I covering not will But in little that quarter, the than expect dilution after out, closely. a back softer the second year. comfortable the the what I'm see So quantifying it quarter. I'd levels half be to you it will to back $X.XX think the we think but I the we from pointed the be get second should quarter for bit dividend of the

Jade Rahmani

costs core Okay. to elevated reported includes, I than quarter? you XQ be the the for highlighted. do first $X.XX EPS you the of ex-items also had EPS think, that And lower expect you $X.XX That of

Frederick Herbst

give hate guidance. I Again to

in think I the range. you're

to absent that We some yes, I happen have over so, exterior be. that's no the but reasonable reason it, weeks is we events or for believe should that could what a seven where ballpark next, think

Jade Rahmani

Okay.

sub-markets, commercial pockets is in any Just market? any specific lending credit at trends, frothiness of in sector? there frothiness any softness are know large seeing loan looking you're the estate transitional the real But I types in noted property you've balance into there space. and spillover the small

Thomas Capasse

seeing down. you're -- seen transaction haven't we speaking, volumes Generally

pronounced NCREIF in particular, sectors what But on the low transitional about same singles food properties. they're what the the from in and being, more in within very to in versus obvious starting groups teens dispersion Moody's softness. decelerating the yes, from this high you're the the becoming strength high-single-digit is balance dispersion lot retail the But balance, kind to seeing terms large nonbank metric. housing the is for to so the the -- -- the of loan on in side. is the late of see competition starting of And statistical decelerating industrial within private definitely we're in example, funds low to large cycle; of, a seeing dispersion, market, X that, you're are terms Prices You're given singles.

balance large balance. small -- being space in that's said, So that the

market is the loans, kind not we're trends the million because market, of what-have-you valuation with their -- small balance, In credit Case-Shiller, or neighborhood. more They're $X we're housing much more the attuned a to average business of the because these the local the or market of balance are positive are balance small cities. again, central in on where that market. in districts So neutral large still correlated the credit lot

that reason probably the the been the use inning see balance long-winded large terms capital, inning, amount debt balance sector in commercial to what that of we is of main hackneyed a flown the fraction and eighth way kind into still we're the of But a the in So real probably fifth of market. both is of in baseball and analogy. in large saying market this is estate that for of that that have terms it's equity, the

on believe nature business, as in credit terms in average provides balance along of drives target terms trends that, fundamental portfolio, the the business of and the us transitional well positive allocation for both loan is two roughly equity them. $XX roughly our so, we then two roughly, housing, is our which those million, business the with So between for with in or it's of what as our of we of fixed-rate NOI the correlation between as bridge loans XX% where an a tailwind of

that's view terms markets. the So in our commercial credit overall markets -- of

Operator

comes question the Hayes, line with from next Our Tim Riley of B. FBR.

Timothy Hayes

this to weeks. active on like you're first acquisitions little My was just sounds be several going very a active over loan it the I and year. were of one, you surprised very the generally quarter, heading next year jump in of try XQ into pipeline so end assets to last of some the fiscal these as before see maybe versus the the offload to banks XQ maybe much

been the just what any than are And give you in your the is if pipeline idea targeting where majority of coming characteristics could you've the from? So loan past? different us an

Thomas Capasse

a Tim. good question, It's

prices primarily and tactical to what In worked now managers that the quarter One to their down And acquisitions. view refinance the ORM deal call seeing we're are portfolios. collapse we noncore loans to acquire their a is at and merger last is And regional near back securitizations, pipelines as dating that is the it secondly, balance of engage current these some decision balance external now sales which small 'XXs, asset have legacy it late the the banks of the with a balance acquisitions principal obviously the the the acquisition basis, to any commercial other to from business, source source is historically made team securitization. to exit of net class small basically to commercial reserves. the Waterfall tails. and rights legacy X And at terms then it of in are we looking

