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Ready Capital (RC)

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

Greetings. Welcome to the Ready Capital Corporation's Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

the over turn Chief Andrew now Officer. Financial will conference to call Ahlborn, I you. Thank

begin. may You

Andrew Ahlborn

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

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

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

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

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

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

Tom Capasse

Thanks, our call. you Andrew. for morning thank fourth Good and joining quarter earnings

Tom to volatility, business. I'll market recent our addition some us also Chief about light have our Andrew, the of today. Buttacavoli, begin In we Investment In Officer with observations with

of million volatile was reducing versus stress value balance we to available sheet, opportunities. Further, share under A markets. take liquidity opportunities. evaluate continue accretive executed recourse raise in the liquidity as improving capacity, buying thereby our of company advantage to In capital both leverage tests. to liquidity $XXX always we stress investment the we X prescient in times risk million do, borrowing we regards in December, in X power of have times, cash of our $XXX Today coverage providing well purchasing our First buybacks the is positioned and terms of

limited we our are rate The points. letters portfolio with by majority risk In XX% of floors Second, our to is floating loans points. intent, average LIBOR these interest rate of floors, pipeline an current The rates exposure. spread, LIBOR originated current I XXX underscore want rate. fixed and with premium to the equal current portfolio, XX currently mitigate basis with our basis issuing plus a at swap to of

funds. use changes lock we During periods, interest to rate, mitigate values, fixed loan in warehouse cost to in of fair look swaps significant as we rate

balanced decline of Third, the rate across commercial and terms our business benefits products. originations small or SBC

and declined as Freddie with banks Mac rates. points rates floors to X%. XXX on that year-over-year, facto low deposit basis multifamily rates funding We have can with points the basis compete XX based as

concessions at floored now high is pipeline yield even after rate fixed likely ROE. a teens Our will and X.XX%

With the banks. will this select also ability to be with product now offer assets, competitive rates below X% more on

credit spread a originations On LIBOR any current loan our of LIBOR obligation, a X.X%, $XXX widening. CRE inventory average floor loan targeted weighted The X.X% a weighted spread million will likely new of and the upcoming average floor of has for collateralized X.X%. of bridge absorb pipeline

focus the Administration a monitoring chain segment, with In been businesses. SBA on to small the Small SBA's response in coronavirus, or our we've disruption specific Business supply

market. to assures a crisis. prior or the specifics X(a) the occurred or waivers fee any financial continued lenders, such additional not disaster SBA during certain businesses, small for loans the guarantee loan heard guarantee incentives of secondary include yet the facing we've Although, credit U.S. Regardless plan, full the to percentages, on recovery action high access might program as as

the a margin, but real Knight businesses, time fourth incremental algorithms bank enable Proprietary business statement technology this The provides which include daily, not us sectors only adds capital performance activity. data thousand and past sector. assessing plus the applications net and its XXXX We're of which to default advances in small using risk, geographies. current of over Capital, edge small quarter the across to interest credit XXX acquisition receiving front-end working makes a with assess changing

mortgage we exposure daily of the U.S. portfolio an that early products limits. deterioration, these are provides in risk. year segment, the terms environment the default management, loss Second, an XX edge pay of mitigation, decline in basis to current unprecedented tool territory potential We in loan performance of but points, risk volume. not entering identified residential believe the refinancing provides credit indicator terms currently have at nature with this banking In and XX pricing our treasury in of material surveillance approximately

record While margins increased the points February, volume average recaptured in last negatively in weeks impacted, pipeline a the by servicing potential first borrowers. XX% origination over prior we current year-to-date refinancing profit of mortgage all-time Further will nearly million, 'XX two be is $XXX the XX% in lock XXX XXXX. rights an to in The high. increase through basis evident of quarter

credit virus. than relative restaurants, and malls X% in represents impacted exposure and movie Hospitality of our gross risk, exposure. we less sectors have X% each less terms low of than theatres the So by represent the

default financing have less XX% is Houston. markets exposure also office, X% stressed about allocation space. transitional concern especially large in no in than the current Also to to one balance in on the maturity direct loans, We is and energy

in ground risk, financing, portfolio fresh credit bridge-to-bridge held equity, emphasized acquisition XX%. and so LTV and up on of a importantly, debt versus focusing XX.X% an our of construction. financing called terms, stabilized underwriting avoiding with ground Most our yield and refinancing have evident We stabilization

benefits bridge safety third a approximately GSE is of from multifamily, the Finally, net. portfolio which our

acquisition our will markets. strong Ready distressed the Capital defensively be in to lease home senior positioned prices XX%, servicing X.X and transitional loan special adverse provides in portfolio the of sector, On there a SBC lender the our leading for loans, purchase within bidders. to to is in offense, of opportunity dividend sustaining for a Generally, correlation a strategy value few which capabilities portfolios relative

