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Item 1. Financial Statements

2024-08-09 compared with 2024-05-10 · 594 added, 338 removed, 1551 unchanged (38% of the section changed)

Financial Statements

Financial Statements (Unaudited)

READY CAPITAL CORPORATION

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

2 unchanged sentences

Loans, net (including $ 0 and $ 9,348 held at fair value)

Loans, held for sale (net of valuation allowance of $ 146,180 and $ 0 )

Loans, held for sale (including $ 89,380 and $ 81,599 held at fair value and net of valuation allowance of $ 217,719 and $ 0 )

Mortgage-backed securities

3 unchanged sentences

Real estate owned, held for sale

Assets of consolidated VIEs

Assets of consolidated VIEs (net of valuation allowance of $ 9,448 and $ 0 )

Assets held for sale (refer to Note 9)

26 unchanged sentences

READY CAPITAL CORPORATION

UNAUDITED CONSO LIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

UNAUDITED CONSO LIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except share data)

1 unchanged sentence

Interest expense

Net interest income before recovery of loan losses

Recovery of loan losses

Net interest income after recovery of loan losses

Net interest income before recovery of (provision for) loan losses

Recovery of (provision for) loan losses

Net interest income after recovery of (provision for) loan losses

Non-interest income

2 unchanged sentences

Valuation allowance, loans held for sale

Servicing income, net of amortization and impairment of $ 3,697 and $ 1,759

Income on purchased future receivables, net of allowance for credit losses of $ 1,206 and $ 1,594

Servicing income, net of amortization and impairment of $ 4,678 and $ 8,375 for the three and six months ended June 30, 2024, and $ 2,412 and $ 4,171 for the three and six months ended June 30, 2023, respectively

Gain (loss) on bargain purchase

Income on unconsolidated joint ventures

Total non-interest income

Total non-interest income (expense)

Non-interest expense

8 unchanged sentences

Total non-interest expense

Income (loss) from continuing operations before provision for income taxes

Income (loss) from continuing operations before benefit (provision) for income taxes

Income tax benefit (provision)

18 unchanged sentences

READY CAPITAL CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

10 unchanged sentences

UNAUDITED CO NSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Preferred Series E

8 unchanged sentences

Corporation Equity

Balance at March 31, 2024

Dividend declared:

Common stock ($ 0.30 per share)

$ 0.390625 per Series C preferred share

$ 0.406250 per Series E preferred share

Contributions, net

Stock-based compensation

Conversion of OP units into common stock

Share repurchases

( 2,353,215 )

Reallocation of non-controlling interest

Net income (loss)

Other comprehensive loss

Balance at June 30, 2024

Three Months Ended June 30, 2023

Preferred Series E

Additional Paid-

Retained Earnings

Accumulated Other

Total Ready Capital

Non-controlling

Total Stockholders'

(in thousands, except share data)

Comprehensive Loss

Corporation Equity

Balance at March 31, 2023

Dividend declared:

Common stock ($ 0.40 per share)

$ 0.390625 per Series C preferred share

$ 0.406250 per Series E preferred share

Shares issued pursuant to merger transaction

Offering costs

Equity component of 2017 convertible note issuance

Stock-based compensation

Conversion of OP units into common stock

Share repurchases

( 1,732,222 )

Reallocation of non-controlling interest

Other comprehensive income

Balance at June 30, 2023

See Notes To Unaudited Consolidated Financial Statements

Six Months Ended June 30, 2024

Preferred Series E

Additional Paid-

Retained Earnings

Accumulated Other

Total Ready Capital

Non-controlling

Total Stockholders'

(in thousands, except share data)

Comprehensive Loss

Corporation Equity

Balance at December 31, 2023

3 unchanged sentences

$ 0.81250 per Series E preferred share

Distributions, net

Contributions, net

Stock-based compensation

5 unchanged sentences

Other comprehensive income

Balance at March 31, 2024

Three Months Ended March 31, 2023

Balance at June 30, 2024

Six Months Ended June 30, 2023

Preferred Series E

14 unchanged sentences

Distributions, net

Shares issued pursuant to merger transaction

Equity issuances

2 unchanged sentences

Stock-based compensation

Conversion of OP units into common stock

Share repurchases

( 1,843,675 )

Reallocation of non-controlling interest

Other comprehensive loss

Balance at March 31, 2023

Other comprehensive income

Balance at June 30, 2023

See Notes To Unaudited Consolidated Financial Statements

1 unchanged sentence

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

Net income (loss) from continuing operations

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:

Amortization of premiums, discounts, and debt issuance costs, net

Stock-based compensation

Recovery of loan losses

Provision for (recovery of) loan losses

Impairment loss on real estate owned, held for sale

Repair and denial reserve

Repair and denial reserve (recovery)

Paid-in-kind accrued interest

Provision for loan losses on purchased future receivables

1 unchanged sentence

Valuation allowance, loans held for sale

Net loss of unconsolidated joint ventures, net of distributions

Net income (loss) of unconsolidated joint ventures, net of distributions

Realized (gains) losses, net

Unrealized (gains) losses, net

Bargain purchase gain (loss)

Changes in operating assets and liabilities:

Purchased future receivables, net

Derivative instruments

2 unchanged sentences

Accounts payable and other accrued liabilities

Net cash provided by (used for) operating activities from continuing operations

Net cash provided by operating activities from discontinued operations

Net cash provided by (used for) operating activities

Net cash provided by operating activities from continuing operations

Net cash used for operating activities from discontinued operations

Net cash provided by operating activities

Cash Flows From Investing Activities:

6 unchanged sentences

Proceeds from liabilities under participation agreements

Payment of liabilities under participation agreements, net of proceeds received

Payment of liabilities under participation agreements

Net cash provided by (used for) business acquisitions

Net cash provided by investing activities from continuing operations

Net cash used for investing activities from discontinued operations

Net cash provided by (used for) investing activities from discontinued operations

Net cash provided by investing activities

3 unchanged sentences

( 1,409,193 )

( 3,860,660 )

Repayment of the Paycheck Protection Program Liquidity Facility borrowings

1 unchanged sentence

Repayment of securitized debt obligations of consolidated VIEs

Proceeds from senior secured note

Repayment of guaranteed loan financing

9 unchanged sentences

Net cash used for financing activities

Net decrease in cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash including cash classified within assets held for sale

Net increase in cash and cash equivalents within assets held for sale

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash beginning balance

2 unchanged sentences

Cash paid for interest

Cash paid for income taxes

Cash paid (received) for income taxes

Non-cash investing activities

Paid-in-kind accrued interest

Loans transferred from loans, net to loans, held for sale

Loans transferred from loans, held for sale to loans, net

Loans transferred to real estate owned, held for sale

Contingent consideration in connection with acquisitions

Non-cash financing activities

Shares and OP units issued in connection with merger transactions

Conversion of OP units to common stock

14 unchanged sentences

(the “operating partnership”) holds substantially all of the Company’s assets and conducts substantially all of the Company’s business.

