Broadmark Realty Capital Inc.

Greetings and welcome to the Ready Capital third quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Andrew Alborn, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and 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-debt 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 third quarter 2024 earnings release and our supplemental information, which can be found in the investor section of the Ready Capital website. In addition to Tom and myself on today's call, we are also joined by Adam Zasmar, Ready Capital's Chief Credit Officer. I will now turn it over to Chief Executive Officer Tom Capaci.

Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. The third quarter marked what we believe to be at or near the bottom of the commercial real estate cycle, particularly in our core multifamily sector. We're seeing stabilization in both rent growth and property prices driven by three key factors, rate cuts, a nearly 50% reduction in multifamily starts, and strong occupant demand. To those points, we should begin to see the benefit of the improving market conditions over the coming quarters. Our CRE portfolio is showing stabilizing credit metrics, while our small business lending operations are achieving record growth, supported by strength in the broader economy. At Ready Capital, we continue to make significant progress on the strategic portfolio initiatives outlined at the start of the year, which focus on repositioning non-performing loans. Our $8.1 billion CRE portfolio consists of two segments, originated and M&A, representing 90% and 10% of the total, respectively, at quarter end. The originated portfolio declined 6% in the quarter to $7.3 billion. The rate of negative credit migration in the portfolio continues to stabilize. 60-day-plus delinquencies in the portfolio increased marginally by $53 million and equaled 6.2% of the total portfolio at quarter end. Within our originated portfolio, 21% has been modified with term extensions through the third quarter of 2025 being the primary modification. These modified loans are predominantly multifamily at 76%, with average stabilized LTVs of 73%. These loans, while modified, continue to produce cash flow and carry contractual interest rate of 9.2%, with 66% being cash paying. More broadly, The CRE portfolio features a 9% contractual rate, of which 78% is cash paying. Stronger multifamily fundamentals have increased transaction volume, leading to increased payoffs of $490 million. The majority of these proceeds went to reduce leverage in our existing CRE CLO structures. We are also gradually increasing our offensive stance, executing $246 million of new originations, and our pipeline has grown 34% since the second quarter to $730 million. Our M&A strategy has historically focused on acquiring and liquidating legacy non-core assets, then reinvesting the proceeds into our core CRE lending business. We continue to reduce our M&A portfolio, which now stands at $850 million, a 17% improvement. Our active asset management has stabilized 50-day delinquencies at 16%. The levered yield in our remaining M&A portfolio has increased to 13.7%. With the capital invested in our small business lending segment, Ready Capital has become a leading national non-bank lender to small businesses, providing a full suite of loan options, from $10,000 unsecured working capital loans to $25 million-plus real estate-backed USDA loans. This resulted in a record quarterly origination of $440 million. This consists of $355 million of Small Business Administration, or SBA, 7A loans, $39 million of USDA loans, and $46 million of small business working capital loans. Our dual SBA 7A strategy targeting both large and small loans has now exceeded our $1 billion annual target. This quarter's volume was split between our traditional large loan channel up to $5 million at 53% and our small loan channel below $350,000 at 47%. Our fintech iBusiness has grown to be a market leader in the origination of small SBA 7A loans. The strategic mix has generated higher SBA guarantee percentages and gain on sale premiums averaging 81% and 11% respectively. We are now the number one non-bank and fourth overall SBA lender in the country. We continue to execute four initiatives to navigate this CRE credit cycle. First, 72% of our portfolio repositioning efforts are complete following the settlement of $331 million in loan and REO sales across 44 assets. These sales generated $55 million in net proceeds and reduced negative carry by $0.08 per share. Our remaining loan inventory includes 23 assets totaling $218 million in carrying value comprised of 40% originated loans and 60% M&A loans, of which 5% are office assets, 21% land assets, and a mix of multifamily and industrial properties. We have 26 REO assets valued at $140 million currently listed for sale. We expect monetization of the entire position to extend to the first half of 2025. Second, our leverage position remains conservative. Our total leverage of 3.3x is below our long-term target of 4x. Improving sector liquidity has enabled us to pursue opportunities to raise accretive capital and optimize our existing capital structure. Of our 17 outstanding CRE securitizations, nine are eligible for call, with an average current advance rate of 73%. In the third quarter, we called a legacy fixed rate securitization, RCMT 2015-2, generating $9.3 million in liquidity and improving yields by 400 basis points. As discussed on prior calls, our static CLOs have less flexibility than typical managed CLOs in managing delinquent loans, which affects peer group credit comparisons. However, our CLOs remain strong. Six of our eight outstanding issuances passed their interest coverage and over-collateralization tests. October remittances showed delinquencies and loans in special servicing improving to 8.7% and 17%, respectively. We expect our next issuance in the first half of next year using collateral from both called legacy deals and new production. Third, growth in our small business lending operations reached new heights this quarter, marking the highest earnings contribution from the platform in our history. In total, our small business lending segment generated $21 million of pre-tax distributable income, or $0.12 per share. These results exclude any impact from Madison One, our USDA lender, or Funding Circle, our small business lending platform, acquired in the third quarter. Madison One and Funding Circle are expected to be accretive to earnings once fully ramped. During the quarter, these acquisitions posted a quarterly distributable earnings loss of $1.8 million, or a penny per share. This loss was due to timing of building a forward pipeline and recognition of post-acquisition operating efficiencies. Looking forward, the scale and high ROE capitalite nature of our small business lending segment provides a clear differentiator amongst our peer group, with the segment's book value at only 8% equity and a significantly higher market value. The growing earnings contribution, along with normalization of our CRE business to historical levels, should support a longer-term ROE premium to our peer group. Fourth, our exit from residential mortgage banking progresses well. We are currently marketing our remaining MSRs with a settlement plan for late November expected to generate approximately $40 million in net proceeds. The platform sale is expected to be completed over coming weeks with a settlement pending agency approval in early 2025. Ready Capital is well positioned to capitalize on the tailwinds in the CRE market. While it will take a few more quarters to fully realize the benefits, three key drivers will contribute to our future earnings growth. Our stabilizing CRE platform, continued turnover of our M&A portfolio, and sustained growth in our small business lending platform. With that, I'll turn it over to Andrew.