of growing confident acquisition results of the future markets. capital Now the about XXXX Capital to year in $XXX experienced given corporate SBC a with billion XXXX. in our year securitized transactions and Ready to of loan progress grew activity our return of segment are seven five XX% We and To $X.X accomplishments, strong debt, equity products to mortgage turning $X.X of SBA inside issuances, our continued origination X.X%. annual XX up over ended and basis billion, and few volumes our loans origination and and billion, maturities. banking annual $X.X million an residential We core the highlight record a equaled additional on franchise acceptance, origination across the of raised and previous our and financial SBC points SBA

in continued the prior index. liquidity for RC our inclusion to of ending levels, we trading S&P efforts our SmallCap the X shares, times average XXX and Lastly, year increase with volume the daily

to The the SBA and Turning quarter $XX $XX XXXX. originations. SBC SBA million, million for X(a) originations record fourth quarter fourth X(a) reached $XXX XX% quarter-over-quarter results. totaled a record quarter growth SBA marked SBC increase over a million. a in originations a combined and

originated Our XX% million, growth. $XXX residential banking up segment mortgage year-over-year

originations bridge quarter-over-quarter. hit SBC origination million the increasing segment, a $XXX Within $XXX million record

spread a $XXX volumes points. loans X.X% and Mac weighted Freddie and $XXX coupon a XXX Bridge and fixed of of rate, respectively. million million average in were loan rate basis fixed had Our SBC

originated debt sound average loans and X.X X.X%. average of service on premiums metrics of Additionally, credit debt sales Freddie remained of coverage LTVs Mac newly X%. times, with of yield XX%, Gross loan

were plus a growth X(a) million record to X.X% at and SBC prime over represented the $XX volume have origination sold decreased coupon eight a of year-over-year due $XXX transactions. the levered million yield. from premiums We SBA in average average XX% to XX% priced Our duration slightly a of X.X%, Loan an of in Average a size X.XX%. increase loans weighted sale pools These loan of quarter. years prior loan quarter. remained four weighted coupon stable acquired the average loan to increase and

debt $XX agreement European originator a Ireland. with of with portfolio bridge a profile a value premium with of of collateral portfolio existing bridge in Of our of projected features the yield the portfolio of in into coverage The XX%. whack ROE XX.X%, loan and with transitional Europe. a located markets times similar U.S. and entry our of X.X%, our expansion the to and to debt service X.X to further acquisition flow we're yield note, evaluating is forward loans, actively a The million

increase Mortgage treasuries. in quarter, volume to and banking our remained slight retail from million to at production Production in $XXX decreased and XX% $XX million channel XX%. slightly seasonality a decreased primarily purchase high the to due

to our funding balance strategy. sheet Turning and

portfolio XX% stable loans, of a to focus portfolio diversified Our $X.X percentage interest the form increased in on of activity contributing total building net our quarter's was billion. the income. portfolio of a and remains growing

look with recourse we capital we've maintain As the calls, discussed debt. and nonrecourse to a prior well-balanced appropriate of on mix structure

approach, Consistent is We stabilized four during rate at advance X(a) rate loans. our securitization six July XX%, advance marking plus quarter on issuance fixed investor year completed had transactions completed our LIBOR with this we million, bonds. had priced a of added yield, and markets the at The corporate In securitization cost. capital of issuance a The transactions. XX% completed million seven X.X% XXX. The SBA to of rate we the and of continued of securitization $XXX and $XXX UPB and AAA We our funding million, in our X.X%. reduction UPB of senior guaranteed $XX pricing loans. the November, baby of second priced

origination recourse equity the retail leverage following secondary our shares Lastly, in raised record of we $XXX ratios, the our base. successfully achieved our reduced expanded and capital. the volumes, million increased shareholder objectives, funded liquidity if Tactically,

now financials. it to over our Andrew to I'll discuss hand

Andrew Ahlborn

Knight share, core million. reoccurring million attributable to an increase marking XX.X%, in income, was and in QX. of from equity increase subsidiary, a $X.XX $X.XX and earnings GAAP $X.X stockholders' servicing in The increase $X.X of core $XXX,XXX share gain were Tom. funding and interest XX%. The our over exceeding return Thanks, revenue core GAAP net on our revenue increase targeted per return on of addition from $X.X were per in and quarter-over-quarter revenue. million Capital sale a earnings

of not Capital designated securitization loans, mortgage the the future sheet net from gains million the and partially items of activity, operations. the accounting portfolio was consolidation and incremental inclusion $X.X the $X.X increase of expenses, of loans. million in include the in million addition net Knight $XXX for and million revenue banking Capital, of $XX to decline SBA of Offsetting due hedge $XXX addition had million. Knight Key of of balance derivative a receivables Additionally, $X.X million purchase operating a increased in SBC

and the issuance reflects equity. sheet balance the Additionally, aforementioned common baby of bonds

line and side SBA of X.X net of income. of completion liability gross Recourse the equity to a completion are leverage both asset The fourth issuance. leverage securitizations our required does This include X.X recourse by times, we decreased to side X(a) as on of the loans expected affect securitization, sheet. times million sold, further anticipated guaranteed CLO to is up of bottom and the X.X the balance With previously reduce from the times. not two result the $XXX