As of March 31, 2024 and December 31, 2023, the Company owned approximately 99.3 % and 99.2 % of the operating partnership, respectively.

As of June 30, 2024 and December 31, 2023, the Company owned approximately 99.3 % and 99.2 % of the operating partnership, respectively.

The Company, as sole general partner of the operating partnership, has responsibility and discretion in the management and control of the operating partnership, and the limited partners of the operating partnership, in such capacity, have no authority to transact business for, or participate in the management activities of the operating partnership.

Therefore, the Company consolidates the operating partnership.

Broadmark Acquisition.

On May 31, 2023, the Company, Broadmark Realty Capital Inc., a Maryland corporation (“Broadmark”), and RCC Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“RCC Merger Sub”), completed a merger (such transaction, the “Broadmark Merger”) in which Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of the Company.

On June 5, 2024, the Company acquired Madison One Capital, M1 CUSO and Madison One Lender Services (together, “Madison One”), a leading originator and servicer of United States Department of Agriculture (“USDA”) and SBA guaranteed loan products, for an initial purchase price of approximately $ 32.9 million paid in cash (the “Madison One Acquisition”).

Approximately $ 3.6 million of the initial purchase price was paid as bonuses to certain key Madison One personnel in cash.

Additional purchase price payments, including cash payments and the issuance of shares of common stock of the Company, may be made over the four years following the acquisition date contingent upon the Madison One business achieving certain performance metrics.

Part of the Company’s strategy in acquiring Madison One included the value of the anticipated synergies arising from the acquisition and the value of the acquired assembled workforce, neither of which qualify for recognition as an intangible asset.

Refer to Note 5 for assets acquired and liabilities assumed in the merger.

On May 31, 2023, the Company, Broadmark Realty Capital Inc., a Maryland corporation (“Broadmark”), and RCC Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), completed a merger (such transaction, the “Broadmark Merger”) in which Broadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of the operating partnership.

At the effective time of the Broadmark Merger (the “Effective Time”), each share of common stock, par value $ 0.001 per share, of Broadmark (the “Broadmark Common Stock”) issued and outstanding immediately prior to the Effective Time (excluding any shares held by the Company, RCC Merger Sub or any of their respective subsidiaries) was automatically cancelled and converted into the right to receive from the Company 0.47233 (the “Exchange Ratio”) shares of its common stock, par value $ 0.0001 (“common stock”).

12 unchanged sentences

Basis of Presentation

The unaudited interim consolidated financial statements herein, referred to as the “consolidated financial statements”, as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The unaudited interim consolidated financial statements herein, referred to as the “consolidated financial statements”, as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”)—as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC.

32 unchanged sentences

Loans, held at fair value represent certain loans originated by the Company for which the fair value option has been elected.

Interest is recognized as interest income in the consolidated statements of income when earned and deemed collectible.

Changes in fair value are recurring and are reported as net unrealized gain (loss) on financial instruments in the consolidated statements of income.

Interest is recognized as interest income in the consolidated statements of operations when earned and deemed collectible.

Changes in fair value are recurring and are reported as net unrealized gain (loss) on financial instruments in the consolidated statements of operations.

Allowance for credit losses.

8 unchanged sentences

In certain instances, the Company considers relevant loan-specific qualitative factors to certain loans to estimate its CECL expected credit losses.

The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans.

The Company considers loan investments to be “collateral-dependent” loans if they are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral and (ii) for which the borrower is experiencing financial difficulty.

For such loans that the Company determines that foreclosure of the collateral is probable, the Company measures the expected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date.

21 unchanged sentences

If the loan’s fair value is determined to be less than its amortized cost, a non-recurring fair value adjustment may be recorded through a valuation allowance.

For loans originated through the LMM Commercial Real Estate and Small Business Lending segments, for which the fair value option has been elected, changes in fair value are recurring and are reported as net unrealized gain (loss) on financial instruments in the consolidated statements of income.

Loans, held for sale for which the fair value option has been elected are predominantly classified as level 2 in the fair value hierarchy.

For originated SBA loans, the guaranteed portion is held at fair value.

Interest is recognized as interest income in the consolidated statements of income when earned and deemed collectible.

Interest is recognized as interest income in the consolidated statements of operations when earned and deemed collectible.

Paycheck Protection Program loans

1 unchanged sentence

The Company has elected the fair value option for the loans originated by the Company for the first round of the program.

Interest is recognized in the consolidated statements of income as interest income when earned and deemed collectible.

Although PPP includes a 100% guarantee from the federal government and principal forgiveness for borrowers if the funds were used for defined purposes, changes in fair value are recurring and are reported as net unrealized gains (losses) on financial instruments in the consolidated statements of income.

Interest is recognized in the consolidated statements of operations as interest income when earned and deemed collectible.

The Company’s loan originations in the second round of the program are accounted for as loans, held-for-investment under ASC 310.

10 unchanged sentences

The fair values assigned to these investments are based upon available information and may not reflect amounts that may be realized.

The fair value adjustments on MBS are reported within net unrealized gain (loss) on financial instruments in the consolidated statements of income.

The fair value adjustments on MBS are reported within net unrealized gain (loss) on financial instruments in the consolidated statements of operations.

Mortgage-backed securities are classified as level 2 in the fair value hierarchy.

Derivative instruments

3 unchanged sentences

All derivatives are reported as either assets or liabilities in the consolidated balance sheets at the estimated fair value with the changes in the fair value recorded in earnings unless hedge accounting is elected.

As of March 31, 2024 and December 31, 2023, the Company had offset $ 40.4 million and $ 34.4 million of cash collateral payable against gross derivative asset positions, respectively.