Means Small But because quality Commercial as acquisitions the but pipes is Price silos are sales is basically scratch-and-dent have been recovered there's much the since getting credit third the now every current all from. loans, the of their Index that in Property it's performing crisis, fact had two as Those are mostly the now actually, again. And at its, that described. I by pipeline, don't loans recession. you community banks. current loans think We Balance and the is of losses that those we're credit from or actually, that the is modified. Boxwood of And it's pipeline the So get the

average. to the XX%. probably now X on years, a XX%, running portfolios LTVs there's is on the XX%, at obviously around new So are versus these are in XX% years And originations X range, the which seasoning pay,

loans strong as probably the buying you're duration what debt which LTVs clean very seasoned years, portfolios and so is coverage, well. X And of in collectively, area, with around service XX% of have a very

a via So in terms it that's once ABS these almost why very think to accretive some market. will be funding in add to, simultaneously, we close deals net the interest stable to margin adding it's these in very going accretive, deals cases, of

Timothy Hayes

able maybe that helpful. purchasing you follow-ups are you, prices that. couple looking Okay. know a That's at these just And banks you're you talked to assets Are on discount? regional of really of a of disclose the at? are for, acquire can the kind kind about them the you I much pricing And but

Thomas Capasse

at say for coupon a discount portfolio to slight premium. slight would a you're probably performing I high

which around And coupons X%, You're probably are around X.X%, versus market current X.X%, around the the like is par. more X%.

The them at par, add I retain refinancing loan that other these us it's thing to buying our this would for provides, accretive around utilize, par, customers also since through via fixed-rate business. is we're

small these borrowers. balance of So nature these commercial terms benefit in that's another added the borrowers, of

Timothy Hayes

it. Got

Okay. all in then have securitizations rights, call sense. And pipeline? are of makes the the just rights That on completed are to that currently you, and you you the retaining your call are

Thomas Capasse

Yes.

most consolidated variable basis for on In there. we're fact, the securitizations compliant under under account interest our that say probably a We would out rules the risk-retention GAAP. I

us risk strictly that retention understand the so with important yes, maintain we're we for to company. a and we also is comply retain, what's rights. And Because we finance call

We borrower. have relationship a customer with that

for allow what we the rights flexibility all want maintain the the we to the of changes make the we MSRs do maintain the to want terms servicing in do and say call borrower. under they So or close. to after property can to, years let's rights. us that with relationship the It's borrower control reposition to Hence, important the some

Timothy Hayes

it. Got

right, properties selling Okay. loans progress update this so give And about you've an since and/or weeks anything portfolio? it's us you, switching in bit, can I a All or little terms any expected taking portfolio? know the only now, you accretion the ORM with you timing over but or you've changed earnings on been That's just can helpful. gears X liquidate retainments seen as your of made has or

Andrew Ahlborn

Andrew. Tim, this is

selling So the mid-May through actually, anticipated. than we we anticipate portfolio. Through is quicker total the of REO we're REO REO XX% the getting

acquired. little that's beginning. we've XX [indiscernible] think but the the units is thought X We we've of quicker we a out the at properties, be to going So still sold the than tail

through So we're making progress units. those

would So to majority the I REO, REO expect we modeled off than the acquisition. the pay the at of quicker

loans, in delinquent terms of In off the loans of we pay a saw the April. handful

next them, short given pleased expect were the we in XX, of months. rest the to by off XX pay But So the that. we duration,

Timothy Hayes

to second any good the in helpful expect expenses, more And been quarter? you Okay. to already? have do are and hear. all Or incur That's really merger-related recognized they

Frederick Herbst

been recognized. They've all

Andrew Ahlborn

recognized. basis. that material been may they've be immaterial through, On a but invoices come one-off There materially

Operator

of Compass comes next the Scott Point. Our Valentin, question from with line

Scott Valentin

and the couple Rick, best the you congratulations, years. working enjoyed Wish you of in I past with retirement. luck of

Frederick Herbst

Thanks, it. Scott. Appreciate

Scott Valentin

I might one pushed nonrecurring in $X.XX. was early the in to more but back know settlement. the EPS that have on And can those think, you One just you might $X.XX if were. up cited I color I then core, what don't X call you pushed, have items think, that then charge, a give Tom, items, mentioned was a

Frederick Herbst

a -- quarter. financing securitization securitization the off dramatically unexpectedly The do paid in for we not Whenever and costs charge. defer it's charge was A the we that. first a

costs, to which off So $X.XX close we the was or write balance of million had $X.XX. to the $X the deferred of

item, had, issue sold other that, ago was we make that it go litigation, were to we The And the to don't an that one, didn't payments. had write to I $XXX,XXX. Coldwell know nonrecurring couple the we then the brokerage settle outstanding we of settled Banker, going that was the out and if all with we you years sold there we recall off amount to then a an company on to and business about

Scott Valentin

Okay.

about $X.X of. So million kind

Okay.

