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Ready Capital (RC)

Participants
Thomas E. Capasse Chairman and CEO
Andrew Ahlborn CFO
Unidentified Company Representative -
Tim Hayes B. Riley FBR
Steve Delaney JMP Securities
Jade Rahmani KBW
Stephen Laws Raymond James
Crispin Love Piper Sandler
Christopher Nolan Ladenburg Thalmann
Call transcript
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Operator

Thank you for standing by. This is the conference operator. Welcome to the Ready Capital Corporation's First Quarter 2020 Earnings Conference Call.

As a reminder all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. Instructions]. [Operator like Financial conference Officer. now Andrew over turn Chief Ahlborn, to would call the to I Please ahead. go

Andrew Ahlborn

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

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

useful in evening. found the presentation. morning materials have and performance. in call, to results not file considered accordance quarter measures Capital been the most financial operating with we This be of available evaluating should the SEC. plan information comparable first discuss supplemental the supplemental A information. first These We measures in prepared presentation measures a the and our the in along to section isolation our issued with Relations of XXXX substitute earnings measures, the XXXX financial for will GAAP. is release release a of press be our our our could be this reconciliation Investor website we GAAP or which results our as with These XX-Q in non-GAAP Ready filed with quarter company's During can our we directly believe these

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

Thomas E. Capasse

main our call disruption and The and our and times. morning. since across without XXth ones safe your good have We U.S. our the We hope we March focus healthy. operations. the in are in what unprecedented the to you remotely and challenging of remains and corporate Andrew worked loved four are employees that locations safety appreciate you Thanks joining

primarily of later, reflect quarter-end and to results and where with quarter our implementation methodology positioned exception you first of operating current why value Andrew remarks CECL would business environment through results economic CECL. weather the take a Our the pre-COVID is ready fair will and my is during certain adjustments and diversified the focus capital recovery. model environment to I today prosper on like quarterly

Now Moreover, entering highly that fourth decrease loan strategy in capitalized business rates. relative the the exposure assets. with withstand sectors mark-to-market lower decline economy. strategy, of the balance multi-faceted CMBS capital initial of to mortgage our due our physician erosion more period this large of of balanced and XXXX, closed highly non-cash relative MSR to of company reserves or volatility diversified a low was balance leveraged reflected of of hospitality, is of residential shocks due to small a well This XX% sheet raising to the value peers a and COVID activities sensitive book our commercial the nature CECL combination the XX% in quarter and and like

recession, SBC to meeting gradual commercial date, recovery with COVID distressed a I'll three COVID forbearance offering loans, our our or be small we businesses, post economic lending which asset three on XX% -- direct pronged cost an In meeting believe liquidity, lending strategy government a profitability our sale government on sponsored balance provide along ease re-emergence higher ROEs. all business prolonged to we COVID below. the X as of X income Phase a In path which of preemptive SBC management, successfully restrictions weather on profitability book will sponsored gain all initiated date, and of Phase from borrowers the through preservation to to of emphasis at discuss with acquiring our sequential value margin focus and businesses

bridge products, minimal lending floating lending In rate fixed estate disciplined segments and our the current segments, remain real capital. deployment challenges. include face as originations which two in we These the stabilized loan of commercial remain highly

the in the underwriting flows uncertain in property is environment. First cash difficulty

capital Second XXXX of forecast securitization This declines residential home X% which consists $X.X pre-COVID front we to is a low correlates execution property current value staff. price prices. well, with production value loans dislocation from XX%. proactive average LTV in markets, loan management of of to Accordingly, office which focus we and repurpose book for billion decline X% weighted with the XX%, to squares The shifted in of SBC making a difficult. projected to our for asset portfolio preservation,

XX% As end. compared the at to portfolio of year contractually current, XX% today, of is

continue will through to help solutions. to COVID, proactively them We find borrowers mutually with to by the beneficial working work challenges presented get

to includes In our residential require and strong. operate on healthy generate segment, multifamily lending balance, mortgage are sale government Mac, sponsored small X(a), capital These businesses lending which SBA and remnant. Freddie gain volumes modest banking,

SBA to secondary loans X(a) to the pending will from in that remains and remain inclusion and Our operational Fed's continues lending businesses benefit the [ph] CALP segment open originate market program.

provides X(a) In small need. activities in -- normal forgivable in addition, to addition Ready our Capital, Treasury's loans in protection has to or PPP active X(a) program our activities paycheck for the businesses which been normal

we generally could customers. existing program businesses likely signing a small lenders, did onto we when everything during to of most. legislation customers interact with prioritize not our large early in it Congress the America bank and financial not new small or have been to Many And businesses. committed in PPP, we on owners provide passed round time existing business April, XX when they SBA of were non-bank accepted one across clients lenders need one support As traditional to nationally we do focused approved as the to

and borrowers as remains as challenge dealt and these requirements. businesses delis, significant as help such program The Our to mission was salons, true often many and local underwriting changing shop nail with was small owners. local of possible, smaller

without the small the is However from to prejudice. of smallest our help the start, goal

In round approximately of Ready Capital PPP approved approaching X XX,XXX billion. applications one

While we position funding outside have having last as round an also but XX,XXX funds, actively caused possible. the over have with loan to and to unique there population as other more PPP the distribution one, remaining in of through our only XX% Ready challenges through smallest disperse fund balance of some have X.X Capital of control average and proprietors. quickly applications comprising Friday institution billion facilitated are funds working not some been in was that the XX% under than any financial sole delays the

closed year in elevated tied rates million. multifamily XXX making activity Year-to-date our money to Now inelastic Mac with above to the levels basis year's approximately SBL points, in XXX Treasury competitive XX to more with Freddie XX remains we up a banks million excess pipeline segment more due Freddie's prior rates. the in current decline of deposit have rates

points, rates will to levels with expect basis continue nearly remain that down origination We XX elevated.

continues volume Our despite from XX first banking segment economic the well year mortgage in residential U.S. to quarter benefiting the Treasury. from which perform refinancing decline uncertainty, is

in reflected excess amounts million million banking to by April quarter which income. in month on mortgage XX XXX Mae XXX of quarterly have announced increase remained In advance servicer GSCs which million advanced The the the facility interest from in principal various is March, To mandatory obligation and Mae March, demand XXX in expenses. six elevated With existing reduce margins the and supported million. Ginnie production Ginnie FHFA first production for net the $X in instructed X backed capacity, to quarterly securities, of in volume the servicers burden, a servicer by topped curtailed was forbearance advanced mortgage advance must continue and of corporate implement a the months. to record

below we have adequate projected As believe approximately forbearance. liquidity of April of our national and averages to X% meet we month were in end loans forbearance peak

As $X leverage minimal typically in our require to a were and know opportunities commercial long-term economic distressed Capital lead Ready in billion skill of acquisitions believe climate lead recession. that balance ROEs fixed the small some that shareholders of higher loans loan set. overhead. We the post distressed last to ago beginnings over will current acquisition routed the that These decade may

We liquidity the that they to arise. as advantage able will in opportunities a we we position so continue are are to increase take -- of

operations of reduction remains and In important. liquidity of liabilities the continued of management addition the business, the mark-to-market to

of lines. warehouse Xth, May had million, XXX company availability committed of As liquidity consisting total approximately of the undrawn cash in and

million. company of have or assets XXX consistent needed to roll work additional million liabilities. unencumbered may selectively select all Since its short-term the mark-to-market These met related liquidity obligations the Additionally, was obligations facilities sale. and has totaled as to we the funds $XX additional existing repurchase called pandemic, obligations margin provide them COVID for to start of to market pledge

has of which short-term have In focused balance reduced addition the on when sheet, favorable. been efforts included levels securities XXst reducing our XX% liabilities, to have pricing million. management, Since net the our selling we XXX settlement amount to December we've short-term repo, liquidity

will reduce in efforts to to efforts continue fund evaluate We capital and continue raising the to growth portfolio opportunities. risk

for where our to collateralized only portfolio total value. exposure malls collateral the of portfolio limited of of of invested have the we is is Unlike Finally, by our The $X.X loan XX% hospitality shareholders first of relatively consists retail. XX% X,XXX Further our approximately loan SBC owned big our balance of funding of loan SBC reflective XX% In retail peers gross average help portfolio. company's would over XX% our exposure equity, to is COVID loan and to I strong with balanced portfolio balance like liens with our is investment with million, investor sensitive our discuss sources. and average portfolio, the of X% large properties box a sectors current exposure billion X.X average to status and modest. coverage. granular retail loans, segment, an The XXX,XXX. of

is invested In shareholders approximately of segment, XX%. SBA exposure where our and restaurants equity, approximately we've to XX% hospitality total

XXXX. the loan loan XX% gradually funded with debt side, securitizations, April In earliest corporate obligations market for of is funding mortgage collateralized securities reopening. the maturity issue On our nonrecourse the and is of commercial CRE and portfolio new the backed May, is

ways As term our we including basis, non existing delevering such, in a mark-to-market lines are sales. warehouse addition channel, to exploring through fund this on asset to

and list and We liquidity four updates migration five. robust frequent X% and which supporting lender loans backed total use reporting for in assets monitoring between buckets. and the communication substantial model collateral, security one between on efforts We asset hardship resources currently and represent unconsolidated portfolio include bucket riskiest management. have proactive those the continue updates, of requests, focus to five assets forbearance management mortgage risk categories loans borrowers, only in currently from to comprise positions. procedures including and Buckets a watch of and and These processing risk place

now I'll Andrew. it over that, to with So turn

Andrew Ahlborn

were valuation a the collateral. Absent CECL losses of both held Thank Core per impacted by a residential $X.XX CMBS share. sale two these GAAP results driven significantly servicing includes specific current you, items, Tom. adjusted of per core been but reserve reserve Core MSR decline been was the were quarterly earnings in economic mark-to-market Beginning and with earnings has million and rights. have COVID would by reserves exclude residential share. loss for $XX million mark-to-market on implementation CMBS a the values, were mortgage a earnings, $X.XX $XX the decline and on in loan to related earnings $X.XX our CECL, per share. decline The the and million to the QX climate. $XX loss non-performing

provision with estimate track the all reserve, supplemented data in otherwise portfolio X, determine and to securitized adopted we To fair future CECL, licensed not accounting January credit for on standards historical subject losses XXXX we our non-cash against value accounting. of loans us record which loan losses new record Trepp. the CECL to from a zero Beginning the requires

change to has contains during a The two reflecting our allowance portfolio. and Although increase into March data environment. the components January in tailor XXst. COVID-XX the perfect caused CECL on sheet insightful which economic the model focus quarter, The is were reserve on Trepp of balance reserve first current the given include to that March initial able Xst the this small impact the on the Reserve the business, we XXst not balance be match to of our

the losses assumptions On January I or resulting on To share. reserve of book in per $X.XX decline in initial securities a Xst, we liquidity our changed $XX the CECL during that driven migrate The by X.X value. portfolio January indicators out. in million Xst. recorded to The on million may for underlying with believe loss per marks XXst, any economic an value our returns or to not the time. our as additional distressed market of significantly, pattern support Based At we point consistent is above reserve CMBS the of in in $X.XX we reserve to this liquidity available the share reduction current periods initial inflamed a want analysis, over poor levels quarter, markets these CECL did sale clear, and allowance. sell over subject that implementation suspect our back values the non-cash be significant on by part make was will incur our time to the to the be March

sold In fact, we after premiums month quarter-end average a have of of XX% end selectively handful the March at to positions mark. XXst

convexity in the by comparison the of all an value acquisition of this of Treasury is was banking GMFS rate and increase with three for book the MSR attractive, XX% further our low, MSRs limited in in of leading downside dislocation historic as the Longer-term, profile from superior driven valuation the banking rate purchaser MSR mortgage eligibility We was market to Treasury MSR prior assumptions, COVID-XX by The the U.S. and absolute Near-term, an production that residential the improved agencies and industry U.S. $XX with prospects million due from current rate. rallies, XX in industry. modest our increases. servicing low to decline retention industry presents capacity level which that CPR mitigated and year limits our opportunities. in believe mortgage even tenured distressed

million, and premiums. Interest revenue and demand accounting income on stabilized X.X and the by profitability sale million to declines, from Freddie quarter-over-quarter, continued strong reached CECL robust. banking supported interest margin, and $X revenue, be volumes elevated Away X(a) income activities on MSR sale businesses totaled record increased from levels Mac banking gain and net to sale gain in Mortgage margins. mortgage high due the

X.X bases on stockholders due times. of recourse subject is borrowing reserves draws quarterly totals on billion, unrealized losses primarily and increases liabilities, to CECL reduction assets. and value the is a On portfolio The balance due non-cash leverage sheet available in equity, The to value mark-to-market to fair X.X was $XX.XX to loans issuance decline impacted per unrealized million $X.XX securitization by million and both COVID markets. for quarterly the of CECL, and slated the per including dividend. bridge decline share. rate losses, share new XXX XXX is loans, driven fixed before Book This

which taking this summary the draw and morning previous X information profile, the metrics. insight implemented and strategies X. in COVID in supplemental various of I business. As in Slide our X earnings reserve provides would undertaking various health the to we additional to you affected quarter. the business has financial outlines long-term ensure have deck deck, quarters, done the segments, into provided key and of the through CECL Slide been on includes company's Slides like the to operating the are by Instead X the ways your attention we

with my to it echo I would thoughts and turning like the and I safe are been sound impacted by Tom, to COVID his Tom. all who you're all pandemic. hope comments, Before back previous have

Thomas E. Capasse

continues Ready deploy and these our to unprecedented across diverse Even originate times, capital platform. Capital in

income sale to discussed book declines continue through with where of we COVID unique assets, business represents the SBC the weather for for our value. strategically along we with will light X government successfully subsequent small acquisition gain potential adequate recession segment the quarters capital all from liquidity X Phase As model net income lending relative position interest of In potential. and company on sponsored distressed in Phase of recovery, COVID providing earnings our navigate

a the to and control, business for will in of hope this builds will patience a can we the remain healthy on but success. and and and past that from appreciate the on crisis position we team certainly It will navigate We emerge work support time areas everyone to country safe. focus as emerge take and our your remains

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

Operator

Thank Instructions]. you. [Operator

comes Hayes question first The FBR. B. Riley Tim ahead. go from Please with

Tim Hayes

the type of those basis, well. just hope sales far maybe deleverage some you Andrew, of asset maybe us, your quarter. morning Hey, what so up just My both far? able size you've second to in and asset doing you're what to discounts that Can you've how light in sales been at, the Tom and question, selling Andrew first been for select -- good mentioned so you

Andrew Ahlborn

And Yeah. least The been There small, today. of of relatively Hey we book. script far. CMBS around down a but sold Tim, basis. historical March thus the sales at series and the in above balance majority position sheet particular any have to our one focused how sales the selective you the fore-selling doing? of at closer premiums as in totaled $XX on sales, were meaning month not and sheet, in the said roughly is million parts It's we it's they focused been mark XX% are in

portfolio, continue pricing explore to to if down choose the be other continue other explore securities to that both to business, including in of believe parts and of books. see -- further we sell may We we [indiscernible] the we those accretive to we

Tim Hayes

it. got Okay,

So too the quarter-to-date I kind having second like not moved leverage that question a maybe this part, on of front, too since far update much end? at point. But just not it period on guess so much was that sounds

Thomas E. Capasse

of at March GMFS available those I increases deceiving. loan Yeah, for at We portfolios in are financed sale the a X.X our had month-end times little material is and mean, XXX%. leverage Freddie, and both

of there secured to and rolling of will that's -- into wider two to selective So to how as mark-to-market liabilities whether convert I going we'll ways, off we -- are pay book. or slightly trying explore or through this perform. that getting sort taking to borrowings continue year, is there's number non-recourse facilities. here What on a And repo based are is term current fluctuate are delevering securities those the down it's is, repos, haircuts going say fluctuate that number lot businesses we

sheet. We utilize are recourse to portion going of continue to delever tools balance the our to those

Tim Hayes

Okay. forbearance to activity moving you've seen. That's helpful, just the over and then

it's and in resi how like an if where either forbearance you have know, commercial forbearance What the you You of forbearance I these curious in you the provide taken estimate commercial rates on have continuing just there's might measures book resi internal see guess the on side. seen increase May? so I'm go far, XX% X% requests or to to side. of

Andrew Ahlborn

we have… actually It's

Thomas E. Capasse

sorry, So Andrew ahead. go

Andrew Ahlborn

with Zausmer call Adam we Tim us of He all on the Capital. so runs for have Ready actually Yeah, [ph] credit today.

answer question. So best he to positioned that probably is

going am it I over So turn to to him.

Tim Hayes

Great.

Unidentified Company Representative

are our how with that we Tim, continue challenges. especially have them Hey practically you? through these work discussions So, collaborative operational disruptions, cash to Help clients. and we Quiet get flow retail been and hospitality currently in you are that Andrew the Tom the given nationwide and are our not fault But are evaluating right. of requests. properties, XX% hardship as shutdown the clients, the recognize mentioned,

We Most are of will likely those three execute agreements. forbearance months. them

managers to by asset evaluate loan of Our team continues loan.

COVID-XX general other There's going it as collateral looking payments what allow utilize So, creative XX% impacts of cash between of our But, as things. disruption. We call XXXX some keep service its in sponsors ensure and this operations on. for positioned forbearances majority that just reserves in potentially may we and small general is you period loans flow balance. are to in debt know, kind to and well XX% actually portfolio the to during is

slightly where end is saw biggest March, I early wave. it of but the increase do we expect April we So, towards think, that could the

servicers looking executed. that through now we're them to So get getting for just

Andrew Ahlborn

X% That's the have it's was to with liquidity Actually currently but want forbearance the it I with there consistent on those and average a advances. adequate we to reference X%, side, -- national that's fund MSRs. the to consistent script Adam one in residential to just not was on our thing add GMFS current that,

Tim Hayes

if do Fannie put curious rates advances capital But going, estimate there end an broadly. I for an of you Tom guess you of And high have those we they Adam's estimated if what Mae that is just estimate of for out need where have hit comments the do an forbearance estimate? of were kind which see kind

Thomas E. Capasse

peak projected it Sorry, to estimate advances? as for relates their GMFS

Tim Hayes

Yes, correct.

Thomas E. Capasse

Are about the you market? talking

Tim Hayes

Yes.

Thomas E. Capasse

for you want their the South area. do market Andrew XX% probably is like more think East it -- to I in

So a Andrew do you of in -- have ahead. terms view go

Andrew Ahlborn

out Yeah. Tim on hard uncertainty the based level to just an the put it be is and estimate going number. there to of

on So time. we probably going out this at off an are hold putting to estimate

Tim Hayes

we'll guys well. I fine. but stay it fluid across, just know for in they my will come queue. you that's for and taking as Okay, I questions it's updates now, a for look I But me so the that's hop situation, back appreciate

Andrew Ahlborn

Thanks Tim, you too.

Operator

next from Steve with JMP question ahead. go Delaney The Please Security. comes

Steve Delaney

and this Tom program. and see? you do you X first, for support Capital fee continuing Thanks. the is in in And participating And that opportunity applications of program? Ready opportunity much the beyond question strong PPP morning, patriotic reported The billion your thank Andrew. on for that can disclose Good revenue how and was what you

Thomas E. Capasse

and you Andrew, talk could I part the broadly maybe comment can of on program then more the question. Steve's second about

it PPP evolved and program significantly businesses you. As small have and very what to feedback based has the relates from on

went concern were one are for that pending still guidance two, application I went that the XX% round so, Round forgiveness we you which it's about lot And SBA. waiting, the press the has know And very with methodology of which around from the and Andrew have seen been left broader think a forgiveness, of slower. much may have in quickly. to the has you do ever as

a significantly could that, business because So tomorrow. of the in small think the to reopen have down large if slowed I retain of volume sure but staff part not conundrum they in that's may today, round two

you of Andrew, that maybe observation this in program. can program the of anyways the terms involved I on just coming So make just in terms costs broad

Andrew Ahlborn

Yeah, good morning, Steve.

in as the there. of upfront that fee, agents costs, financing split include of partners. have the program data event fee include loans. the will prescribed both referred economics in gross get include of to cost going the the program, on are the they as in some well the well split sold Those amongst variety as we which are shared is on and law carry it you the The tell will as I what So, who fees a

in So exact to moving the we've for to cut I down what I net that down the given it's diverse economics the and hard for me result fees statement. gross that the methods say which materially fund the is on is future to ultimately just will can think these you number Ready loans pin the chosen income population be is but Capital

Steve Delaney

you hopefully a well, thing the hopefully opportunity, and the you, you'll you bit we and about least Andrew. right appreciate break Got did right follow your little -- at out thing, and efforts wasn't of did it profit go even it? for or up My make I'm a question it sorry. ahead,

Andrew Ahlborn

No, this Ready through to earn expect just Capital will it, I do revenue I that program. clarify

reduced is don't I Based to effort. I'm of materially get the in fees numbers. out saying the loans there to of But number one the you even what of to going gross population even want impression a give over a final be on $XXX is sort to we've been information is break it million when that can next is the some a that excess million, it's So deduce don't impression -- that the we give $XXX for us. want that break put really on of

Steve Delaney

clarification. for thanks that Okay,

have sold some XX repo XX repo of that. was just give You short-term underneath you figure. had million, up -- you'd think assume the you you mentioned a that current I can I Two for of generally securities, and figure mean, on would that be March remaining a mentioned us some to questions give date us million. an updated, short-term Thanks. XXX nature you sold describe collateral Can the repo? you what I

Andrew Ahlborn

our in securities Mac's bonds from The over securities selective the settlement bonds some program, from of we've and net SBL Freddie $XXX rate today. million include we the a is have our program, so amount majority repo Yes, retained fixed years. acquired

So last amount net loan the since call. we margin whatever paid gross the

number decreased said sold I'll selectively we have that, say has haircuts to What which earlier, further number. is paid through I securities reduced roll. April down just those that has widening also that As when certain or securities due

-- is the around today, And the from on April just natural million the so, number probably the number in net delevering based roles. XXX

Steve Delaney

you your for comments. Thank both

Andrew Ahlborn

Steve. Thanks

Operator

with comes from Jade next question Rahmani ahead. The Please KBW. go

Jade Rahmani

Thank very the do charges appreciate next be year, profitable non-cash your health. Wanted And to perhaps in ready excluding the much. for just Hope consideration. and you in time capital all you're the for expect the first you well ask high good quarter? -- I level, to

Andrew Ahlborn

Yes.

the in Jade, first significant. charges non-cash obviously quarter So, the were

You know, activity, given given absent those, clearly portfolio business think lot where that be will gain Capital defaults a and will profitable given believe sale Ready on we uncertain economics, the do it We and we projections but of how it's sort unfolds, on will of in very recovery depend economic strong suspect and our PPP on do go. we XXXX.

Jade Rahmani

a you with what might contribution profit Okay. sense be? originations and the SBA in net And can number, that give for the respect that be was revenue referenced, would gross XXX million fee earnings that to you any

Andrew Ahlborn

Yes.

XXX So is I the to be clear, million PPP. specifically reference related the to

X% the under the XXX. on that on gross those within fees from PPP loans being are program, size. X% loan to So for X%, range depending paid originations

Now bucket. our portfolio based majority the of falls on comments in that earlier, Tom's

the So on earned be growth fee the originated. balance about PPP to of is X% going loans

get various prescribed Now within is to Ready allocated contributing agent Capital in business. all paid, funds referred the fees ways population come there amongst are are who the top, fee the the our that in in are there of then loan small which partners was agency the being program the after and right hands that those is if that off into

net am number. that referenced. range So, for me what time to there. number that's call to how down going But commenting it's in that to of the it, It's to going number number XX% on to pin XX% is going that of, to million I come be, that hold down be hard off so let's suspect $XXX I at this is I going off of

Jade Rahmani

The a that originated XXX program? the an that million, is under balance fee PPP number, revenue is

Andrew Ahlborn

That number. fee a is revenue

Jade Rahmani

can from the potentially earnings second of program XX% in that quarter so million? XXX be Okay, the

Andrew Ahlborn

correct. That's

Jade Rahmani

range company be of a through for of flow the and positive? go you year you Can sources that. for perhaps you if and balance cash expect thank uses to Okay, the the cash

Andrew Ahlborn

we've certainly the weeks of so lending over to Yes, really last that made investing use opportunities or require curtail any the six decision capital.

until So or economy. continue selective time we have we this have over not and next few highly be when suspect originated fixed the that so we in in to more the will of during bridge certainty choose months to period do loans we

Now Freddie our They X(a) gain neutral, capital. on segments cash other those any require business sale cash businesses. is cash neutral, is neutral. are don't GMFS

not activities use lending the active sheet. balance are of requiring our so And

operating Continued will on and right things well activities. of from will to And including management include from revenue to side company. we that be active the as adjust business just as the which fixed the uses P&I going continue our segments, continue the lending size to the to sources mark-to-market expenses, employees, then rent, generated liabilities, it's of cash normal like our

in evaluate event of see liquidity. to will selling right Additionally, our certain we the we to opportunities generate do so, the parts portfolio

Jade Rahmani

for Okay, that. thanks

that calls? value triggers you've In respect to issued? you a call cash if loan secondly, the with within the there's terms any balances subject CLOs margin to number And of margin could management risk, of give the also

Andrew Ahlborn

about it relationships our loans Yeah, on question a Maybe exposure to is CLO. be around I'll how so of on the their in right in continue managing been constructive bit portfolio. of supportive say the there our $X.X number of the little Adam What turn we're to your the SBC have and have involvement conversations warehouse. I'll now over to in loan talk then and we billion That's lenders space. those very

Unidentified Company Representative

Yeah Jade, you. are how

of we certainly regards loan So assessments the level each assets transparency is to yeah, of have lenders, our them line. the that in mean I I on think walking key, warehouse through

lot dialogue having we regarding So have really that clients. good of really, a our partners, Q&A with we're getting been updates from good

reserves. interest thoughts to structuring to cash Our around the required time. challenging going these loans goes CLO, on value warehouse is the that and maintain to know a of certainly you whatever flow of your these -- there's into so In regards loans our lot from there's are and that help question produce this we're through assets, the as to partners

on managers cash applying through, the asset we're the to So, we're monthly debt there the sweep funds -- flow situations situation service, could to payments. be depending there a applying make go could where and of be

Jade Rahmani

Hello.

Andrew Ahlborn

hey Yeah, Jade.

triggers in So no cash deal. there our are

Jade Rahmani

Okay, for thank that. you

comment Just leanings could pay or not level management the than policy suspending if say stock, believe lastly what through But preferable dividend. are to the pay the high you and be be think hear if stock for or I'm board's dividends. whether dividends dividend you preference on wanted expectations you dividend you Personally, sake just sure specifically I the suspending dividend. would could thinking? and to toward stock conservatism should

Thomas E. Capasse

obviously Andrew Board dividend. a you walk very the important of question Jade's -- through Andrew why don’t was don’t this topic, regarding why kind you so

Andrew Ahlborn

not do say on I What of dividend lot dependent terms probably forward. to going stock as to the dividends in of performance we the the be that going can amount a is is business, as Jade, well so is performance I Yeah, on path forward. sizing think dividend a going plan of core issuing taxable right the income

increase can't even do the every that given so maintain and not think quarter on With we change, the event future, I dividends quarters. being it the issuing intention, our to amount, reset Now, to has we expectations re-evaluate liquidity nor predict business will our is said, to that Board performed stock desire in perform how and in the plan but get liquidity, how subsequent closer may I the the re-evaluate will future. dividend or as in end of to business we'll see

dividends number you on it. can of tell can't a anticipate So it part I put stock I what you, not although being do today,

Jade Rahmani

much the Thank questions. taking you for very

Operator

comes Stephen question Raymond Please with from go next Laws James. ahead. The

Stephen Laws

morning. good Hi,

how you've that PPP that overflow round were one far are these were of applications new one? funding the questions, one fundings Following seen loans as as or on much round up post actually the

Andrew Ahlborn

Yes.

the So thanks question. for

muted two efforts. activities round one been round Our have than our more

amount to has one. of our change, So one much, have time, the in two applications round that much, round that although activity. fund round slower that than we than lower given velocity is taken much of the round is At been subject two. this much

Stephen Laws

expect getting I at the and you said gross million that funded, to the assume much revenue remaining million how fund? roughly billion prepared is XX million the to I X.X we X% million think then fund of this XXX Should in that contribution. gross potential which on and Great, you revenue XXX or approved an incremental us remarks billion quarter, expect to remaining the X XX of approved

Andrew Ahlborn

large that. that fund of the over to expect will of upcoming from the a population the some we population percentage days. Yeah, fund fallout There will be we majority we but suspect

Stephen Laws

know I hit as level, balance actually have I that do the at on cash? the to, you're receive so lastly, we at gross fees your that those when then they sheet topic and fees entitled you think least and Great,

Andrew Ahlborn

days counterparty think forms estimate. it's probably to transaction, SBA. timing the made other be is to in Yeah, be with XX XX XX with the our that days that, of There's XX that filed arrangements this the I are There affects going need out. to we've but to some

Stephen Laws

the to you don't I And be receive do, the they -- cut sure to don't follow-up until you fees guess just of that, their correct.

or You any that? don't of have to advance fund

Andrew Ahlborn

quick. me versus fantastic, obligations real maybe of better your interest hit okay, and or you the much the how are advance actual basis? a Do let breakdown Great, principal on preferred on advances GSCs advances and non-agency be, have to your way of would schedule across any a shifting

Andrew Ahlborn

don't So, a… we I put think out

Andrew Ahlborn

Go ahead Tom.