As of June 30, 2024 and December 31, 2023, the Company had offset $ 41.7 million and $ 34.4 million of cash collateral payable against gross derivative asset positions, respectively.

Interest rate swap agreements.

2 unchanged sentences

No principal (notional amount) is exchanged between the two parties at the trade initiation date and only interest payments are exchanged over the life of the contract.

The fair value adjustments are reported within net unrealized gain (loss) on financial instruments, while the related interest income or interest expense are reported within net realized gain (loss) on financial instruments in the consolidated statements of operations.

Interest rate swaps are classified as Level 2 in the fair value hierarchy.

FX forwards are agreements between two counterparties to exchange a pair of currencies at a set rate on a future date.

1 unchanged sentence

dollars to mitigate exposure to fluctuations in FX rates.

The fair value adjustments are reported within net unrealized gain (loss) on financial instruments in the consolidated statements of income.

The fair value adjustments are reported within net unrealized gain (loss) on financial instruments in the consolidated statements of operations.

FX forwards are classified as Level 2 in the fair value hierarchy.

2 unchanged sentences

To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged.

hedges are used to hedge the exposure to the variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations.

Cash flow hedges are used to hedge the exposure to the variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations.

ASC 815 requires that a forecasted transaction be identified as either:

1 unchanged sentence

Hedges of forecasted transactions are considered cash flow hedges since the price is not fixed, hence involve variability of cash flows.

For qualifying cash flow hedges, the change in the fair value of the derivative (the hedging instrument) is recorded in other comprehensive income (loss) (“OCI”) and is reclassified out of OCI and into the consolidated statements of income when the hedged cash flows affect earnings.

These amounts are recognized consistent with the classification of the hedged item, primarily interest expense (for hedges of interest rate risk).

9 unchanged sentences

GAAP, if servicing is retained.

For servicing rights, gains related to servicing rights retained is included in net realized gain (loss) in the consolidated statements of income.

Servicing rights relating to the Company’s servicing of loans guaranteed by the SBA under its Section 7(a) loan program and multi-family servicing rights are accounted for under ASC 860, Transfers and Servicing (“ASC 860”).

For servicing rights, gains (losses) related to servicing rights retained is included in net realized gain (loss) in the consolidated statements of operations.

Servicing rights are accounted for under ASC 860, Transfers and Servicing (“ASC 860”).

A significant portion of the Company’s multi-family servicing rights are under the Freddie Mac program.

SBA and multi-family servicing rights are initially recorded at fair value and subsequently carried at amortized cost.

Servicing rights are initially recorded at fair value and subsequently carried at amortized cost.

Servicing rights are amortized in proportion to and over the expected service period, or term of the loans, and are evaluated for potential impairment quarterly.

2 unchanged sentences

The estimated net present value of servicing cash flows is determined using discounted cash flow modeling techniques, which require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted loan prepayment rates, delinquency rates and anticipated maturity defaults.

If the carrying value of the servicing rights exceeds the net present value of servicing cash flows, the servicing rights are considered impaired, and an impairment loss is recognized in earnings for the amount by which carrying value exceeds the net present value of servicing cash flows.

If the carrying value of the servicing rights exceeds the net present value of servicing cash flows, the servicing rights are considered impaired, and an impairment loss is recognized in the consolidated statements of operations for the amount by which carrying value exceeds the net present value of servicing cash flows.

The Company estimates the fair value of servicing rights by determining the present value of future expected servicing cash flows using modeling techniques that incorporate management’s best estimates of key variables including estimates regarding future net servicing cash flows, forecasted loan prepayment rates, delinquency rates, and return requirements commensurate with the risks involved.

2 unchanged sentences

Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread.

The Company also considers other factors that can impact the value of the servicing rights, such as surety provider termination clauses and servicer terminations that could

result if the Company failed to materially comply with the covenants or conditions of its servicing agreements and did not remedy the failure.

The Company also considers other factors that can

impact the value of the servicing rights, such as surety provider termination clauses and servicer terminations that could result if the Company failed to materially comply with the covenants or conditions of its servicing agreements and did not remedy the failure.

Since many factors can affect the estimate of the fair value of servicing rights, the Company regularly evaluates the major assumptions and modeling techniques used in its estimate and reviews these assumptions against market comparables, if available.

15 unchanged sentences

The Company accounts for held to maturity investments under ASC 320.

Such securities are accounted for at amortized cost and reviewed on a quarterly basis to determine if an allowance for credit losses should be recorded in the consolidated statements of income.

Such securities are accounted for at amortized cost and reviewed on a quarterly basis to determine if an allowance for credit losses should be recorded in the consolidated statements of operations.

Purchased future receivables

6 unchanged sentences

The CECL method the Company utilizes is an aging schedule where estimating expected life-time credit losses is determined on the basis of how long a receivable has been outstanding.

Where there is doubt regarding the ultimate collectability, the allowance for credit losses increases through provisions recorded in the consolidated statements of income and reduced by charge-offs, net of recoveries.

Where there is doubt regarding the ultimate collectability, the allowance for credit losses increases through provisions recorded in the consolidated statements of operations and reduced by charge-offs, net of recoveries.

Purchased future receivables that have been delinquent for 90 days or more are considered uncollectible and subsequently charged off.

18 unchanged sentences

The qualitative assessment requires judgment to be applied in evaluating the effects of multiple factors, including actual and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

In the first quarter of 2024, as a result of the qualitative assessment, the Company determined that it was more likely than not that the estimated fair value of each of the reporting units exceeded its respective estimated carrying value.

In the second quarter of 2024, as a result of the qualitative assessment, the Company determined that it was more likely than not that the estimated fair value of each of the reporting units exceeded its respective estimated carrying value.

Therefore, goodwill for each reporting unit was not impaired and a quantitative test was not required.

1 unchanged sentence

Costs incurred in connection with secured borrowings are accounted for under ASC 340, Other Assets and Deferred Costs .

Deferred costs are capitalized and amortized using the effective interest method over the respective financing term with such amortization reflected on the Company’s consolidated statements of income as a component of interest expense.

Secured Borrowings may include legal, accounting and other related fees.

3 unchanged sentences

The loan-servicing activities of the Company’s LMM Commercial Real Estate segment are performed primarily by third-party servicers.

SBA loans originated by and held at RCL are internally serviced.

SBA loans originated and held by the Company are internally serviced.