Tom, SBA, expanding mentioned you product of then, I there. on And the sets about some Okay. think talked

leasing equipment expand Can on passu mentioned that, too? think product. You pari you and I some

Thomas Capasse

some franchisers portfolio. franchises of in on Just daycare, pari that both their with charter loan. in to the daycare New the many million of But to And we to example a financing of have of larger SBA add the counts, to one their $X buy limits loans to additional top franchisees actually those had a do one terms looking Jersey we'll they're one who pasu obviously limit. maximum by times borrowers

and is let's a pari case $X that where would by SBA cash million credit criteria business. do that obviously, terms debt would be have, we also you of would in EBITDA loan, underwritten, So the analysis would a the granted $X of underlying guaranteed loan the of million would the in flow, there coverage, be passu million what it service same $X be of recourse, say, and under

case of enable X-, this loan, XX-year a SBA which that execute, benefit the still amortization obviously a themselves And so to of avail benefit able and XX-years the franchises the to for in borrower big case, being in versus banks. we're purchase these of the

case did and we week. last our that So risk management on basis, approved committee test that actually a

roll to going we're So that out.

pari So that's passu. the

aspect $XX side bifurcated SBA, you it's equipment it's The look about between real The estate at if is other and loans. volume their of the the SBA. billion,

equipment roughly, you smaller-ticket if loans for for million, businesses billion. $X a big the was at of think total, look around the the $XX of what-have-you. it and XX% above I chunk small is of that But

So investment against estate We're those, REIT. on the test. we're which structured doing what REIT loans. estate the is real credited subsidiary, how focused focused, is we're a equity asset, there, the the obviously, taxable we're we're the with But given the TRS real

REIT equipment do within it can we impacting therefore, loans subsidiary the So without the test.

as only all has rolled originating, last this which is, started planned the, X been the there So for what and we're do was going to along years. we out

underwriting done the is credit scoring other basis. SBA equipment uses more is of The delegated program a models. aspect loan the on It decisioning

next would average current create Credit out that going the to to business the million. we're $XXX,XXX Officer about But of team balance These the SBA Chief in an quarter those loans, under $X.X that So more or two. we're is have $XXX,XXX. program over loans a at creating average our a, probably neighborhood the will roll balance within of sometime the running

Scott Valentin

Slide SBA prepayments the like XX think XX.X% on a to this from dropped is I quite And just presentation yields All portfolio? Okay. last from in quarter, XX% that Anything, gross question right. then looks the it just deck. quarter. linked yields, On quarter that

Andrew Ahlborn

pays time discount some see and as portfolio going you're that the gross that revert the off erased yields over is is back what think the will to legacy I coupon. of to

also sale is well XX% premiums as as that gain servicing. in on Now

where from gross given volumes the revert rate in were of portfolio gross affecting certainly you to So this yield. But just that's back that quarter terms as will income the see the legacy interest off. interest pays yield

Scott Valentin

Okay.

happening in it, on that a forward, given interest quarter. going funds, look rates then And market? fair with linked Is just what's the cost was bond that of flat the way at to Okay.

Andrew Ahlborn

but good pretty what warehouse, going based we, what going are percentage move forward. our securitizations average, and that's the costs I to around of is how The is a through probably financed business on think

Operator

comes Our next Ladenburg Thalmann. Christopher from question the with Nolan, line of