earnings ROE combined above XX% sets note, the key to to per X, origination $X.XX net book Of Turning metrics SBA dividend dropped deck. $XX.XX. forth is and share and record for and quarter. core the the SBC volumes. Slide Adjusted value items coverage,

in highlights of originations XX% growth in on the return equity and increase for a year acquisition Slide summary SBA $XXX X, year-over-year core enterprise including activity, and a million and SBC value. X.X%, provide

composition the our and leverage Core levered return of by the Mac increase ratios. a from decrease mortgage of a in reduction due Topline banking activities. basis on of and target recovery effects the XX.X%, SBA value Slide Freddie to details on offerings offset declined points X, of of derivative gains income a exceeded positions XXX reduced XX%. returns expense return the RC's sale ROE realized in was in an certain in of This decline and loans, equity.

drive to We leverage scale to in fixed increased expect costs. returns without increase to topline continue operating a substantial

originated we've SBC both trends fourth SBC quarter in Slide origination million and loans included million in X, volumes portfolio for on are the on Details end Through of shows X. prior $XXX originations $XX levels. February, outpacing year in held and loans, quarter-over-quarter. SBA Slide sale,

pipeline Levered the continues invested of Our to a with experience portfolio yields strong This average on million, SBC remain XX% equity, million and will credit XX%. origination of the Slide The stable at which for close loans. X. segment LTVs money-up is segment, in low to of our $XXX accounts of $XXX delinquencies profile XX%. current summarized add

to volumes due million covers loan funding sale second the an and delinquency balances, due sale to increased leverage completion our SBA loan costs. yield Slide declined SBA increased premiums X, and X.X%. increase gross Loan in segment. to The to of levered X.X% and securitization, due reduction to is increase in $X.X fell in a our

acquired the basis Side investments joint yields portfolio. summary XX%, XX, our shows from above in for Levered returns the points. information portfolio declined while venture remained XXX

mortgage banking in million are in Margins $XX basis is decreased with XX. Production record party decline point and decline in XX%. basis third the in a servicing channel. residential Slide increased both saw Our levels. originations, payoffs segment growth excess highlighted retention We from a on retail XX channels also QX were offset by XX the point in of rates portfolio marginal decreased as

warehouse The earning slides by is remaining our discuss XX of and new capital leverage product composition, and shows type. income segment, and investments portfolio Slide by the RCs composition facilities. asset contribution structure,

on financial on to like CECL our would I consolidated of expected effects statements. the touch

reserve We outstanding $X.X portfolio our XX balance composition our credit equates quarter-over-quarter, expect loss growth. be CECL points reserves This and basis The portfolio, and on initial performing the million. of $XX.X to conditions points between on of reserve the million between basis and to fluctuate economic depending the will additional loans. XX

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

Tom Capasse

we've had in effectively year results Andrew. demonstrate and key across record we the quarterly diverse on environment made understanding XXXX, We full Capital's confident have to many originate it past progress to notwithstanding in to We the we capital our will in in remain value stakeholders. continue manner ability areas business few the build believe Thank an year a in platform. our The and you, Ready the create years current deploy that creative will an for impact of and XXXX.

a business and near defensive both With recognize focused commercial our the of as there the we unknowns model to estate in thoughts believe positioned term, we're given balance a least large we economic brethren here fluid on commercial a many situation, the of But to that do risk a coronavirus our beta than uncertainty environment, diversification environment. at in terms we higher year couple a better facing lines we market, as portfolio in do stressed real We want results. our provide uncertain many of market you to in work surrounding the and current sit are are today. niche

both coronavirus factors headwind SBC resulting that in influence increase tipping in near portfolio are into A headwinds In defaults, our for which our portfolio higher business, risk diversification are and to and there the typical headwinds The markets addition the our risk the focus sector related inherent securitized on debt. of, the costs capital to results access seasonality include could recourse with delayed other a U.S. term, and the incremental ability and tailwinds. of the is the mitigates. recession, for

in market. the the current we So, unusual resiliency former note and

As businesses, higher for risk, ongoing tailwinds, sale treasury rally the a our gain repricing of recent favors incremental on on new investments. and ROE the

lending in Caps all-weather in markets. current business model, bear the bull Ready buying distressed nature assets the markets market of Finally, underscores and

will liquidity, success support. time build and market thank us and momentum through excited to and beyond. for on XXXX We're entered you and with our tremendous carry we your which We competitive continued this

So with for that we open will operator questions. it up now

Operator

you. [Operator Please with Thank B. question. Tim is first Our from Hayes Riley question instructions] your FBR. with proceed