The Company’s servicers hold substantially all of the cash owned by the Company related to loan servicing activities.

These amounts include principal and interest payments made by borrowers, net of advances and servicing fees.

Cash is generally received within thirty days of recording the receivable.

Cash is generally received within 30 days of recording the receivable.

The Company is subject to credit risk to the extent any servicer with whom the Company conducts business is unable to deliver cash balances or process loan-related transactions on the Company’s behalf.

The Company monitors the financial condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

The Company monitors the financial

condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

Secured borrowings

6 unchanged sentences

In instances where margin calls are not satisfied within the required time frame the counterparty may retain the collateral and pursue collection of any outstanding debt.

Interest paid and accrued in connection with credit facilities is recorded as interest expense in the consolidated statements of income.

Interest accrued in connection with credit facilities is recorded as interest expense in the consolidated statements of operations.

Borrowings under repurchase agreements.

3 unchanged sentences

All securities financed through a repurchase agreement have remained on the Company’s consolidated balance sheets as an asset and cash received from the lender has been recorded on the Company’s consolidated balance sheets as a liability.

Interest paid and accrued in connection with repurchase agreements is recorded as interest expense in the consolidated statements of income.

Interest accrued in connection with repurchase agreements is recorded as interest expense in the consolidated statements of operations.

Paycheck Protection Program Liquidity Facility borrowings

1 unchanged sentence

The Company accounts for borrowings under the PPPLF under ASC 470.

Interest paid and accrued in connection with PPPLF is recorded as interest expense in the consolidated statements of income.

Interest accrued in connection with PPPLF is recorded as interest expense in the consolidated statements of operations.

Securitized debt obligations of consolidated VIEs, net

Since 2011, the Company has engaged in several securitization transactions, which the Company accounts for under ASC 810.

The Company has engaged in several securitization transactions accounted for under ASC 810.

Securitization involves transferring assets to a special purpose entity or securitization trust, which typically qualifies as a VIE.

2 unchanged sentences

Debt issuance costs related to securitizations are presented as a direct deduction from the carrying value of the related debt liability.

Debt issuance costs are amortized using the effective interest method and are included in interest expense in the consolidated statements of income.

Debt issuance costs are amortized using the effective interest method and are included in interest expense in the consolidated statements of operations.

Senior secured notes, net

The Company accounts for secured debt offerings under ASC 470 .

Pursuant to the adoption of ASU 2015-03, the Company’s senior secured notes are presented net of debt issuance costs.

The Company accounts for secured debt offerings, net of issuance costs, under ASC 470 .

These senior secured notes are collateralized by loans, MBS, and retained interests of consolidated VIE’s.

Interest paid and accrued in connection with senior secured notes is recorded as interest expense in the consolidated statements of income.

Interest accrued in connection with senior secured notes is recorded as interest expense in the consolidated statements of operations.

Corporate debt, net

The Company accounts for corporate debt offerings under ASC 470.

The Company’s corporate debt is presented net of debt issuance costs.

Interest paid and accrued in connection with corporate debt is recorded as interest expense in the consolidated statements of income.

The Company accounts for corporate debt offerings, net of issuance costs, under ASC 470.

Interest accrued in connection with corporate debt is recorded as interest expense in the consolidated statements of operations.

Guaranteed loan financing

Certain partial loan sales do not qualify for sale accounting under ASC 860 because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed.

Certain partial loan sales do not meet the definition of a “participating interest” under ASC 860 and therefore, do not qualify as a sale.

Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment in the consolidated balance sheets and the proceeds from the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets.

For these partial loan sales, the interest earned on the entire loan balance is recorded as

interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of operations.

Contingent consideration

The Company accounts for certain liabilities recognized in relation to mergers and acquisitions as contingent consideration whereby the fair value of this liability is dependent on certain criteria.

Contingent consideration is classified as Level 3 in the fair value hierarchy with fair value adjustments reported within other income (loss) in the consolidated statements of income.

Contingent consideration is classified as Level 3 in the fair value hierarchy with fair value adjustments reported within other income (loss) in the consolidated statements of operations.

Loan participations sold

3 unchanged sentences

Due to third parties primarily relates to funds held by the Company to advance certain expenditures necessary to fulfill the Company’s obligations under its existing indebtedness or to be released at the Company’s discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans.

While retained, these balances earn interest in accordance with the specific loan terms they are associated with.

While retained, these balances earn interest in accordance with the specific loan terms with which they are associated.

Repair and denial reserve

10 unchanged sentences

Non-controlling interests

Non-controlling interests are presented on the consolidated balance sheets and the consolidated statements of income and represent direct investment in the operating partnership by third parties, including operating partnership units issued to satisfy a portion of the purchase price in connection with a series of mergers (collectively, the “Mosaic Mergers”), pursuant to which the company acquired a group of privately held, real estate structured finance opportunities funds, with a focus on construction lending (collectively, the “Mosaic Funds”), managed by MREC Management, LLC.

Non-controlling interests are presented on the consolidated balance sheets and the consolidated statements of operations and represent direct investment in the operating partnership by third parties, including operating partnership units issued to satisfy a portion of the purchase price in connection with a series of mergers (collectively, the “Mosaic Mergers”), pursuant to which the company acquired a group of privately held, real estate structured finance opportunities funds, with a focus on construction lending (collectively, the “Mosaic Funds”), managed by MREC Management, LLC.

In addition, the Company has non-controlling interests from investments in consolidated joint ventures whereby, net income or loss is generally based upon relative ownership interests or contractual arrangements.

Fair value option

ASC 825 provides a fair value option election that allows entities to make an election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities.

ASC 825 , Financial Instruments (“ASC 825”) provides a fair value option election that allows entities to make an election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities.

Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.

The decision to elect the fair value option is

determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected.

The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument

and is irrevocable once elected.

Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in the consolidated balance sheets from those instruments using another accounting method.

2 unchanged sentences

The Company additionally elected the fair value option for certain investments in unconsolidated joint ventures due to their short-term tenor.

Share repurchase program

The Company accounts for repurchases of its common stock as a reduction in additional paid in capital.

The amounts recognized represent the amount paid to repurchase these shares and are categorized on the balance sheet and changes in equity as a reduction in additional paid in capital.

Earnings per share

The Company presents both basic and diluted earnings per share (“EPS”) amounts in its consolidated financial statements.

Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted EPS reflects the maximum potential dilution that could occur from the Company’s share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted stock awards (“RSAs”), performance-based equity awards, as well as the dilutive impact of convertible preferred stock and contingent equity rights (“CERs”) under the if-converted method and warrants under the treasury stock method.

3 unchanged sentences

Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities.

GAAP establishes financial accounting and reporting standards for the effect of income taxes.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s consolidated financial statements or tax returns.

2 unchanged sentences

The Company provides for exposure in connection with uncertain tax positions, which requires significant judgment by management including determination, based on the weight of the tax law and available evidence, that it is more-likely-than-not that a tax result will be realized.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense on the consolidated statements of income.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense on the consolidated statements of operations.

As of the date of the consolidated balance sheets, the Company has accrued no taxes, interest or penalties related to uncertain tax positions.

1 unchanged sentence

Revenue recognition

Under revenue recognition guidance, specifically ASC 606, Revenue Recognition , revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Under ASC 606 Revenue Recognition (“ASC 606”), revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue is recognized through the following five-step process:

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Discounts or premiums associated with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on contractual cash flows through the maturity date of the investment.

On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to the accrual status of the asset.

If the asset has been delinquent for the previous 90 days, the asset status will turn to non-accrual, and recognition of interest income will be suspended until the asset resumes contractual payments for three consecutive months.

Employee retention credit consulting income.

In connection with the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which provided numerous stimulus measures including the employee retention credit (“ERC”), the Company provided consulting services whereby ERC requests received were processed on the client’s behalf.

In connection with the Coronavirus Aid, Relief and Economic Security Act, which provided numerous stimulus measures including the employee retention credit (“ERC”), the Company provided consulting services whereby ERC requests received were processed on the client’s behalf.

Income related to ERC consulting are recorded in accordance with ASC 606 and recognized when the performance obligation has been satisfied.

2 unchanged sentences

Accordingly, the provision for losses will vary from period to period based on management's ongoing assessment of the adequacy of the allowance for doubtful accounts.

Employee retention credit consulting income is reported as other income and the provision for losses is reported as other expense in the consolidated statements of income.

Employee retention credit consulting income is reported as other income and the provision for losses is reported as other expense in the consolidated statements of operations.

Realized gains (losses).

5 unchanged sentences

For originated loans, held-for-investment, under ASC 310 the Company defers these origination fees and costs at origination and amortizes them under the effective interest method over the life of the loan.

Origination fees and expenses for loans, held at fair value and loans, held for sale, are presented in the consolidated statements of income as components of other income and operating expenses.

The amortization of net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of income as a component of interest income.

Origination fees and expenses for loans, held at fair value and loans, held for sale, are presented in the consolidated statements of operations as components of other income and operating expenses.

The amortization of net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of operations as a component of interest income.

Assets and liabilities held for sale

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A long-lived asset or disposal group that is classified as held for sale is measured at the lower of its cost or estimated fair value less any costs to sell.

The fair values of assets held for sale are

assessed each reporting period and changes in such fair values are reported as an adjustment to the carrying value of the asset or disposal group with an offset on the consolidated statements of income, to the extent that any subsequent changes in fair value do not exceed the cost basis of the asset or disposal group.

The fair values of assets held for sale are assessed each reporting period and changes in such fair values are reported as an adjustment to the carrying value of the asset or disposal group with an offset on the consolidated statements of operations, to the extent that any subsequent changes in fair value do not exceed the cost basis of the asset or disposal group.

Any loss resulting from the transfer of long-lived assets or disposal groups to assets held for sale is recognized in the period in which the held for sale criteria are met.

Discontinued operations

The results of operations of long-lived assets or a disposal group that the Company has either disposed of or has classified as held for sale is reported as discontinued operations on the consolidated statements of income if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.

The results of operations of long-lived assets or a disposal group that the Company has either disposed of or has classified as held for sale is reported as discontinued operations on the consolidated statements of operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.

Foreign currency transactions

6 unchanged sentences

operation, when the functional currency is other than the U.S.

dollar, are included, net of taxes, in the consolidated statements of comprehensive income.

dollar, are included, net of taxes, in the consolidated statements of comprehensive income (loss).

Recent Accounting Pronouncements

22 unchanged sentences

Business Combinations

Madison One Acquisition

On June 5, 2024 the Company acquired Madison One, a lending originator and servicer in the government guaranteed loan industry focusing on USDA and SBA guaranteed loan products.

Refer to Note 1 for more information about the Madison One Acquisition.

The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values.

The methodologies used, and key assumptions made, to estimate the fair value of the assets acquired and liabilities assumed are primarily based on future cash flows and discount rates.

The table below summarizes the fair value of assets acquired and liabilities assumed from the Madison One Acquisition.

(in thousands)

Cash and cash equivalents

Restricted cash

Servicing rights

Other assets:

Intangible assets

Total assets acquired

Accounts payable and other accrued liabilities

Total liabilities assumed

Net assets acquired

Non-controlling interests

Net assets acquired, net of non-controlling interests

The table below illustrates the aggregate consideration transferred, net assets acquired, and the related goodwill.

(in thousands)

Fair value of net assets acquired

Contingent consideration

Total consideration transferred

Broadmark Merger

On May 31, 2023, the Company completed a merger with Broadmark, a specialty real estate finance company that specialized in originating and servicing residential and commercial construction loans.

Refer to Note 1 for more information about the Broadmark Merger.

The consideration transferred was allocated to the assets acquired and liabilities assumed based on their respective fair values.

The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values.

The methodologies used, and key assumptions made, to estimate the fair value of the assets acquired and liabilities assumed are primarily based on future cash flows and discount rates.

13 unchanged sentences

In a business combination, the initial allocation of the purchase price is considered preliminary and therefore, is subject to change until the end of the measurement period.

The final determination must occur within one year of the merger date.

Because the measurement period is still open for the Broadmark Merger, certain fair value estimates may change once all information necessary to make a final fair value assessment has been received.

The final determination occurred within one year of the merger date.

Because the measurement period for the Broadmark Merger remained open until May 31, 2024, certain fair value estimates changed once all information necessary to make a final fair value assessment was received.

The amounts presented in the table above pertained to the preliminary purchase price allocation reported at the time of the Broadmark Merger based on information that was available to management at the time the consolidated financial statements were prepared.

The preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value of the assets acquired and liabilities assumed, which could have an impact on the consolidated financial statements.

Subsequent to the determination of the preliminary purchase price allocation, the Company recorded a measurement period adjustment based on the updated valuations obtained by decreasing net assets acquired and the bargain purchase gain by $ 21.9 million.

The preliminary purchase price allocation changed as the Company completed its analysis of the fair value of the assets acquired and liabilities assumed, which impacts the consolidated financial statements.

The table below illustrates the aggregate consideration transferred, net assets acquired, and the related bargain purchase gain.

8 unchanged sentences

In the table above, the bargain purchase gain represents the fair value of the assets acquired and liabilities assumed in the Broadmark Merger which exceeds the fair value of the 62.2 million shares of common stock issued at $ 10.24 per share at the Effective Time.

Gain on bargain purchase is recognized in the consolidated statements of income.

Gain on bargain purchase is recognized in the consolidated statements of operations.

The following pro-forma income and earnings (unaudited) of the combined company are presented as if the Broadmark Merger had occurred on January 1, 2024 and January 1, 2023.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Interest expense

Recovery of loan losses

Non-interest income (loss)

Recovery of (provision for) loan losses

Non-interest income

Non-interest expense

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Net income (loss)

Non-recurring pro-forma transaction costs directly attributable to the Broadmark Merger were $ 0.4 million for the three months ended March 31, 2024 and 2023, respectively, and have been deducted from the non-interest expense amount

Non-recurring pro-forma transaction costs directly attributable to the Broadmark Merger were $ 1.2 million for both the three months ended June 30, 2024 and 2023 and $ 1.6 million for both the six months ended June 30, 2024 and 2023, and have been deducted from the non-interest expense amount above.

These costs included legal, accounting, valuation, and other professional or consulting fees directly attributable to the Broadmark Merger.

2 unchanged sentences

The classification for a loan is based on product type and management’s strategy for the loan.

Loans with the “Other” classification are generally LMM acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, Construction, or Freddie Mac classifications due to loan size, rate type, collateral, or borrower criteria.

Loan portfolio

The table below summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs.

March 31, 2024

June 30, 2024

December 31, 2023

10 unchanged sentences

Loans, held for sale

Total Loans, held for sale, before valuation allowance

Valuation allowance

Total Loans, held for sale

Loans, held for sale in consolidated VIEs

Valuation allowance on loans, held for sale in consolidated VIEs

Total Loans, held for sale in consolidated VIEs

In the table above, loans with the “Other” classification are generally LMM acquired loans that have nonconforming characteristics for the Fixed rate, Bridge, Construction, or Freddie Mac classifications due to loan size, rate type, collateral, or borrower criteria.

Loan vintage and credit quality indicators

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Loans that are 30 days or more past due, provide an indication of the borrower’s capacity and willingness to meet its financial obligations.

Total Loans, net includes Loans, net in consolidated VIEs and a specific allowance for loan losses of $ 21.6 million, including $ 11.2 million of PCD loan reserves as of March 31, 2024, and a specific allowance for loan losses of $ 57.1 million, including $ 21.4 million of PCD loan reserves, as of December 31, 2023.

Total Loans, net includes Loans, net in consolidated VIEs and a specific allowance for loan losses of $ 8.2 million, including $ 1.9 million of PCD loan reserves as of June 30, 2024, and a specific allowance for loan losses of $ 57.1 million, including $ 21.4 million of PCD loan reserves, as of December 31, 2023.

The tables below summarize the classification, UPB, carrying value and gross write-offs of loans by year of origination.

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

Total Loans, before general allowance for loan losses

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(in thousands)

March 31, 2024

June 30, 2024

30 - 59 days past due

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90+ days past due and Accruing

March 31, 2024

June 30, 2024

Total Loans, before general allowance for loan losses

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Greater than 100.0%

March 31, 2024

June 30, 2024

Total Loans, before general allowance for loan losses

11 unchanged sentences

Geographic Concentration (% of UPB)

March 31, 2024

June 30, 2024

December 31, 2023

2 unchanged sentences

Collateral Concentration (% of UPB)

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

Collateral Concentration (% of UPB)

March 31, 2024

June 30, 2024

December 31, 2023

13 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

Ending balance

3 unchanged sentences

(in thousands)

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Beginning balance

2 unchanged sentences

Ending balance

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Beginning balance

Provision for loan losses

Charge-offs and sales

Ending balance

Six Months Ended June 30, 2024

Beginning balance

Recoveries of loan losses

Charge-offs and sales

Ending balance

Six Months Ended June 30, 2023

Beginning balance

Provision for (recoveries of) loan losses

1 unchanged sentence

Ending balance

The table above excludes $ 0.6 million and $ 1.6 million of allowance for loan losses on unfunded lending commitments as of March 31, 2024 and March 31, 2023, respectively.

(1) Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Broadmark Merger.

The table above excludes $ 0.6 million and $ 3.6 million of allowance for loan losses on unfunded lending commitments as of June 30, 2024 and June 30, 2023, respectively.

Refer to Note 3 – Summary of Significant Accounting Policies for more information on accounting policies, methodologies and judgment applied to determine the allowance for loan losses and lending commitments.

4 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

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UPB of non-accrual loans

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Interest income on non-accrual loans for the three months ended

Interest income on non-accrual loans for the six months ended

Loan modifications made to borrowers experiencing financial difficulty

In certain situations, the Company may provide loan modifications to borrowers experiencing financial difficulty.

These modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than-insignificant payment delay intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral.

As of March 31, 2024, substantially all of the loan modifications provided by the Company consisted of a 7-month payment deferral and a 7-month addition to the weighted average life of the original loan term and were deemed to be continuations of the existing loans based on the Company’s analysis.

As of March 31, 2024, the carrying value of such commercial real estate and SBA - 7(a) loans were $ 67.2 million and $ 0.1 million, respectively or 0.7 % of total Loans, net.

These modified loans were predominantly comprised of loans secured by multifamily and residential properties.

As of December 31, 2023, substantially all of the loan modifications provided by the Company consisted of a 12-month payment deferral and an 18-month addition to the weighted average life of the original loan term and were deemed to be continuations of the existing loans based on the Company’s analysis.

As of December 31, 2023, the carrying value of such commercial real estate and SBA – 7(a) loans were $ 467.9 million and $ 1.3 million, respectively or 4.4 % of total Loans, net.

