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Ready Capital (RC)

Participants
Tom Capasse Chairman and CEO
Andrew Ahlborn CFO
Gary Taylor COO
Steve Delaney JMP Securities
Jade Rahmani KBW
Tim Hayes B. Riley FBR
Scott Valentin Compass Point
Stephen Laws Raymond James
Christopher Nolan Ladenburg Thalmann
Crispin Love Sandler O'Neill
Call transcript
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Operator

Good day, everyone, and welcome to the Ready Capital Corporation Third Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Andrew Ahlborn, Chief Financial Officer. Sir, you may begin.

Andrew Ahlborn

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

of them. to securities should interpreting will meaning today and Therefore, uncertainties subject our you statements cause risks from Some the actual and what could within expect. results to be numerous in of materially Such relying exercise laws. forward-looking federal caution that on statements differ are the comments we

for filings operating a detailed refer condition. you SEC We could future our the of our that results more risks to discussion financial impact and

During a discuss financial our evaluating A in our we the call, substitute in should to non-GAAP in believe information. our measures results measures performance. operating these comparable measures, considered and GAAP. in is These measures most the which we will company's available of release not supplemental useful as can with or be the be earnings our accordance reconciliation directly third-quarter XXXX GAAP prepared isolation for

By third and quarter the Capital now section can Both of XXXX to found investors be website. our access supplemental information. release the the earnings Ready should have everyone in

our now over it will Tom to I Capasse, turn CEO.

Tom Capasse

third-quarter and earnings Good joining for thank morning, you call. our

The origination residential believe commercial and commercial was marked are expect balance attractive sheet. year-over-year Total be yield model a X(a) We from business small the shareholders record originations. a both and Ready results with quarter $XXX growth. pleased XX% indicative small the balance SBA and and can to for quarter of the loan Capital's million, balance diversified

SBC million. a year-over-year originations balance just of $XXX reached $XXX commercial we activity, origination investment In Residential addition to million $XX growth. over small loans, to total activity million, XX% bringing acquired

the evident was quarter. to strong platform segment, Our contributed in the each origination product where SBC diversity

and rate, million, $XXX fixed volumes $XXX loan Freddie respectively. product Mac and million were $XXX bridge Our million,

spread weighted points. of sheet on-balance a coupon and X.X% SBC XXX Originated average of basis loans had a

newly debt factors. loans of average loans LTVs is key SBC of a a XX%, coverage premiums originated metrics debt of growth X%. averaged remained on the Mac with of yield Gross of Additionally, few to credit due and ratios origination franchise service X%. times The sound, X.X Freddie

the middle-market gaining the In and loan the is market and rate product a fixed acceptance bridge control product securitization our sponsors ability flexibility lower loan clarity increasing for investor to in clients. over benefited increasingly our broker provide with and to program, the the tailored community, structure The provides rate. fixed from both the due in solutions

has resulting reduction. product XX FHA's The opening favorable Freddie our the market of of origination factors, Mac presence. in satellite increased Freddie national loan basis point Mac's the new Additionally, benefited caps, from announcement including rate

to $XX a continued Quarterly year-over-year favorably challenging which representing perform compares market with the industry decline, in originations million, segment SBA trends. face The totaled of Xa of declines X% X%.

businesses without Average slowdown over coupons encourages X.XX%, due financing XX%. to remained at of the guarantee. to economy, We which government be average the prime a strong to small to to banks quarter premiums part in and sale industry believe consistent increased plus provide quarter benefit a loan

for loans due earnings small cuts. may addition, demand weaker from the In increased business tax to retained be

to and lenders slower may nonguaranteed turn economic rising reduce benefit to which potentially Going tariffs forward, growth ReadyCap. lending in from costs cause businesses, should small

weighted from the average additional of levered added strategy years acquisitions weighted balance have were These X.X%, an yield. duration coupon a four average ongoing a deals and The of collapsing of to $XX were an priced million to a and legacy of sourced mid-teens loan loans SBC SBC sheet. loans

stake an The office investments currently complex with Dallas, small a accretive, segment attractive purchase the a our from originated expanding million an from to repositioning. $X Texas by in undergoing continued XX% by over margins balance A all Supported was which XX We $XXX ranging production to purchased in GMFS estate supported environment, of of modest increased Class exposure volume. XX mortgage real channels recorded million, record Increased basis was rate volumes. banking points.

the of in to over was the the rates focus loans, income. book via which investment in on our portfolio servicing Mortgage of were of and sheet interest increased $X.X mitigated continued loan balance billion. in indicative by CPRs have loan our delivering our portfolio net X% form Increased recurring retention activity XX% of quarter's earnings are XX%. activity servicing

to lending strength portfolio emerging credit of see real balance credit balance estate potential and delinquencies. issues commercial the small continue in to the our confident we contrast the minimal In market, in large are

we remained LTVs geography, portfolio average concentration in our for collateral Weighted and the stability superior of asset believe low single of and diversity at provides the shareholders. XX%, terms