Christopher Nolan

into SBA for the Delinquencies SBC. are rising read to Anything that? and

Andrew Ahlborn

legacy portfolio we $XXX,XXX. So in acquired. purely the totaling was delinquent. the went from that experience is Of that X in the loans portfolio delinquencies increase in There's SBA quarter the about expect to losses, XX, XX the

that we segment LTVs by off low delinquent turnover recover of quickly. seen In can coming the are a on we've the covered majority and loans think status. we of So SBC them

we're same the in since balance through the has and plan has loan very I which on out account. allowance loans want to the that just delinquent. about with the three quarter, fairly talked first taken for new been The large transitional two we we're low working had actively loan these replaced a developing delinquent as we third off. we've losses So we expect loans, still by went exit. that already any LTVs paid the That of remind

P&L So currently. in they should be reflected

Christopher Nolan

And rights that in the Tom? then mortgage for Is write-down earlier, mentioned activities operating expenses you expenses, servicing jumped. the on variable Great. banking

Frederick Herbst

That and things, year their costs, operating line have they're of to an an were loans, pairing even. offset, degree, last there's that's higher offset cost. those when pricing these but They or by No, for large a also this kind last revenue quarter there's on fluctuates a bit the than market, that. year,

Christopher Nolan

next provide quarter can of two? for terms And Rick, operating guidance Great. in you the then, any expenses or

Frederick Herbst

will down. a percentage go Well certainly as they

I think a was this higher quarter.

First always quarter is high. usually

of We year. thing they and kind that for than are tax the have higher the of are fees prep rest fees that and audit

advantages merger coming $XXX along is getting virtually with no the One of ORM with operating capital expense of of it. million the

our as X%, X.X% So it the and call, are we on range like. in math, just at XX.X% the looking talked go the will the go we XX%, we fraction from is all and down, headcount the now. by close and Also of it should about operating the see down expenses, vendors

hope to over on that see year. we So of rest pickup the some the

Christopher Nolan

then And well retirement, you wish Great. Rick. in

Frederick Herbst

Chris. much, it. very Thanks Appreciate

Operator

from the comes Sandler Crispin Love, O'Neill. Our question of next with line

Crispin Love

and operating question made, following that Rick. you that on expense up comment Just a

like quarter quarters? low couple or it of the a plans Because drop it are low was something look last a the first a kind the during bit of seemed quarter? And Does employee kind kind back the year, if at headcount what during there to do was that you have for compensation every it going in with number of quarter. like of So of kind next so. looked little the

Andrew Ahlborn

as based related the it's commissions. current natural variable the I fairly have in combination on think well in which a to performance, replaced as we not accruals staff current turnover of on Crispin, reduction some costs based that was a minor, volume,

Crispin Love

interest go Okay. interest to a just sensitivity more. points. And way to by Page on rate one XXX to your little XX, impact were basis in if I NII? rates be rates XX, XX the your XX other actually at presentation basis talk were to expect about and to slide it would and bit sensitivity by up you to fall XX, go the were points rate the what Can if looking you see then

Andrew Ahlborn

have lot So our loans floors. have loans were a The of them. originating floors on

extent be covered rate we'd debt see So of interest benefit but the the drop side, to income we on the the on would magnitude the the side.

in the So rate it's increases. seeing not you're slide exactly on of this terms X:X as

little diluted impact those based on the floors. a So is

Frederick Herbst

this to out just morning. quick, note. read real something. I putting it for just Thanks Crispin, your clarify

of book things. dividend it Just just the everybody's GAAP value down, the up. the function value is on puts a earnings a of raise Obviously, value, the book book couple and so the clear,

$X.XX, earnings merger, earnings, the So the net those, of of GAAP GAAP excluding $X.XX. of dividend

So decline. that a imply would $X.XX

value went book $X.XX down for the Our quarter.

merger issuing want the clarify just for shares ORM, caused by not dilution the ORM. I is or the the the So to that.

Operator

Thank you.

turn over We at questions time. back have to like would no for I the management further floor this to now comments. closing

Thomas Capasse

participation. in and We team well contributions And and today. me come. And best. He'll us will personally all speaking call Rick, a who building of serve We thank look you thanks work forward the to you Thank all the participated Rick in the thank to deep for years call. the on with all again. you Department everyone the wish of support Finance building to you. but Thanks to his you his business. on to appreciate let for legacy be missed, moment a take your

Operator

and gentlemen, today's Ladies this teleconference. does conclude

And your a You day. wonderful may this time. at have lines participation. Thank you your disconnect for