These modified loans were predominantly comprised of loans secured by mixed use real estate.

These modifications may include interest rate reductions, principal forgiveness, term extensions, and other-than-insignificant payment delays intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral.

Three months ended June 30, 2024.

During the three months ended June 30, 2024, the Company entered into 20 loan modifications with an aggregate carrying value of $ 519.0 million, or 5.5 % of total loans, net.

These modified loans include a combination of changes to the contractual terms which were in the form of term extensions, other-than-insignificant payment delays, and interest reductions.

There were 12 loans with an aggregate carrying value of $ 334.7 million, or 3.6 % of loans, net, that were modified to include both term extensions and interest payment deferrals.

The term extensions ranged between 3 and 27 months with a weighted average of 13 months added to the original loan term.

Payment modifications include the reduction of interest payments to equal excess net operating income with the difference between the original rate and the interest collected due

In most cases, cash management accounts are set up for the loans and default interest is waived.

There was 1 loan with a carrying value of $ 75.0 million, or 0.8 % of loans, net that was modified to include both a term extension and interest rate reduction.

The term extension was for 18 months added to the original loan term and the interest rate decreased from SOFR + 3.25 % to a fixed rate of 6.0 % from June 2024 to December 2024 and 6.5 % from January 2025 to July 2025.

There were 3 loans with an aggregate carrying value of $ 58.3 million, or 0.6 % of loans, net that were modified by interest payment deferrals.

The number of interest payments deferred ranged between 10 and 28 months with a weighted average of 17 months and include periods before the modification date.

Payment modifications include the reduction of interest payments to equal excess net operating income with the difference between the original rate and the interest collected due at maturity.

In most cases, cash management accounts are set up for the loans and default interest is waived.

There were 4 loans with an aggregate carrying value of $ 51.0 million, or 0.5 % of loans, net that were modified by a term extension.

The term extensions ranged between 10 and 24 months with a weighted average of 18 months added to the original loan term.

Of the loans that were modified during the three months ended June 30, 2024, substantially all were on accrual status.

During the three months ended June 30, 2024, $ 7.2 million of total capital was invested by the borrowers, substantially all in the form of payment towards past due interest or contribution to various reserve accounts.

Six months ended June 30, 2024.

During the six months ended June 30, 2024, the Company entered into 24 loan modifications with an aggregate carrying value of $ 555.6 million, or 5.9 % of total loans, net.

These modified loans include a combination of changes to the contractual terms which were in the form of term extensions, other-than-insignificant payment delays, and interest reductions.

There were 13 loans with an aggregate carrying value of $ 360.0 million, or 3.8 % of loans, net, that were modified to include both term extensions and interest payment deferrals.

The term extensions ranged between 3 and 27 months with a weighted average of 12 months added to the original loan term.

Payment modifications include the reduction of interest payments to equal excess net operating income with the difference between the original rate and the interest collected due at maturity.

In most cases, cash management accounts are set up for the loans and default interest is waived.

There was 1 loan with a carrying value of $ 75.0 million, or 0.8 % of loans, net that was modified to include both a term extension and interest rate reduction.

There were 7 loans with an aggregate carrying value of $ 62.3 million, or 0.7 % of loans, net that were modified to include term extensions.

The term extensions ranged between 6 and 24 months with a weighted average of 17 months added to the original loan term.

There were 3 loans with an aggregate carrying value of $ 58.3 million, or 0.6 % of loans, net that were modified by interest payment deferrals.

The number of interest payments deferred ranged between 10 and 28 months with a weighted average of 17 months and include payments for periods before the modification date.

Payment modifications include the reduction of interest payments to equal excess net operating income with the difference between the original rate and the interest collected due at maturity.

In most cases, cash management accounts are set up for the loans and default interest is waived.

Of the loans that were modified during the six months ended June 30, 2024, substantially all were on accrual status.

During the six months ended June 30, 2024, $ 7.2 million of total capital was invested by the borrowers, substantially all in the form of payment towards past due interest or contribution to various reserve accounts.

Three months ended June 30, 2023.

During the three months ended June 30, 2023, the Company entered into 5 loan modifications with an aggregate carrying value of $ 382.0 million, or 3.7 % of total loans, net.

These modified loans include a combination of changes to the contractual terms which were in the form of term extensions and other-than-insignificant payment delays.

There were 4 loans with an aggregate carrying value of $ 381.9 million, or 3.7 % of loans, net that were modified by a term extension.

The term extensions ranged between 12 and 36 months with a weighted average of 18 months added to the original loan term.

The largest loan with a carrying value of $ 357.4 million was modified in May 2023 to extend the maturity date of the loan from June 2023 to December 2024, or 18 months .

The borrower was required to contribute $ 17.0 million, or 3.9 % of the total carrying value of the loan, towards various reserve accounts.

There was 1 loan with a carrying value of $ 0.1 million, or less than 0.1 % of loans, net that was modified by interest payment deferrals of 9 months .

Of the loans that were modified during the three months ended June 30, 2023, substantially all were on accrual status as of June 30, 2024.

Six months ended June 30, 2023.

During the six months ended June 30, 2023, the Company entered into 12 loan modifications with an aggregate carrying value of $ 434.4 million, or 4.2 % of total loans, net.

These modified loans include a combination of changes to the contractual terms which were in the form of term extensions and other-than-insignificant payment delays.

There were 9 loans with an aggregate carrying value of $ 405.2 million, or 3.9 % of loans, net that were modified by term extensions.

The term extensions ranged between 12 and 120 months with a weighted average of 18 months added to the original loan term.

The largest loan with a carrying value of $ 357.4 million was modified in May 2023 to extend the maturity date of the loan from June 2023 to December 2024, or 18 months .

The borrower was required to contribute $ 17.0 million, or 3.9 % of the total carrying value of the loan, towards various reserve accounts.

There was 1 SBA loan with a carrying value of less than $ 0.1 million with a 10 year term extension, which is included in the range.

There was 1 loan with a carrying value of $ 28.4 million, or 0.3 % of loans, net, that was modified to include both a term extension and an interest payment deferral.

The loan was modified by a term extension for 18 months added to the original loan term and an interest payment deferral of 12 months .

There were 2 loans with an aggregate carrying value of $ 0.8 million, or less than 0.1 % of loans, net that were modified by interest payment deferrals.