Tim Hayes

that exposure with accounts quarter nearly and seems and the not a circle introductory the XX% a if pretty retail I total SBA Hey, the for to first good exposure vulnerable My back in including can and restaurants morning, Congrats thanks we great comments in portfolio taking the appreciate questions. my one, hospitality but lodging. for SBC, credit, on of Tom, portfolio, quarter, where of guys. retail on just

several since over any you the there's you in the that the little few assume other confidence indicators next no the where LTVs, basis. over in How bit been a such to country. months? a scenario, performance I And on maybe unexpected maybe see still have just or you could outbreak your these weeks throughout been it's protection then gives you touch there just short But the if performing covenant stress spread continues do on past loans a timeframe. more

Tom Capasse

market obviously, questions, the conditions. Good given and current

So drill the loan portfolio. was you at just down, first business to -- your if SBA small on look question

you'll total So XX% the if is and right, restaurants lower the lodging, about that, see you you'll look hotels at see SBA Page in XX, that of portfolio.

is other the is thing on business, the X%. out the Secondly, in see I'll the allocation terms can net point to that the invested equity business in which Page you X, of equity

eight or call most is So one it at capital of fifth X%. the risk about, at

So clarify that's that upfront. I just -- want to

package, exactly announced trying association is. trade SBA to a President majority disaster X% our hotel Secondly, that making you, still one out clear, gate affected we're aren't in billion the two, basically $XX and X% all hope at But, been large it to night, what and will we to is and their types has for rates, that is we the a interest thing we directly a last of number disruption this revenues. what morning to loans talked of that lodging, these all just by be temporary what have figure businesses,

so allow troubled And are their these to operating bridge essentially loans over into to a waters. expenses them pay

and the mitigates two, -- terms that industry a So in in significant sorry number and those government I'm of X% net. safety coverage the there's two exposure it's

that's So the SBA.

relates think to With your SBA. there balance that's retailed or second the just our in portfolio. question, commercial SBC small I for And

Andrew Ahlborn

clarify in SBC our you're in XX% you're that correct? to collateral, asking, asking retail exposure just to what portfolio Tim, about relates the

Tim Hayes

Correct.

Tom Capasse

on that's Page and Okay, XX.

average loan million, is the mall, past, average So, not is, larger real is malls. I stores million. balance $XX is $X.X as estate small our think around retail commercial our we've the ABC What not typical exponential mall. class It's retail reiterated the around that in strip

by which your small be decline pharmacy impacted be to going The in obvious not go get kind the story we that pizza. will they're these the strip So, up or neighborhoods. pick economic get locations, neighborhood activity, feel as are because -- to in of a

limited exposure. space. than Therefore, we've less what think in big box substantially obviously the you'll mall retail on the be our So we will impact see

Andrew Ahlborn

properties Yes. reserves in loans The GI is cushion only there thing there have these a some add so is the in embedded them, I'll lot of themselves.

Tim Hayes

at out know. be, those need the if keys you I that's waterfall take Okay. materially maybe could bring then helpful, the give -- to if overview to you work if appreciate And you defaults an of guys us or comments. if have But, -- over Good troubled credits resources increase.

Tom Capasse

think we I that a that's And one one assets, largest managed secured Yes. the in that's REIT have. by benefits the defensively credit focus distressed on of a as managers globally, of estate externally particular real buying structured assets with

last bought defaulted balance worked small small small the commercial X,XXX business assets. During and of balance billion $X credit out we commercial crisis loans. We

have enables play we Management, call a WAMCAM, in not it's to So a special that just in here in wrap us place, Controlled system Europe servicers, Waterfall plug well. U.S., the as technology Asset we and with but

And of XX technology asset management staff bear. to that we team to about our the leveraging people and bring have XX

roughly defensive -- we're entire a actually management, of we just our managing we a of gross that so besides $X are our side where And portfolio, risk we across as of enterprise surveillance Waterfalls, which the business. of risk pie. billion billion, credit book worth assets large have $XX in have

to credit in an way in buy positioned of workout people's view obviously ability and utilization last our And defensively, then with services to of the detect the we're offense, the technology, estate other probably appropriate the terms we put on problems, to most crisis. that space. potential real lenders and finally the think I both resources special we So, opportunity this than the defaults, early as better in did the of on our

Tim Hayes

to past how just not discounts? at new, up And seeing vintage, And Right, loans, I you that has the over greater when there, but they Are these loans pick supplied I you or distressed on been Are loans that had from? just selling? makes where SBC SBC for coming been supply more sense. are able weeks? comment of new guess few say new what

Tom Capasse

I before is obviously, the arguably turning. now -- credit cycle right Well,

most turned, by or of we of legacy performing Before what from the banks. credit cycle securitizations were loans out was of noncore assets buying sales have

So this had good pretty I on the think it -- acquisitions year the year a past was XXX. year roughly supply, we

Andrew Ahlborn

begun answer to distressed loan question, don't To buy we've see no, portfolios. your any to I think opportunities

Tom Capasse

into Yes, this. this we're obviously only happened, XX days

in at going look terms generally quarter speaking, you're you quarters prior will you cycles, about credit see, take in to a before distress portfolios. the the see if of, it So two the real