Now in from funding continue will of the financing. ability we source terms to business, to benefit our low-cost

scale primary The our was senior on in $XX increased million, note quarter's funding seven-year source in and investment down to continue we that unsecured months. based execution funding July will our activities. drive the costs upcoming the We believe raised for

We're executing in process of the securitizations. three

rate First, should this high-teens securities initial in we a result price based million week, mortgage-backed a $XXX levered ROE. which, plan on commercial to fixed deal discovery, pricing

approval, Second, securitization of quarter the anticipate SBA our first pending the XXXX. regulatory we Xa closing by second end

XXXX. CLO loan first Third is the our for of fourth targeted transitional quarter

both cost increase expect of On to and advance our all funds. lower rates deals, we

Finally, to facilities. warehouse we our enhance continue

improve million $XXX and our expected growth additional of and XX on an rate facility. capacity added bridge to of funds cost points fund fixed have We basis

by to markets we've enterprise by increasing increased three portfolio. doubling growing our our our years equity value ago, over the XXX% and scale, Since public over XX%, introduction loan

continued activity billion, our XX by supported structure. capital This $X.X transactions securitization the over billion $X optimization growth over and of has of acquisition successful the of been and origination

the to hard-working clients small balance Ready the and loan for their continued of investors the of to Capital our of creation meet due establishment is employees needs the credit and properties. products of service Further, the owners processes that brand, development both commercial efficiently of

growth tactical and pursue efficiencies leverage operating to with we plan organically acquisitions. forward, Looking to further

SBC close quarter. the fourth $XXX expect of a in pipeline we to First, significant million the portion

portfolio and $XXX equals money-up SBC close the and million. on the million. $XXX lending In pipeline our gain segments, our money-up pipeline equals total sales segment, In close

healthy the at pipeline Additionally, remains million. acquisition $XXX

European our into loan transitional agreement is in Second, of with small million close located next to $XXX purchase the weeks million and expected Ireland, commence projected of loans balance to two portfolio commercial a which generate flow the entry will a in to annually. markets $XX up forward includes the

small of Third, that explore environment. we offerings addition our expand platforms continue the the commercial service to to product balance lending

previously recently As company Knight focused a working small providing businesses. unsecured Capital, we on to capital loans acquired announced,

to and platform Knight's increase business SBA earnings business. our to volume in lines lead other addition go-forward in efficiencies being share, Knight's increase we accretive per generation expect innovations to In to operating the technological

discussed our as previously, top expanding Finally, platform priority. remains a agency

increasing I'd a toward anticipate to with interest on and bridge like concrete We the our offer have exposure it capabilities the share movements. having over market in to sector the to made turning plans rate before headway more few And Andrew, to upcoming significant lending months. our thoughts and

manifest credit on of focused the over to from public loans, top influx started on those and million, largely private large of The REITs mortgage $XX pricing commercial behavior has lenders transitional perspective. a that late-cycle balance is,

in minimum most transitional lenders an with XX owe interest. interest, pricing, month additional months' prepays make of XX, a months' borrower terms that XX they loans is, if In three-year

CLOs, with XX deleveraging. prepayment estate higher-than-modeled This increases is We only evident rates months' minimum note in interest. that financing being many commercial now made costs loans real which on are from

moved maturity Now masquerade an by of with business defaults, lender. failing meet would at number increasing transitional into This which to in be sponsors we're out risk of believe sectors their credit, maturity be terms greater seeing execution business in higher-risk plans. another to we to lenders increasing as only plans industry-wide bailed

less plan. these balance a have loan from impacted trends are Additionally, year equity for date, our transitional lenders only our offering a portfolio. delinquency and To of ratio market, some a remain credit than a loans small XX-day-plus evident bridge takeout perspective, X% we not disciplined into in business

Now in is originated these The floating our of interest originated of bridge LIBOR of portfolio majority exposure, floor. which rate rate. product, with are are terms XX% our

LIBOR. to a our floor basis rate by LOIs swap the weighted we floors plus XX premium current risk our fixed portfolio, spread. mitigate to issuing In rate with a average equal pipeline rates Currently, point was

we rate also longer-duration assets on as to loan certain in to of well values, source our funds. situations, periods, short-term rates. cost swaps to a movements interest warehouse as rate we lock In mitigate And in liquidity. repo fair During use these fixed as changes mitigate significant circumstances, may of future in apply use we in hedges

financial off Andrew to that, discuss our hand to So I'll results. it with now

Andrew Ahlborn

Tom. Thanks

in the core quarterly a mortgage On a return for the earnings value $X.XX difference our servicing were between $X.XX of were a and GAAP share, rights quarter GAAP the per dividend per share. basis, was coverage. The decline biggest marking share quarter per Core earnings to $X.XX residential for fair earnings portfolio.