The payment deferrals ranged between 6 and 9 months with a weighted average of 6 months .

Of the loans that were modified during the six months ended June 30, 2023, substantially all were on accrual status as of June 30, 2024.

The remaining elements of the Company’s modification programs are generally considered insignificant and do not have a material impact on financial results.

Allowance for loan losses.

The Company’s allowance for loan losses reflects estimates of expected life-time loan losses, which considers historical loan losses including losses from modified loans to borrowers experiencing financial difficulty.

The Company continues to estimate the allowance for loan losses after modification using loan-specific inputs.

Substantially all of the modified loans were performing in accordance with the modified contractual terms as of both March 31, 2024 and December 31, 2023.

The remaining elements of the Company’s modification programs are generally considered insignificant and do not have a material impact on financial results.

As of June 30, 2024 and June 30, 2023, substantially all of the modified loans were performing in accordance with the modified contractual terms.

All loans with modifications disclosed in the previous twelve months are performing in accordance with their modified terms as of June 30, 2024.

On loans for which the Company determines foreclosure of the collateral is probable, expected losses are measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

As of March 31, 2024 and December 31, 2023, the Company’s total carrying amount of loans in the foreclosure process was $ 23.6 million and $ 95.0 million, respectively.

As of March 31, 2024, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were $ 12.9 million.

As of December 31, 2023, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were not material.

Subsequent to the determination of the preliminary purchase price allocation, based on updated valuations obtained, the Company recorded a measurement period adjustment of $ 5.2 million to increase the PCD allowance in connection with the Broadmark Merger.

A reconciliation between the PCD asset’s UPB and purchase price is presented in the table below.

As of June 30, 2024 and December 31, 2023, the Company’s total carrying amount of loans in the foreclosure process was $ 65.8 million and $ 95.0 million, respectively.

Lending commitments.

For the three and six months ended June 30, 2024, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were $ 22.8 million and $ 23.3 million, respectively.

For the three and six months ended June 30, 2023, lending commitments to borrowers experiencing financial difficulty for which the Company has modified the loan terms were not material.

During the three months ended June 30, 2023, the Company acquired PCD loans in connection with the Broadmark merger.

Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Broadmark Merger.

7 unchanged sentences

Purchase price of loans classified as PCD

The Company did no t acquire any PCD loans during the three months ended March 31, 2024 and March 31, 2023.

The Company did no t acquire any PCD loans during the three months ended June 30, 2024.

Fair Value Measurements

20 unchanged sentences

In addition, each CER holder will be entitled to receive a number of additional shares of common stock equal to (i) the amount of any dividends or other distributions paid with respect to the number of whole shares of common stock received by such CER holder in respect of such holder’s CERs and having a record date on or after the closing of the Mosaic Mergers and a payment date prior to the issuance date of such shares of common stock, divided by (ii) the Company share value.

The probability-weighted expected return method (“PWERM”) was utilized to estimate the return of capital and liquidation proceeds of the acquired asset portfolio, considering each possible outcome, including the economic and projected performance of each acquired asset, using a probability of 65 %- 100 % return of capital.

The discounted cashflow technique was utilized by the Company to assess the updated value of the acquired portfolio as of the revaluation date.

1 unchanged sentence

The final purchase price allocation associated with the closing of the Mosaic Mergers valued the CERs at approximately $ 25.0 million or $ 0.83 per CER.

As of March 31, 2024, the CERs were valued at zero .

As of June 30, 2024, the CERs were valued at zero .

In certain cases, the inputs used to measure fair value may be categorized into different levels of the fair value hierarchy.

3 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

Money market funds (a)

Loans, held for sale

Paycheck Protection Program loans (b)

MBS, at fair value

PPP loans (b)

Derivative instruments

2 unchanged sentences

Derivative instruments

Contingent consideration

Total liabilities

2 unchanged sentences

Loans, held for sale

Paycheck Protection Program loans (b)

MBS, at fair value

PPP loans (b)

Derivative instruments

5 unchanged sentences

(a) Money market funds are included in cash and cash equivalents on the consolidated balance sheets

(b) Paycheck Protection Program loans are included in other assets on the consolidated balance sheets

(b) PPP loans are included in other assets on the consolidated balance sheets

(c) Preferred equity investment held through consolidated joint ventures are included in assets of consolidated VIEs on the consolidated balance sheets

3 unchanged sentences

Weighted Average

March 31, 2024

June 30, 2024

Investment in unconsolidated joint ventures

4 unchanged sentences

Discount rate

Contingent consideration - Madison One

Monte Carlo Simulation Model

Net income volatility | Risk-adjusted discount rate

66.0 % | 47.5 %

Total liabilities

December 31, 2023

15 unchanged sentences

12.0 % | 11.5 %

Total liabilities

(a) Prices are weighted based on the UPB of the loans and securities included in the range for each class.

Included within Level 3 assets of $ 125.1 million as of December 31, 2023, is $ 9.3 million of quoted or transaction prices in which quantitative unobservable inputs are not developed by the Company when measuring fair value.

Included within Level 3 assets of $ 124.5 million as of June 30, 2024 and $ 125.1 million as of December 31, 2023, is $ 9.1 million and $ 9.3 million, respectively, of quoted or transaction prices in which quantitative unobservable inputs are not developed by the Company when measuring fair value.

Included within Level 3 liabilities of $ 3.9 million as of June 30, 2024 is $ 3.4 million of quoted or transaction prices in which quantitative unobservable inputs are not developed by the Company when measuring fair value.

The table below presents a summary of changes in fair value for Level 3 assets and liabilities.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

7 unchanged sentences

Unrealized gains (losses), net

Transfer to (from) Level 3

Ending balance

3 unchanged sentences

Ending balance

Contingent consideration

Beginning balance

Sales / Principal payments

Realized gains (losses), net

Unrealized losses (gains), net

Ending balance

Preferred equity investment (1)

4 unchanged sentences

Sales / Principal payments

Realized gains (losses), net

Unrealized gains (losses), net

1 unchanged sentence

Ending balance

Contingent consideration

Beginning balance

Sales / Principal payments

Realized losses (gains), net

Unrealized losses (gains), net

Ending balance

(1) Preferred equity investment held through consolidated joint ventures are included in assets of consolidated VIEs on the consolidated balance sheets.

(2) