Ready Capital Corporation 2026 Q2 Earnings Call

Thank you, operator, good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2026 earnings release and our supplemental information, which can be found in the investors section of the Ready Capital website. I will now turn it over to Chief Executive Officer Thomas Capasse.

Thank you, Andrew. Good morning, everyone, thank you for joining today's call. The second quarter of 2026 demonstrates meaningful progress in our balance sheet repositioning strategy. At this juncture, we do not anticipate further large portfolio sales as our completed sales were successful in both raising liquidity and repositioning legacy assets. We have also completed several important financings and believe that multiple initiatives are coming together to meet our corporate obligations as we build towards sustainable profitability. We've been organizing our work this year around four priorities. First, strengthening liquidity to generate free cash flow in excess of our 2026 debt maturities. Second, resolving non- and sub-performing CRE assets to eliminate earnings drag. Third, transitioning to a lower-cost business model by divesting non-core business lines and integrating our CRE lending with our external manager waterfall. Fourth, focusing on growth in our small business SBA 7 lending.

On liquidity, we are nearing completion of the initiatives we started at the end of 2025. Since our first quarter earnings, we have completed the following actions. First, the sale of our $167 million construction portfolio, generating $64 million of net liquidity and removing $172 million of future funding obligations. Second, the securitization of $158 million of unguaranteed SBA 7 loans at a 92% advance priced at SOFR plus 240 basis points. The transaction generated $25 million of net liquidity and $500 million of additional funding capacity for 7 production. Third, the disposition of $445 million of CRE assets for net liquidity of $85 million. Fourth, the successful refinance of the Portland Ritz asset into a CPACE loan.

These items, together with prior loan sales and portfolio runoff, have generated approximately $1.9 billion of cash that has been used to pay down $1.7 billion of asset level and corporate debt. We now have achieved approximately 81% of our target liquidity objective. Three initiatives to complete the final leg of our liquidity plan are underway. Optimizing the financing of approximately $950 million of CRE loans, the sale or financing of our $118 million joint venture position, and the second half anticipated runoff of approximately $900 million of CRE loans. Additionally, we continue to evaluate the potential refinance of a portion of the October maturity, which will help to further accelerate earnings recovery as we move into 2027. On the CRE portfolio, following this quarter's actions, the legacy loan book stands at approximately $2.7 billion across 172 positions with an additional $218 million of CMBS exposure.

37% or roughly $1 billion of the loan book comprises sub and non-performing assets whose current status produces a greater net present value through active asset management on our balance sheet versus sales in the secondary market. We continuously monitor assets to determine the best path forward, maximizing value, which may include sales. The sub and non-performing loans have an average duration of 11 months, average market to market LTVs of 82%, and are marked at 85%. The current equity held in sub and non-performing loans is $436 million. In our performing loan book, totaling $572 million in equity, leverage yields equal 10.1%. As of quarter end, we had $588 million of REO across 24 properties. The Ritz property remains our largest REO asset, representing 66% of total REO and approximately 22% of quarter end stockholders' equity. We believe our stabilization strategy is working.

We now have sold 50 condominium units and have three under contract, bringing the sellout to 40% of the total. Sales progress remains consistent with our phase strategy of building momentum toward a full sellout. On the hotel, we continue to realize linear improvement in operating performance. Hotel NOI was $1 million in the quarter. Trailing 12-month occupancy rose 10% to 52%. ADR decreased 4% to $468, and room RevPAR increased 20% to $244 compared to the same period last year. As we move forward, we will determine the optimal path forward for the property, whether that's continued stabilization or monetization. The current earnings drag across our non- and sub-performing in REO was $0.29 per share in the quarter. In our SBA 7 platform, capital constraints at the start of the quarter resulted in second quarter origination volume of $82 million, which is well below production capacity.

We've addressed those constraints with the completion of our SBA 7 securitization in June, which we believe will provide capital for approximately $500 million of incremental go-forward volume. We intend to accelerate our capital levels through more frequent SBA 7 ABS offerings. Since completing the securitization, we have originated $43 million of 7 loans and have a current money-up pipeline of $78 million. We expect steady growth towards our annual target of $1.5 billion in originations. Turning to expenses, we are executing a targeted cost optimization program to align our cost structure with our go-forward business model. This includes targeted organizational efficiency initiatives, divestiture of non-core businesses and assets, and deeper integration of our CRE lending platform with Waterfall. We expect these initiatives will materially lower our operating expense ratio and improve operating leverage.

In summary, we remain equally focused on the completion of our liquidity plan and the action items needed to return the business to profitability. While we still have steps to complete in order to meet our 2026 corporate obligations, concurrent actions to accelerate resolutions, reduce operating costs, and increase capital deployment into new investments that focus on our SBA 7 and CRE platforms position the company for improvement as we move forward. With that said, I'll now turn it over to Andrew for a detailed review of the quarterly results.

Thanks, Tom. Second quarter earnings and balance sheet reflect a continuation of the repositioning plan Tom described. Importantly, a deceleration in the pressures that have weighed on our results. For the quarter, we reported a GAAP loss from continuing operations of $0.63 per common share, an improvement from the $1.25 loss in the first quarter. Distributable earnings were a loss of $0.47 per common share and a loss of $0.24 per common share, excluding realized losses on asset sales, compared to losses of $1.33, respectively, in the prior quarters. At quarter end, book value per share was $6.83 versus $7.43 at March 31st, a decline of 8.1%, which is a substantial deceleration from the 15.5% and 14.5% per share declines in the two prior quarters and reflects the wind down of the loan sale program.

The change was primarily due to approximately $0.23 per share of realized losses on asset sales, approximately $0.12 per share of net loan loss provisioning and valuation allowances, and the balance from the operating loss in the quarter. The net loss from normal operations was impacted by the following revenue and expense items. On the revenue side, reoccurring revenue was $15.3 million compared to $16.2 million in the prior quarter. The change was driven by an $8.7 million improvement in the net interest loss, offset by a $2 million reduction in gain on sale revenue and a $7.5 million reduction in other reoccurring revenue. The improvement in the net interest loss was due to a $445 million reduction in secured borrowings and continued corporate debt paydown, more than offsetting $4.3 million in lower interest income, which settled at $77.4 million as the CRE portfolio continued to contract.

We expect net interest income to continue improving as non-accrual loans and REO are resolved, asset level and corporate debt are reduced, and capital is recycled into current market yields. On the expense side, operating expenses improved to $48.7 million from $67.7 million. This was primarily due to normalization of servicing expenses to $3.4 million from $15.4 million, which previously included $6.7 million of non-recurring servicer advance reimbursements tied to the first quarter CLO collapses. Additionally, the net loss on the risk position improved $1.2 million in the quarter. Other items included in earnings improved $80.2 million quarter-over-quarter to a loss of $68.3 million. The improvement was primarily due to lower realized losses, which equaled $27.9 million, and lower loan loss reserves and evaluation allowances, which equaled $20.1 million. Regarding liquidity and capitalization, we ended the quarter with $124.1 million of unrestricted cash.

Total assets declined to $6.26 billion from $6.31 billion on March 31st. Total leverage was three times, trending towards our two and a half times target, and we held $690 million of unencumbered assets at quarter end. With that, we will open the line for questions.