XX% joint core in production. in in net of in partially was warehouse by to reduction in earnings balances, related $X.X rise and from expense gain-on-sale to income; million growth was increase interest banking a ventures attributable to in offset a growth increases improvement quarter-over-quarter $XXX,XXX income; an This higher The growing due additional variable and revenue. mortgage interest a income unconsolidated costs

completed a Increases an the and loans to billion equity borrowings included investments, and for on addition in loan in Key total the Tom relate securitization mentioned increase balance service growth million liabilities portfolio, July. in the issuance bond previously. $X.X sheet UPB as X% to items $XX of secured in scheduled

in Of amortized other the into $X.X fixed losses relate deal. will recovered mark-to-market October. fixed accumulated hedge in CMBS the the was life million effect net over rate Increases realized net the million income portfolio. subsequently comprehensive pending to movements the sustained $X.X The losses of be of loss rate on hedge quarter, in

to deck. the earnings Turning

the banking Slide to forth quarter. portfolio our residential in billion. note and SBC quarterly metrics items Of our volumes segment are for origination the loan both and X mortgage in and origination $X.X key the sets growth record

sustainable basis Slide revenue RC's continued ROE to activities due incremental X equity. points marking from XX% improved details levered Freddie an returns basis to on the XXX multifamily progress return originations, increased line gains and increased Core a mortgage X.X%, XX.X% leverage. banking ROE. XXX to the Mac points rose composition to Top of on core sale of

This of XX expenses the higher as basis loan costs volume support with additional in well the offset was variable incrementally portfolio. as due points loan costs by rising to partially operating associated growth servicing to

legacy the on drag and make Owens to to points. liquidating continue in estimate progress basis earnings current the be portfolio XXX We

quarters, on our current activity. over Slide acquisition on X the details investment Slide which include of each further provided summarizes X, activity previous activity SBC five quarter with

of not encouraging. Although relative experienced combined the origination one five strength the SBC of record quarterly channels volume, channel the is

remain with note, $XX quarter, high on discussed, million experienced decline confident Tom a in about business closing but we the slight a funded the As in the year October. SBA

was due incremental yield segment. $X.X Slide our origination The improvement million revenue. points covers in in to levered SBC basis X XX gross gain-on-sale

portfolio low. of totaled XX-plus XX%, percentage and growth loans day Additionally, delinquent the remains

Slide levered X summarizes almost the continued Gross high sale of attractive strength activities driven and yields of remain segment. loan margins. premiums by SBA our the XX%, at

Slide X and resilient we remains provided with our of segment. highlights remaining expect on average continues activity portfolio. weighted in loan in performing Acquisitions the be the information benefit to stable performance from to fully quarter coupons October by double-digit and X%. population the have levered Portfolio had yield XX% totals, the robust. RC above acquisition QX

were basis record the all Slide to the Mortgage business. Prepayments rates a in premium, channel, And channels. in XX supported experienced basis in XX volume. XX across residential production. offset XX the has Margins by the partially over accounted activities an mortgage increased XX% levels. by and banking of XX% portfolio highlights growth our point typically retail which the decreasing activities increase points servicing for retention of

product current types various of with the our details all minimal is performance originated securitizations. Performance XX delinquencies. Slide strong, across

across Slide average the XX our position is portfolio. diversity no collateral summarizes portfolio the With both and and more loan representing loan than type. varied under location an size $XXX,XXX of single loan X.X%,

The slides and structure, capital RC's discuss facilities. few next warehouse leverage

in loans Tom mentioned, warehouse. the As pipeline, our due in currently have to leverage the increase in we recourse is securitizations and several on an increase ratio

to deals. historical norms with revert mentioned ratio completion this the expect We the to of

thoughts, I touch final upcoming Before CECL. like on over to quickly to of implementation turning would it for Tom the

types. the working are and product are of our through adoption assessing questions currently each various implementation the concepts We in process CECL and of across of

I methodology we where to Although we address and are specifics a from control expect land, can't systems standpoint. on prepared

providing on loss products, We is of a historical ensuring record loan minimal we on being our earnings on track losses next thoughtful comparable are detailed originated our call. update about reference the to portfolio. data a more plan Given

that, closing With will it Tom I turn remarks. to for over

Tom Capasse

Thanks Andrew.

leverage This to quarter at positive through superior XXXX. afforded efforts We're of anticipate Capital investors a conclusion provide beginning returns. see represents effects continued Ready to operating risk-adjusted the and increased with to our scale

forward of opportunities various to our by and the We evolution look are business. mentioned continued the earlier encouraged growth

us you Capital. your for this for Ready of joining Thank continued and morning support

for that, with now we'll questions. So it up operator, open

Operator

Delaney today Our question Instructions] Securities. [Operator first comes from from Steve JMP