Tim Hayes

from in it. got then I'll more and And one Okay, the back hop queue. just me,

how and near trading or think that that investment business, mentioned about the here, book I’m XX% at you evaluating You stock dividend just buybacks. were your yield? to you ROE core wondering, discount a on highlighting the versus XX.X%

Andrew Ahlborn

levels, XXX have total we Yes. Tim, we at points. around the think is book the current plan place in accretion basis value those of

selective So to or I'll sure of enough weather the the more fund matter able have accretion balancing, of it's liquidity on of origination that sort what experienced last two, over and making to sheet buybacks. the making the sure a call we obvious balance opportunities we've that week uncertainty we're

are liquidity, going well we there's discussing that sort it's a ample making the basis of of pipeline, continue the as we're some as so something management sure to daily context procedures to risk of So daily. in on our of evaluate

Tim Hayes

for questions. got my taking Thanks again Okay, it.

Tom Capasse

in Tim, servicing. with in management four REIT our the of a question did footnote particular, portfolio. last to actually one on provided the We by particular the to the in-source special your external asset hire quarter, supplement manager, that focus on some services specialists bridge prior

Tim Hayes

helpful. Got it, again. Thanks that's

Operator

Rahmani next with proceed. Jade Our question Please KBW. is from

Jade Rahmani

Thank you very much.

we're estimating the earnings question, the quarter. the you count, for share thinking $X which will factoring coming XX are and share per consensus, Just $X.XX we impact it's full about year? at Looking high level think in, how the I and about first are

ranged $X.XX count. as have a but share lower high last to was that few on the from $X.XX, as So, quarters

range in can what's So, guidance kind or returns thinking provide? about the directionally prospective there you that pipeline place. some and a any Is of underway, you have

Andrew Ahlborn

With for moving us a here. pieces I rates causing our markets of are think little were bit deploying Jade, being months. of more or of well XXXX, our few businesses residential origination very capital, coverage record current little Mac said, some we platform, are ours our that at that Obviously, Freddie sort SBA last the is those to all business, a volume. of in capital the require lot as over cautious mainly dividend seeing there's be the product goal as

lot sale going to tampered a -- lot terms you sheet to in first revenue have on are by loans. March, in of what you're through So, balance the especially of offset gain more have of a quarter, going may end being up originations

I the also seasonality think in there is business.

historically, business our space, been. look performed, has the stronger than you has If in how much at QX QX historically seen quarters being especially we've SBA

believe do we ramp to seasonality. based on going be a just So, there's

believe lot is which the of to prudent I take with manner. sheet a the time a today, providing and in equity, it's And also also deploy additional going safety that balance that in to

that hopeful coverage So, the opportunities we these certainly exist, We're the at goal. that. that's continue to have think to But growth year. is our capabilities for dividend our if I the goal rates do

Tom Capasse

more, Jade Yes. tips from type But minor but come cases, more have upon to in the seeing And base to recession. market, change depending mix, point thing quarter, concern that which economic is be surface. capital which add into in We're our 'XX froth not pulling happens, of will there so The our is on fourth just companies going buying balance obviously, the across and the that most to allocating And I guidance. say is board will the we that one or only are way the to larger in equity this of I to this business going was to would our now we're event be of if the going portfolio, already we're much a a that distressed an to inevitably where bridge, lot the one buying -- third path us standpoint. assets.

tightened And so we've on certain pulled already back sectors. and pricing

probably going being another higher. will are to the in basis to points incremental XXX on this So points ROEs XXX be be environment made lower. But, loans basis volumes

fourth recession in make second, point I'm is reallocate a year, see or assets U the to terms and well where of no terms recession, I third So, basis. to to this just the of think making capital buying to in a more a distressed our conservative upon recovery, V had positioned my or trying loans of we or depending we're recovery in quarter

Jade Rahmani

is appreciate And you've terms of the that you what's pipeline? But, funded gave, period what's what conditions, being any could the in terms from not CMBS pipeline? in pulled loans, deals today, Are gestation the of the being there I'm the about a pipeline, originators or meaning far in stall they deals the in current numbers for I market so are the hand. to cancelled? market that starting securitize. release And hear and about on sure

say about conditions? So, a few could current of those have What you market fallen out.

