Ready Capital ((RC)) has held its Q4 earnings call. Read on for the main highlights of the call.
The recent earnings call for Ready Capital highlighted a company in the midst of navigating financial challenges with a mix of strategic growth initiatives and necessary cost-cutting measures. The sentiment conveyed was one of cautious optimism, as the company reported significant growth in small business lending and strategic actions to improve its core portfolio. However, these positive developments were tempered by a reduction in book value per share, GAAP losses, and a dividend cut, underscoring the ongoing difficulties faced by the company.
Small Business Lending Growth
Ready Capital’s small business lending operations have seen remarkable growth, with origination increasing by 1.7 times. In the fourth quarter alone, originations reached $350 million, culminating in a record year of $1.2 billion. This achievement positioned Ready Capital as the number one non-bank lender and the fourth overall SBA 7(a) lender in the United States, showcasing its leadership in the sector.
Core Portfolio Strength
The company’s core CRE loan portfolio, valued at $6 billion, demonstrated robust credit and yield metrics. With a contractual yield of 8%, a 93% pay rate, and only 2% of loans being 60 days or more delinquent, the portfolio’s performance is a testament to Ready Capital’s strong asset management and strategic focus.
Aggressive Actions for Recovery
In response to financial challenges, Ready Capital has taken decisive actions to stabilize its financial position. This includes a $284 million combined CECL and valuation allowances to adjust non-performing loans to current values, alongside a dividend reduction to $0.125 per share. These measures aim to preserve book value and align with projected cash earnings.
Book Value Per Share Decline
The company’s book value per share experienced a 14% decline, now standing at $10.61. This decrease is attributed to aggressive reserving on problem loans and valuation allowances, reflecting the company’s proactive approach to managing its financial health.
GAAP and Distributable Earnings Losses
Ready Capital reported fourth quarter GAAP losses of $1.90 per common share, with distributable earnings showing a loss of $0.03. These losses are primarily due to timing differences and realized losses from settlements, highlighting the financial hurdles the company is working to overcome.
Dividend Reduction
To better align with projected cash earnings and preserve book value, Ready Capital has reduced its dividend to $0.125 per share for the first quarter. This strategic move is part of the company’s broader efforts to stabilize its financial standing and ensure long-term sustainability.
Forward-Looking Guidance
Looking ahead, Ready Capital has outlined several strategic actions and expectations for 2025. The company plans to address problem loans with a $284 million reserve, resulting in a 14% reduction in book value per share. It anticipates between $1 billion and $1.5 billion in new loan originations and aims to recover net interest margins. The core portfolio is expected to yield 8% with a 93% pay rate, while SBA 7(a) and USDA loan originations are projected to contribute to earnings growth. Additionally, a $150 million share repurchase program and the UDF IV merger are expected to enhance earnings per share by 17%. These initiatives are poised to stabilize and enhance Ready Capital’s financial performance through 2025.
In conclusion, Ready Capital’s earnings call reflects a company actively working to balance growth with financial prudence. While challenges remain, particularly with the decline in book value and earnings losses, the company’s strategic initiatives in small business lending and core portfolio management offer a path toward recovery and future growth. Investors and stakeholders will be keenly watching how these efforts unfold in the coming quarters.