Steve Delaney

saw in not quarter, X% we down not rate value a shocking, So moves. sure, with for the book - the

the hedges mark not had on and that makes going that value value Page mentioned could how see the you on rate fixed of on to in terms quarter-to-quarter. pending You value have but XX quarter? handy the MSRs figure in portfolio sense. your assume in out exactly third mark fair a negative the also netted Do fair I'm of MSR that you terms fair the figure securitization, that

Andrew Ahlborn

to the million. - Sure. Applying effect. the tax is to tax get that rate The MSR tax will net markdown XX% gross $X.X of

Steve Delaney

pretty number now. and are stand represents on back a and XX Sure. basis meaningful - so of kind million a - stand-alone up And significant, that's shares, rates

I think quarters now we're two quarter. jump one compared the And looking big XXX% the better mean, had essentially in what to of business, the second here first year. probably quarter in Freddie question increase fourth Mac I the you last - in So is, my the

just - that Freddie your have August? is on they rate interesting, that quotes. recruiting could and that kind comments kind a in matter going about and a team were this that caps saw the Fannie comment, specialized And surprised off Tom, focused importantly, the you of talk was backed simply it from about fact positive of that - Freddie I'm the if that stand-alone you more Can benefit a forward? is business, you - higher product? growth you is forward, and looking of But this

Tom Capasse

that's just - Yes. good question. Steve, so a

was year's the Just FHFA market reduction just observing observation the in market bit is to surprise - pricing, in there answer positive basically, first it published which of make But was and this I'll when but increased essentially the a a this affordable, regarding is for behavior. XXXX a each - - D.C. And scrap to exceptions has exceptions, cetera. billion et forward it had they XX.X% provision the said until a of to they to affordable XXXX, X of $XXX gave quarters the... they be for whereby the end caps,

Steve Delaney

Yes, cap. the total

So is your it balance, definition, isn't small almost kind of makes affordable, by it?

Tom Capasse

Correct. exception. Yes. It an was

XX.X%. that Now it's part of

at meet products to bit will a more So the price tend to those agencies margin little aggressively the that cap.

And in us. any the of for loans put weren't in tailwind space We green course, a that's they So case. Potomac. that then, threw in

also the So that's one for because market before were saw them observation. year, And then - but Fannie. what to hearing we loan that, were - it rates seeing the increasing XXXX. hitting were our they them reduce just on They calendar from caps before with this from we officers

then bit changed they to So caps, they constrained. it saw they reflect fact when was little that no the longer - the a more pricing positive aggressively were

XX-or-so Freddie $X.X SBL side. We'll market-based then of this looking one other - that at roughly of products, we're observation. we've expand we're agency were on billion a And discussed. as lenders and year. terms into to So do that was And looking how business, we in the

It's - And good for fit a can offer multifamily sponsors. our kind products A-rated us, rates good it's so versus it's as a banks very conventional of a for competitive with niche. we

we markets. tier to risk high And - markets U.S. loan so hiring rank system business we're to through overlay grow the Remember, organically geo essentially, through, officers a have continue in that going in we where

multifamily, we and different X. expand FHA. that and license to hire loan high-growth expand terms acquisitions said then, we And of agencies potential areas business at organically in officers before, across see to targeted to Fannie in the X as to where in look we'll continue

Operator

question Jade next comes Rahmani KBW. from Our from

Jade Rahmani

give you that performance around credit in small economic you base as business granular at was broader economic if wondering well some markets slower outlook. With notable? I the many so such thoughts a segment broader in deterioration the could Any expertise, asset signs the of seeing business across are activity level? is waterfalls, as

Tom Capasse

which But a to in is real manager terms two related those here. But market, will, have in of commercial is retail things, you're you you, broadly market, there focus observations. investor estate we're a the external large of certain real malls, guess rollover obviously, don't seeing CMBS speaking. and But we what all sort observation definitely subordinate commercial seeing, on the the the I in sectors. if estate

kind hotels particular, last In single digits of digits going low or RevPARs negative is Multifamily two. now off. single is the versus or year for tailing

rental these a passed seeing are from California in impact New significant there. York We laws and

prices to in the certain retail. so you're obvious And large to like is weakness tied some growth balance the in see the market sectors starting that on out flattening definitely in outlook

our about more That SBC the the housing a story of in said, strong. property a is much home There's market, small market, correlation very commercial prices market in extremely the X.X to which being is U.S. of balance prices.