Tom Capasse

that, by different is -- that were good unique answer segment, we're a in again, there our a Yet, platform right, verticals. the because very to that's question. of and Well, number

covenants -- but not that the those one, less. So, and focusing more will competition terms bridge the will number balance -- be likely tighter because they're with the commercial, there on be in small closed of will deals

out with pointed probably stabilized portfolio yields, will tighten points already existing are which LTV. on, our up I've refinancing, of, that you in space as back on look Ones some terms that on refinancing. as concerns both at have the well respect XX%, in the And we of step ability nearly at plan just the to the and XX that business debt we for -- execution

properties acquisitions they'll through be same these are a -- pipeline boon will and of obviously and increase of I of government a some there pull most have because the because you'll financing of In lot at tightening, might sponsored this so assets, for think see Freddie fact you business, the point, but So fault we'll it's that credit that that it's the will it close. existing rate. less

market The fixed the be pipeline a that stalled. CMBS pointed will because the fact others, rate -- some that you portfolio, there falloff has in as out than of the more

securitized debt been affected that, are will last getting that led deals the significantly the of hellhole, I'd the XX%, the has so maybe affected has finally expect what market, there sectors you. SBA have actually some on out, done albeit one it's the And Although, and the on in hospitality I market, CMBS one pipeline, But at still us mostly current this because comment XX% the point spreads. by there, and that in into been the virus, is make may which angel that wider areas editorial are fallout be most a we fallout lodging pipeline.

a and those be in I'm offset by unprecedented some sorry, banking, So sectors finally, we're in overall, mortgage obviously the fallout territory. small residential there'll --

there was pipeline are XXX. and that Our locked

Andrew Ahlborn

XXX.

Tom Capasse

XXX. XX% in above rate in our the prior Yes, XXXX. last peak rally

think to I on over relation pulling that with about the pipeline. loans, balance business large for we're in they're elasticity our are, the CMBS that conduit hearing for fallout balance others example, So that XX% business of of

the winded but for sorry that long I wanted just answer, segment. to So by highlight

Jade Rahmani

I with. earnings think investors And the to have Slide helpful. that of that's something I that that appreciate diversity it's It's shows XX thanks, business. been the see because No, grappling the breakout, also helpful

are margin behaving changes turning Are how calls any the lenders in you currently? or market. repo repo to Just seeing any

Andrew Ahlborn

those a change months, of large weighted Jade, take six we calls no, it margin rolling the been short repo short cost extend, out of the in without any We changed repos. did month terms. term bonds. we any real Obviously, did of in the compared different average to haven't repo on steps extending next our seeing retained so term

not But, extended to seen So significant term that question, your have no, answer out. we repos in book. margin calls short have we

Jade Rahmani

very much taking for the questions. Thanks

Andrew Ahlborn

Thank you, Jade.

Operator

from Please is Stephen Raymond Laws James. Our proceed. next question with

Stephen Laws

in that. morning. remaining on filings find the was buyback? the Good couldn't through you I is the Hi. place? looking authorization us What some earlier, give but Can details

Tom Capasse

million. We $XX It's it haven't used yet.

Stephen Laws

-- go And Okay. ahead.

Tom Capasse

No, sorry. After you.

Stephen Laws

going exposure or covenants, it protection you're are to in just significantly now? that you talk not Is to is the loans the was or you those can more add mentioned simply but it, pricing better current environment? some or looking where capacity in in I draconian, increasing pipeline pipeline No, little Jade currently maybe on follow-up to question the you that do hotel how the you say covered, more view a about

Tom Capasse

Yes. our We've pricing. done

Credit worked where our hotel to business that the fixed very Chief essentially limited plan, in on essentially and implement bridge Our that business and them have way together a quoting component. individual we're deals President Officer not and a pulling our the currently, of

eliminating risk-based both on to will, activity. time essentially sectors the for being virus, the in beta reducing -- we're economic pricing how most that's exposed or by the So the focusing if you decline to highest

in our restaurant of asset have other we also the as today, hotels. And of some classes. X% But we're business, in in SBA limiting

average the exposure on was $X million. balance that think around I

than some we're REITs, better might it's the positioned So financing urban the large obviously to significantly very which million market $XXX of conditions. hotel, by affected to to balance bridge have outstanding much current be going

Stephen Laws

and thinking expenses go about or will travel And current side, is in bit go the as or restricted, side you you how little I the the environment Can operating about do going to domestically, to there. up, site expense due companies expense use the it the a being is do far but color talk diligence people? party appreciate expenses realized travel. have I online process? How not you'll handle guys then process down less checks? I visits some have with third impact site diligence due as Can guess because the you to have but underwriting travel, limited the

Tom Capasse

for in the probably were firms we've space, space Freddie in party the to commercial both terms the on underwriting about is the and It's segment-by-segment, third with small fixed. greatest balance and but underwriting, but our respect fixed And third of Freddie. the Mac economies expense appropriate, of in it's the not bridge and the there developed bridge a whereas total using

available. have we resources those So

local aspect these for again, use just we that, then the appraisers practical assets. is And

of a appraisals But appraisers, offices staff -- their network staff, their on established lot in or we of in severity. that recall of our we And of have and homes have subsequent We New they offices. most smaller is and track have -- there, Dallas how we work out terms loss is it a of Jersey. defaults

building views, do the things communal words local. that appraising They of And travel and the finally, the in issue and they things are Google but and other what we properties two add people the look Street the of you no are supplement the local, car at most like end of in all car, not to get area. the around is, we're happy they're could in only it, is at I'll day, use the there's and

be impact not think major going cost that's either I a or churn to So on our business times.