Thomas E. Capasse

curtailed of say haven't availability Fannie, there advance months. just specific Fannie on XX to quantitative for advance to of And put you analysis each I was then obligation from Freddie, of they've is going but, X to around Ginnie the any Ginnie that. we XX% facility P&I for and and have the out a P&I Freddie,

it the as They size from GMFS availability say lines, warehouse So, facility if X. up, as was it current current if under required. well we have has you Mae Ginnie doubles it the the let's feel --

of feel add you'd the that. comfortable And to adequacy So of a liquidity if in advance basis. terms peak we for on Andrew, that

Andrew Ahlborn

me No, Tom. nothing for

Stephen Laws

different appreciate supplement. maybe to XX the and to you support, is facilities need great. just of maturity you're those can strengthen A on the page lines I the touch or necessary, are page on there financing to your you're those here, in that have going business, additional in so of to on about business great? put the X you or lastly, changes any these some around discussions Okay, no on facilities, disclosure renewing your comments given of Do color to seeing are number facilities place how these be facilities, the today other wanted option extensions, XX longer And months, in XX talk believe. I would

Andrew Ahlborn

that and by depends have our There's are -- certain to been say facility are talks date certainly existing constructive highly supportive. There other will facilities where essential is facility. our it so with What option. facilities not. Yeah, it's I that lenders our

cost SBC continue to believe are term. asset of the business that in and the they We long SBC

not look in recourse of which over hope to will ways are continued absence figure positive. that exploring continuing we have like. so that we shortly. recourse the talks may With non So is time ways in that absence rebound out explore being we got to and of that, But to move that to market, what be our insurance not new the would indications said, the goal

that's right So the lay now. sort land the of of

Stephen Laws

of is of government much the fully timeline developments something pre-COVID that potential or out around these it’s would a of instant one how processing those an applications on one or in on gaps maybe is Great, recent how processing level, pipeline things have Any approval need going unemployment is forward? off taking other now approval. kicked of loan or to refi get a impacts to that's programs been comments those even maybe going question, the under help that that automated one type the some last like when employment how are higher business, the not much consider origination approved impact residential automated, approvals and and going mortgage you

[Multiple Speakers]

Andrew Ahlborn

Tom. No

Thomas E. Capasse

somewhat terms wide, time in at forbearance a opposed being did end EP the the on six last now increase to -- the now employment back And process the on shock terms forbearance is of not deferred we of the weeks given in secondly, verification in in the month of a both self to guidance end how two Yeah, of industry unemployment. the from as -- processing accrual the the of period. payment being obvious being loan related put GSCs the

your mortgage in question small doubled fact first years that let's So result seeing as -- due XX margins capability demand But is, think that And product that, my a banking timelines, And exceeds that maybe the new week you're production reduce profit times were result, production in most the profitability amounts. weeks in all the very will I the the type. two that will side as far I the application basis. of extend to and thing on production the now on amount on answer the secondary this the it's that of the up the to fascinating depending say month, the to are say by upon industry. is the the production XX the have a -- industry

Stephen Laws

very much this morning. Appreciate that. for color. great time your That's Thanks

Andrew Ahlborn

As well, thanks.

Operator

Instructions]. [Operator

from Love ahead. comes question Piper Next Sandler. Crispin go Please with

Crispin Love

staying safe. doing Good guys. you're and Hope well morning,

question the acquisition any in more of you through acquisitions opportunities loan one events there think or where XXXX on pretty be going seem are opportunities. pronounced So, will loan kind be loan market right then most on acquisition, specific now? XXXX Do also, And kind areas so we're you likely what those bullish in guys expect through opportunities? the see are to as of you moves to

Thomas E. Capasse

just the was financial would sales. capital that taken more the market. markets, a to I it's first would as by non-bank really of say of bank, had lending more a Yeah, slug unlike SBC loan banks required answer to has a which more say significant driven is I of -- big issues question, crisis, This XXX last

will -- hospitality third are discount. their particular aggregate and the probably opportunity you'll see be to channels. on that will affected pools through you for of quarter say the obviously XXXX I'd lot One we and So starting be where the a sheets have for in see sale balance there at XQ emerge late -- what banks, to three

third XXX of the these a be of non a and in At lenders second the were are transitional The terms those rates tracking on our channel will maybe I significant chunk, including we peak bank size. wheelhouse lenders, large in loan mortgage commercial side. roughly loan think the over

will side at shakeout SBA. we is So some of very lot are losses we're the of lenders third versus A relatively potential sales a competitors. were expected this create terms conservative lot that some we on discount. loans underwriting SBA on a And our lenders seeing the think in in our of recession aggressive a transitional that of

So see SBA in we the well. market portfolios secondary for also opportunities as

emerge starting in to XXXX. through those XQ probably channels So we late XQ three expect into XQ

Crispin Love

of that loans, income loans thanks. balance then accounting then And net to interest all will side how income the in the statement? the expect income actually long PPP of in will they up Okay, also, you the non-interest on show the treatment do fees the And or loans? on show net sheet, PPP the up be

Andrew Ahlborn

of probably the think much sheet and bucket statement Hi Crispin, to at suspect the economics the all. flow we of balance income will not carry I on through the majority the do of other production

sheet. be now the balance majority balance the sheet So small a portion on very off retain it will of will sold

Crispin Love

on have just kind the small your any closed many you can any of actually have do business Okay, or in have are closed great. for little small portfolio, And health businesses of to the permanently? kind temporarily now of then how many reopen? And starting how talk about a also you kind then that of the right of bit data if

Thomas E. Capasse

Adam, to. want you

Unidentified Company Representative

say like And heard of businesses. businesses so, without a open. that the be that over then will deferment actually back the and Capital that to are are to and businesses of is the loss help uncertainty. periods having haven’t the Ready there's that able then curb standpoint. approval. also completely I'd the up down the closed, not to where just months principal right. And hotels curbside anywhere XX% open, of a program after of profit lot from is is six certainly months. for have SBA three go fees we these pick and the come going shut SBA, protection of we mitigation we XX% I'd from remain to Yes SBA but, delivery any but [indiscernible] obviously say, interest then going restaurants think And paycheck Obviously, majority

government of of But think, terms reopening. of that's out the up, and out. kind kind significantly. are back obviously, still highlights businesses our that and how slowly In that happening have wait. as opening I plays implementing these there do We clients of I think, to expect some kind these programs, those help the going certainly of states that see are programs and to Wait

Crispin Love

themselves one deferrals? one, rolling were direct two Adam, lending the what programs specific was the the to-, the program, our question, and the SBA emergency is E implement P&I is which they borrowers second also One out? we refer what

Unidentified Company Representative

one then way injury well the program. loans, was Yeah, economic deferments disaster a regular just and PPP obviously the

So, as seamless deferment. offer lender an SBA where to the

Crispin Love

Okay, thanks for helpful that color.

Operator

from The next Ladenburg Nolan, go Christopher comes question Please Thalmann. ahead.

Christopher Nolan

Hey guys. reserve The guys loan loss loss ratio? loan you are a targeting ratio,

Andrew Ahlborn

targeting certainly so anything not specific. No, we're

specific evaluate one, to on basis. loans lone a continue will We

to continuous specific macro reserve. team So and his that, sort Adam through assumptions more around list of going And warrant or sort the some to we basis use to of CECL on then a to that Trepp in general the addition data the continue portfolio will economic drive the watch reserves. climate modes are of the identify problem and

not we're downside be as number the certainty do upside, number move not, things specific around, or we reserve the targeting a as portfolio, suspect I we're more although on will So that the it whether and on get the change.

to now. have of in I uncertainty lower hard economy climate been given performance as as current general the the tell reserve included it's number. will of that to in reserve that XXst, the just March the revert based reopens on But CECL back suspect right the Now, the that loans a

Christopher Nolan

reserve go ahead Okay, so [Multiple please. Speakers]. Yes the

Thomas E. Capasse

no, was values a or portfolio. just stress decline I collateral losses on it the Yes significant take going in would see that to to

that clients. states the we on some know, that obviously, collateral we be we this. well case Just these have not certainly the by to QX, our follow low given there's from updates going especially feel we mortgage ratios, on for average again, the initial But weighted did loan obviously each portfolios at to value up our that you the as protected, to was get and, that But assessment XX%. case that assessing structure still

Christopher Nolan

if up a loans judicial forth. recover guess how is including the no courts of guys are working there's moment? do to in terms everything covered, so if question and I How at anything closed, process follow the well you intend

Andrew Ahlborn

please. Adam, Yeah,

Unidentified Company Representative

Yeah, we away. are hardship of co-variances. several are three coming request months reachout I majority for that months been think up, The majority still the has of there it

business absolutely and significant assets the So, remain But person. current, we non is, months limited these occupancy right ones some of now. hospitality what we issues. retail exposure of have at the to be are amount assets, will three hospitality have that tenants as looking having center we essential low have will Obviously loans these closures, those

months, unable we the payment to the post confidence rebound, early when, in the call to although period. to And Xst market starts August, a that extent make we've expect July any limited a in As That's could amount forbearance is plan. business is start, three when, a we to of through workouts open given that it sponsor got things believe up. that lot

X%. something terms, right that in course, I delinquency So, now. standpoint, got around months still currently in plus which we've But, from XX think to of assess that's of the portfolio, three opening, from courts again,

circle foreclosures not to loan in process acquisition's a spoken had issues continues. of workouts where we've many right the feel portfolio, our our go that have So, court that. limited run portfolio there's in against instance, that we've now The had we up we've that that for to handful

in place. receivers We have

from be to I world something are to hasn't completely the months. again, we But believe three dealing going that's stopped just with that highlight, really think I So, standpoint. in

Christopher Nolan

recourse in ratio? or question say your final target should what's terms of is leverage Great, threshold, I

Unidentified Company Representative

Yeah, so times. historically we've two targeted

a an said sale with this significant bit quarter a in given As stockholders material reduction little was equity. production, corresponding increases on of I on gain earlier, anomaly,

goal and normal will CECL ratio target in the that to our continues down. and that that the ratio. in X.X marks securities time the times quarter revert the MSR And levels this drive as over So more increases to part further

Christopher Nolan

Okay, downward drift should ratio expect rather to so leverage than we the upward? recourse

Unidentified Company Representative

the X.X manage that always to to intent times. our it's business Yeah,

reduce number up, be that steps a converted newly immediately originated nonrecourse was have open and product, fixed in that $X.X inventory on we pretty issuance into will new given that rate markets surely far securitization assets taking bridge large billion actually the should debt. to and try roughly along of and we're process, warehouse of the So

Christopher Nolan

That's it for okay. you. Great, guys. me, Thank

Operator

question-and-answer session. the closing any Capasse, back like remarks. turn the CEO for concludes conference I to This would Thomas to over

Thomas E. Capasse

challenging Thank you next we support everybody's forward the time, to and for look quarter's earnings call. during

Operator

conference This call. today's concludes

for your lines. participating. may a disconnect Thank you You Have pleasant day.