influx is we're there And to what mom-and-pop seeing lack so the of capital, it's a due business. still institutional of

the that has prices X% whereas recovered only peak in The balance have about market recovered over XXX%. to XXXX, in large maybe to

what continued So is seeing growth there NOI. in we're

a decline see in enough housing. bit There's of in may factors inventory. with rates a the industrial absorption because just little same You of not

small eight balance speaking, generally in across the market. groups But food the

In that we're picture, credit if - cetera, the will, that large essentially a with balance and retail market et the - seeing terms we're significantly cycle of so you we're in market. behind brighter multifamily, versus - in

to confidence play balance terms a signs And of business balance rampant the see but small think of in small - small So and in saying state benign. I some balance, the continue market, the lastly, long-winded large business in seeing the of small where of is of way stress communities. that's the we're we demand loan the

in down that's fact, volume X%. reflected industry the in being And

X%. volume Our was down

because market. banks - have the getting more That's because also in strong declines. credit, that the lenders a still other Some little bit are are getting of shown aggressive nonbank

But yes.

in that balance balance the commercial, those commercial small - terms large and observations three: general So are of businesses. some small

Jade Rahmani

maturity around notable In offense but year? such which the this you the commercial there credit, says of discounts has would estate benign we Waterfall's And XX% of everyone able a a credit really assets given been strategy loan cycle, anniversaries maturity expertise in credit some in most historically, defaults defaults that's And in Capital driven acquire real haven't Ready XX-year Are a be of years. default. situation? is an pickup hit competitive at expecting to next by are such because

Tom Capasse

focus mean, estate have very large I focus Yes. I on have large manager, - think our Waterfall, we we very purchase - real at with a loans, in balance of around commercial nonperforming the small a in staff a the external investment commercial.

Ready after crisis credit we that of see banks the much funds predecessor itself what the The $X of maturity you. some and out loans community so opportunity not CMBS the maybe and Where is and roughly Cap have worked large X,XXX - an in these units balance billion maybe from over time. default, period purchased of

set see we we emerging roughly, - transitional the X our around the in shouldn't business, credit opportunity million. our issues roughly us, - bubble is average market. use is emerging balance For I is small We're a an that transitional loan - in

otherwise market, have would plan. in another a definitely to lot we're the the being that see lender, sponsor less change are bridge being lower there's have loans especially been maybe or And middle So are those rampant maturity - large, met. we're a because in business maturity not in a refied those of seeing that defaults by default that plans business bridge where on starting a competition but idiosyncratic maturity competition, market, we're with -

we year hit for transitional an way us over loans. we where long-winded that saying area opportunity to two, more and recession, less we balance see large of the that believe even next opportunity a will or if loans of commercial to so So so buy and is be an

Jade Rahmani

the the multiple residential at that's say would look you mortgage lines, exhibiting business As area is the you the strength? that most business

Tom Capasse

in star, variable XX% they a this you terms They're GMFS, the they The of being people refi, purchase. of of - Yes. see purchase were there. you their a cost in could if terms XX% Baton in provider of they're quarter volume, efficiency most business, will, Rouge - where about are terms having

beta less very a that as they're rates focused - you far So focus on will, the if as to purchase. on lower

there's housing very And a in obviously, strong demand their market.

had a when the periods number, a between you they quarter if - in as their they good movements the production them maintained against record very rallied. XX-year balance quarter. last the the has And in outperformance in strong the look their and see we MSRs They've in production. history So natural treasury hedged retain during at MSRs now

So yes.

So market, their they're accretive a and good, leader to efficient in earnings. very

Andrew Ahlborn

that that, add reached October, million. October continued monthly strength volumes may through where record, new I Jade, $XXX a

that So business line. we expect strength sort of continued from

Operator

Riley question from Tim from next Our comes Hayes FBR. B.

Tim Hayes

first pipeline of securitizations and how Congrats on just planned. commitment don't you about have was your You right seem your But is acquisition, bunch and we Knight facilities. but these where one, point on given a all of this equity today now plenty on capital My have capital a capacity quarter. can think the at capital in the you wondering needs transactions leverage and there? you your robust the I guess, touch a know small, given exactly does just strong little what the it which pipeline

Tom Capasse

on we're grow long-term we're of business. Tim, to going of opportunities. equity found the continue search going to I being growth the Yes, think ways we to out - base the are our historically, to that business. focused With accretive the said, And we've

to And for our consider that consider increasing beneficial have the the we our pipeline in shareholders investment for long we all so given be run. we're - we'll base options that capital

Tim Hayes

give us the volumes to what purchase more little and Knight is? what expected on earnings then XXXX be Would And a be on you price, expect to just commitment in cash accretion color acquisition. you what annual was and the the Capital bit able the then

Tom Capasse

Sure.

to that's that, an So in capital. the was that equal certain earnings to with of equity consideration start total floor cost $XX.X There cash. component Ready million upfront tied $XX.X Capital's Of in was a earn-out is benchmarks deal paid million. the

rather it's - expect We transaction for us, a Tim. small

accretion So But marginally to in the them of should year, increase This close XXXX well. total to expect it's from as sort EPS less than X% of million them equity. of expect on that XXXX $XXX growth originate in do loans, we to and to we then our margins be and contributing there.

Tim Hayes

And then made on we to the the head get But know brief just what's I pick remains? anticipate your And to time Owens that? portfolio. some pace of portfolio expected do REO as percentage what you sales you line up? through And still there. comments into ski season, of

Tom Capasse

of XX% larger sheet. out properties. Yes. on Tahoe. properties progress We mainly of That's made is it in consisting still those the balance in some

sold component The more quarter, remain. in third now the two So that complex leased so is six out. of condos retail

So build-out there's process. a in

tenants there the early land actively XXXX. marketed. each is be in We of properties, expect meaning in to now the being And the

of we So second quarter sheet would balance is by XXXX. of to expect end goal the the those off - our have

Operator

from question comes Valentin Compass from Scott Point. next Our

Scott Valentin

I building mentioned in Is you if million, what you I reference, $X I I'm any I Dallas, Tom, that purchase missed Dallas, think. Dallas? sorry Did think. guys -

Tom Capasse

With and that's equity small balance balance Yes, a property. right. small

Scott Valentin

for Ireland, then mentioned you guess, starting. And where you're I is Europe,

from over of see longer-term you'll where guess idea I branch time? you that there. terms give some Can going maybe plans, In out more of you

Tom Capasse

jurisdictions. would market. I U.K. the in Ireland Waterfall, strong obviously, four external and the have say, Spain we a market, - few is a it's a Europe about years, had a for and presence focused very The managers, and on Yes.

balance SME, referencing I'm and is medium-sized or, they - small And Italy there, commercial small call lending. enterprise what well. as this over

emergence there, what we the multifamily, and - And behind you're or So four which fix here, years call smaller what homes see in basically properties is for from for cycle purchasing a rental. is they're repositioning their about commercial we market markets U.S. there and the or an five flip seeing standpoint a of and housing

floor loan So credit, up of which point, - through a here. nonrecourse obligation set this would we lines bank and/or, in are London this metrics worked securitization of doing due a at to and be we're set the portfolio initial looking financed years strong. we're of our company term relatively the form arrangement, pool. buy But what had to for in team. collateralized now we're And ultimately, a with an risk/reward the couple through diligence final the on CRE And middle of similar up

don't right And of this be our Obviously, market. see now hundred, we're I points. in ROE very maybe out. will the conservative, guidance how to NAV into slightly NAV. here initial to couple terms percentage a is the basis a European of - of look wash comes We opportunity time that foray to XX% in over on and But than higher We'd allocate our XXX probably U.S., look XXX, of maybe Europe start. the

Scott Valentin

linked like was - quarter. points basis XX down the at gross linked then looking debt that about basis looking it And the XX XX looking then I looked for was cost, the at about points - Page just And portfolio just at yield for portfolio. quarter. dropped SBC The

a quarter in the to it just in Just the securitize bit terms And on then as on assume sounded there's of I yields. still little the fourth cost chance you debt there's like trajectory, maybe side, a wondering, lower pressure cost debt

Andrew Ahlborn

Yes.

that So of are went gross yields the portfolio down. is rates there moving XX% as floating.

have floors Tom As mentioned, do we LIBOR there.

as So the spread that should - Then right. moves further, you're and increase.

our deal two improved as quarter, the costs. As complete CLO as debt fixed the in of with come well those in or we both will the next week transitional rate first CMBS

should move that as down well. So

Operator

from Raymond Stephen Our Laws next from comes James. question

Stephen Laws

balance should believe on it have But with resolved notes, it - if you to questions wanted my I Tim's with you'll that have by off I on I or follow-up Owens Realty. by plus think I you covered Tom, heard you correctly Will think you of that be middle then, XXX year? the that redeployed? drag capital bps of you of benefit second and see assume ROE in the we'll basis a eliminated mentioned point next XXX XXXX. ROE the by half Should on we will be sheet

Andrew Ahlborn

That's goal. our

core our portfolio Owens total where been higher significantly the performing. ROEs has been have other So running lines on at business than

in reinvested our as that And is expect basis business XXX points capital core so that to diminish. we lines, rolls and incrementally drag off

Stephen Laws

lot, this, the delinquencies I And running like the what's portfolio, for and looks if Can And that? last so, have driving apologize nine but XX-day the X% X.X% half months. covered may talk to improvement SBA cut after just missed in basically about it there? you I a about the under

Andrew Ahlborn

Sorry, about just segment SBC SBA in the you for clarification, in or the segment? talked

Stephen Laws

bps XX Well, SBA down dropped from months ago. X% six and is

Page So cut that about hit was SBC I an to I'd talking specifically both, on for X you on but presentation. app love investor of the your

Andrew Ahlborn

Sure.

mentioned delinquency in delinquent the So migration of earnings any full. we there status. loans launch haven't were call existing And we QX - seen on into several the of haven't paid

that's improvement attached majority continue to the And delinquencies side, on there. the CIT So we legacy the the purchased. of portfolio be SBA then the to

working see we're with So resolved, as there. tail now loans we And of some should pool. down those get to delinquencies that associated the through continue go

Stephen Laws

relatively something the outlook we've in lastly, going data a each not Is back, in with a We've talk Xa set year. sample XX% small seems And fourth seen going up. seasonal function SBA market? you that set here - in and right the points that, your the sales. QX having it on But then that looking here Xa we premiums quarter? data can on But like last just about of enough should been quarters. anticipate a premiums Is forward? on moved dip flat SBA around there It's two back at the for

Tom Capasse

one to - in demand there to make quarter-end. pooling There's are reduces more which - at most be have aspect these fixed sales a to Yes. observation. I from year-end, they additional community observations? have the the - at banks seasonality tends any purposes, you by of with premium Taylor, and definitely just But officer, - Gary, bought spread we compression Maybe, more chief or do a operating have our here. for compression Gary bit have little liquidity

Gary Taylor

No.

I a of think of mid-December. market the it to like that's is by be part big people kind of out

appetite So of toward the sales guaranteed portions kind trail year. the and of end off buy the to

Tom Capasse

seasonal than increase in small see impact, might more a somewhat you Yes, a for by more which tend you of see But by purchased lot is because so maybe that's it's - demand acquisitions than at to businesses. year-end also little seasonal. offset higher volume most point

you of is you say, a point it's if volume, still a kind profitable because in the have, small it's one net-net a XX%-plus positive in premium, pickup a reduction let's even the quarter. have So

Stephen Laws

ago, that. a we exactly and certainly saw that Yes, year

So the color. great. appreciate I

Operator

from Christopher Ladenburg next Nolan comes from Thalmann. Our question

Christopher Nolan

discussed targeting Are to core XX% you guys still you ROE that XX% a last quarter?

Andrew Ahlborn

Yes, our target. is that

at are quarter. We X.X% this

We expect that. in or with QX to above line be

historically, quarter-over-quarter XX% a consistent our stated, we've goal. as ROE is So

Christopher Nolan

in the - the XXX half Andrew, bps XXXX? look comments about of add going of Owens forward, an given we XX% to in should second the so hitting at would ROE ROE or terms

Andrew Ahlborn

is where I that's XXXX It's a to think they're of think obtainable. I SBA the by volumes XX% But our Yes, going certainly certainly at, on depend end in staying obtainable. rebound business.

Operator

from comes question next from Our Crispin Love O'Neill. Sandler

Crispin Love

originations previous fourth the in guys the in if I so have a you on you're quarter. third strength the was the could question quarter. a from that follow-up little far residential a in saw about talk mortgage we seeing wondering I what

X% about strength for in calling is and with number forecast refi in a origination MBA of recent growth most bit sequential total the purchase. softening little think I

point you I X% a the if or be that starting just quarter. - to expect you'd expect stronger that would good if fourth So or in wondering that is weaker was

Andrew Ahlborn

volume for that a $XXX is what October GMFS. I record about I'll which guess monthly say million, is was

to So start. the quarter certainly, strong is off a

up that we're range the within Given the QX, is X%, seeing. where I and million in of $XXX think, we what ended

Crispin Love

is million the press then bridge there's higher in this this was put was press a of closing you $XXX prior that And And mid-September a also, release had meaningfully million that that worth out $XXX of seen around we releases. a in - announcing loans. than number

to that up So Or else else? sorry, the made anything of - or by large rate timing anything cause driven? was increase there is that

Andrew Ahlborn

Yes.

to bridge the teasers their out puts team So marketing inform constituents.

So that a was across volume put number that out was across quarters. couple of months and

you've going volume think as year I bridge substantial yes, to in line. So over year, to have grow growth business continues that the we're seen

the and increasing Tom further as we think Capital do really we that volumes. And of the here cemented the is which understanding marketplace, what mentioned earlier the certainly call, in brand becoming in is Ready

Tom Capasse

because as market properties call a to lot in, rampant small balance competition Yes. continuing properties the downstream sponsors it, market for We're And $XX observation. a more and investor going the in of just to the million see up. of

- a demand not-so-great seeing in for And seeing boutique so underwriting, location retraction any hotel to and and whereas aggressive a - we're a moving you're into reposition more trying example, that.

these the - seeing market. in that we're kind of sort are transactions higher-risk Those of

a that products. risky So lot is of the less seeing what in market our to we're coming bigger guys downstream

$XX property. Let's sponsor properties million familiar $XX to say, million-plus some with who's the of a moving

of the transitional - market. in benefiting the that competitive in that's from overall the we're context loan landscape So

there's REITs, private commercial this five think, at you XXX what, I have So mortgage six. point, over Andrew, or large and five the funds

in in just we - So a going we're of comfortable growth handful see competitors with the space, into very bridge sector that and we XXXX. our

Operator

question Jade from next a KBW. Rahmani our from follow-up And is

Jade Rahmani

You Are lines. new your are things on looking businesses? any platform? would they that other business give you're expansions Or Ready Can of types you're to existing color at Capital do? you mentioned products of there complement the the looking

Tom Capasse

We're the balance is latter. It's sticking to knitting, commercial. small which our

these for enhance looking the we're vertical line. in little products the that of So offering kind product existing adjacent

from the example, for to million now loans, where action sales, business to at may which building. they capital they to Xa go unsecured buy of to sales some working a loan, graduating small in million be $X loans their So some us $X want enables Knight businesses, and in point offer

we're Fannie the at, a like good space, existing So that's agency enhances product balance product licenses that moving commercial example looking In FHA. or other an adjacent the into small of obviously, line.

at a target Ireland. there. There's where So at expansion, And thirdly, acquisitions we - also looked We've that's an obviously, Canada. in a number transaction actively we we're there. example have of looking opportunities of geographic

think area. So third I expansion is non-U.S. the

other that, beyond business, other the products but U.S. then is residential fix residential or another program, should are and - I flip products mention I we're possibility. like more dairy... are looking the thing a expand for the U.S. government those And that, nature, would and to But some into SBA are in example, which say close commercial those in

Gary Taylor

DA.

Tom Capasse

XX% The USDA, larger similar where a have a large at and loan, but to we've bit submitted an and application securitize premium. which where you - for of little a same you those you very - XX%, it originate about loans. model SBA the They're

in of those silos the the X underlying of are are so balance growing business Kind kind at And we're how businesses. the specialty small looking space. those finance

Jade Rahmani

side, of do types are and they of provide those factoring And inventory you Knight receivables? unsecured? On that can the or kind around profile of the risk financing Capital give loans duration any color of

Gary Taylor

Sure. Gary Taylor. This is

future a They purchase are traditional they So not receivables. factor.

months loans about is purchases term. So their well, - the their the is tenor nine of

Jade Rahmani

about the what risk performance? historic credit And credit or

Andrew Ahlborn

Sure. Yes.

So much their coupon. obviously, than higher factor rates our are typical

So of of their factor The X.X%. combination which charge-off increased rates, to charge-off gets have average and factor's top - With that in higher return the higher sort the mid-XX. rate that is of around comes line run historically somewhere XX%.

Jade Rahmani

deal You all the accretive. give it also indication they I you know, it And how that of it, seems of of magnitude, was stock. is terms financing the mentioned Can in much produce? in any, don't revenue nearly

Just cash how decision issue drove component? much was equity? what the And to the

Andrew Ahlborn

Sure.

company. all so the going to think, $XX.X XX% the stock the EPS terms EPS to anywhere from, to of shares were then was in the So cash range The And $XX.X cash time. issuance performance of component on accretive to future larger I and going it's million, of forward, align over parties certainly the accretion component decided million, to X% was side.

and going to other the roll on out operating little benefit side take operating a efficiency fully the for get It's to while them to segments. fully our to implemented

XXXX. in in expect I later happen that accretion would So the year of to sort

Jade Rahmani

So to XXXX? you're start annualized? X% so those benefits this in quarter, of about that $X.XX is which relative see right, to the $X.XX, part So latter that talking $X.XX you'd would And to $X.XX. be of

Andrew Ahlborn

Yes.

I think that that's right.

that going to X% be market. closer it's think to I

Jade Rahmani

And what's their annual revenue production?

Andrew Ahlborn

is million XXXX EBITDA. of $XX So roughly anticipated revenue in

Jade Rahmani

any against lending? of their use million they Do EBITDA. $XX financing

Andrew Ahlborn

They their They outstanding a facility against have receivables. do.

Operator

at I'm [Operator conference over back time, turn the Instructions] this for like remarks. showing to any I'd no management call closing additional questions. And to

Tom Capasse

Well, thank fourth the forward after we quarter, and look continued appreciate you, everybody. We've support again had quarter. to a speaking the strong and

Operator

conclude today’s thank does do We that call. gentlemen, and you Ladies presentation. today’s for conference joining

disconnect now lines. may your You