Stephen Laws

I questions. my appreciate the for taking details on that and thank you

Operator

Our Crispin proceed. with Sandler. next Please question Piper Love from is

Crispin Love

Hi, guys, thanks taking for question. my

of is in but we is for to there expense headwinds pressured could the if coronavirus of see question a just shortfall kind next couple Are differently. levers the Is XXXX any expense that you think there any? quarters. pull up which to little over of could asked related quarters by couple I make think on you that bit next following-up the So

Andrew Ahlborn

I Yes, manage the to always to certainly on not but uncertainty hard provide and the on load activity, us we're the the just to is might yes, step be -- pretty that going in we manage for we business I expense activity to honest, going to or pronounced. that business it's current months. six side are think up both need expected It's for three, only But to of I going hard the be is for mean, what current specifics be expense given growth.

So, we the expectations to will around. see manage we move pipeline those as

Tom Capasse

less servicing factor Yes, originations to that the side we're extent cost on special step problem, because pickup. origination the a variable distressed business to asset, flip have the origination flop assets, it's in the going and we in up

to a provide within for buffer costs rely our a operating there decline. to businesses on the we component able is So expenses are lending to a and variable that acquisition

and decline pickup origination a For acquisitions. distressed volume example asset in

Crispin Love

with mortgage originations you Okay. residential decrease, record you part the quarter, guys think had. sequential talk and And following XX% saw Can third then that's an for what the is caused of market? overall of than guys. on is to purchase, decrease the any there that focused rather kind other play I'm or of factors mostly the kind sequential you there that quarter, fourth that, I having drove about at do

Andrew Ahlborn

probably, by driven You mainly know, rates. it's

Tom Capasse

It was yes. driven, rate

Crispin Love

Okay.

Tom Capasse

We sorry ahead. -- go

Crispin Love

ahead. can go you No,

Tom Capasse

that, the just industry that Obviously, done but the a banking to with consultants, one than have a going treasury that our benchmarking most to year less purchase I and bigger I on the efficient whole. they and the because some mortgage residential historically with the of of in tend focus a follow we've mortgage around segment there volatility industry on the XX based one -- that fact that was lot average think banking say as

Crispin Love

one from me. then last And Okay. just one

$X.XX to now. $X.XX you're how about the curious right and couple And of at I'm if understand next could confident just about of the thinking kind looking I in you're dividend, there dividend if a it So cut say covering feel the be quarters, even think But a for be cover weren't you you if to term? do that volatility lot risk better a quarter you able term. of near could two, longer or it, it

Tom Capasse

an that, know obviously that's question You in interesting environment. this

on our last upper I the cycle, and maintaining ROEs distressed, -- we we we ability currently the look teens, then from. to in pivot and cycle. the SBC at the acquisition yields XXs across we dividend current credit the committed higher asset think, can board we're had the probably low is pivot historically, down, volumes to lending again go see our to If

business us there gives in the environment. ball, that So us, more think stressed but crystal a confidence I the of no our diversified I think dividend enables sustainability economic model is in

Operator

proceed. Our Delaney from is with next question Steve JMP Securities. Please

Steve Delaney

been for to congrats years. for these strong XXXX. around a XX on the and Thanks over you’ve close question securitization taking markets Tom,

Thank And but how all they your we pipeline flexibility think do period time. the will not you hearing? warehouse how see and vendors afford think to a for are much What through expect to loans moving slowdown of you securitization? behave? short the you. going from markets you the your to enter widening be possibly expectation What for frozen even are only is spread I

Tom Capasse

incredibly Steve. We've track banks because the couple the the capital that all times this time, environment for marks they more larger it's to been way is role have code in that by assign the and service thanks, in the the responsible the rules by bankruptcy these charges counterparties been But the that of calls acting see in markets. how terms put in the more in street. to current around of margin Yes, We vocal assets. everything of interesting, street orientation super economic to a place, to

up The are markets by securitized spread debt widening. holding much as measured strongly more credit themselves

everybody offs. assets sell in in market haven particular current for I safe is the think risk this a housing sort of

And of storm would to in for or product as be a terms it our as lines that business. warehouse. long unbalance, more So markets, funding, the with on compared vertical held our fixed that the we business affects business markets specific the rate in our the impact given benign our have in warehouse other probably in calm in term

so one second is portfolio, relies which loan bridge The on that… called the CRE the market collateralized

Steve Delaney

CRE yes.

Tom Capasse

Yes.

a year. that $XX Obviously, bit year billion so. could or this I think be last less was around it to little

And But some doing have double wider and deals it pending I that -- like as but of at yesterday. analysis. it line, So actually looks was been a I'm we've sorry, market done will deal spreads. can much out the the we get in that today point

X%, is still sold grade did investment floors portfolio, say, and high at let's our if bridge floors even such LIBOR sell-off. tranches, the ROE before just was wider this our we we the currently average deal are a around the it On than market which that higher spreads,

wider a portfolio. that in at So bridge we for we however, deal also segment, long decide term spread, if place print have in not to financing that

less asset as balance where Freddie guaranteed, And classes, other by resell that's the those can X(a) far And that's little on Mac, Freddie. right? we SBA then has as sheet they're every dependent government it month.

the is the very well-funded long a in a we're across large little board, Bank. European funded Irish with think term under even our portfolio I short, facility small relatively So

I other sensitive the much liabilities. position, REITs approach markets, market we're as think, very as out into this mortgage crisis, than on I would far on our dependent there, conservative and more these that So, better of go some we leverage to are say,

Steve Delaney

as Tom. Great. a you, very one And if helpful will CFO. one, color. indulge public you question just the The That's final Thank dividend. about former me company

to be to increasing One you be of the to a from to able market, and liquid, call the to position able, me in somewhat that want a play be this comments be made strongest offense. distressed you in opportunities was

watch Just I is to know, it. we've evolves? that a thought, And got

ROE dividend dividend stock to in at this XX% to of the go of short a shareholders opportunity. unique with to to part And make meets we cash it the rules, would instead here retain that you distribution sense to which on convert XX% then point the already communicating But cash, better job on, can to a your type commented you've think allows do your that we term. money opportunities after dividend in some REIT that,

Just you. a final thought there. Thank

Tom Capasse

us the upper value very we obviously, We're ETF indices. the IRRs with bought REIT astute, to does cycle across very, our we last sell-off and Again that, the the cyclically have exception, obviously. enable $X high grow with no low-XXs. book reinvest That that's to in considered teens see billion and board in the I at ROEs. realized in

ROEs. point consider cycle book would and that's much But at So a by reinvest -- offset and the ROEs is one boost are to of the where the issuing if caveat, way highest, accretive the dilution that at one charging. occurs value in that a to very business below the terms higher the something that is book at that obvious shares we in

Steve Delaney

Thanks comments. for the

Operator

Our is with Ladenburg Christopher from Nolan Please proceed. next Thalmann. question

Christopher Nolan

Tom, forward? thinking how you about Higher, lower X.X leverage? or are same level going

Tom Capasse

We we're cycle levering than and level. in additional delevering that sort on comfortable a X.X going half by on part But December. that the and be for to going X.X of continuous don't will a the recourse think when that's current higher reason we've to much done of think CLO the I raised it's X.X that capital basis real So number number. that leverage that the around a reduce of right is gets turn. the depending

Christopher Nolan

relative you acquisitions the put as do capital, to buybacks Great. where in making of to use of use opposed capital? And

Tom Capasse

and of margins mean, acquisitions. and question terms let's currently, every a Well, it spreads to rates reinvestment repriced, I be lending party in we that say, risk, market third in credit are on every has

So from buybacks, the environment on right? at impact, the the obviously, the accretion liquidity, I'd versus the impact on say has up looking in gone ROE and hurdle knocked current

your buying because sword, has have the impact. You a immediate edged equity It distressed count want base. option two to value it's an your back obviously share reduces -- and at today's

On previously, was Steve the and having has ability long a impact. the reinvest as to current to environment flip in the grow book value referring side, term

the higher to three So your answer is top on opportunities, remodeling actively in question And definitely and we period we that's short That are at when of something a a view terms reinvestment the near -- buyback. probably looking of of -- years, buybacks. at that's ROE the of our tend we to in list. waterfall

Christopher Nolan

XX% And the Tom, changing market for finally, in diving ROEs, have you conditions, to XX% the core given guys past how been that changed?

Tom Capasse

as It's today. to say really hard of

going is -- and availability more going what in debt and distressed capital REITs a into and If me, to in I obviously we're with you assets, constrained would lot point, recession, would the of have there's mortgage permanent particular, environment. told capital. in be say a cycles Recourse other which that of vehicles you, is these thing the other the important

ROE to hard if availability distressed be XX% a had assets, we capital range. incremental -- more and had of I of it's say, would we lot would the So, on

limited of would it singles with in upper more But recession we this kind to capital, scenario, range. availability be but have a the you on downside of, XX%

So add that's how in one we tend I to on think are about will where the The cycle. we though, that. just thing

what years because of a lot see You're with on cycles CECL you're these reserving going REITs to the a XX of see number even credit and with the reducing to -- impact versus the are is more dividend, over knock having [indiscernible] been seeing the the asset impacts a these on to four the balance of of last our small our being of the we sector, other diversity well really in base. of because I asset, because our of commercial typical cycle. of positioned and think of diversification housing, akin nature peers, And the going

Christopher Nolan

taking question. for Thanks Great. the

Tom Capasse

Thanks.

Andrew Ahlborn

Thanks.

Operator

session. We I management conference turn back over closing like the have the to reached question-and-answer to for the end remarks. would of

Tom Capasse

we're today. earnings the We look -- we In to to the quarterly taking capitalize time we're going pretty on Thank it. appreciate think next positioned we And you, markets, call. everybody. well tough you forward to

Operator

This concludes you. today's conference. Thank

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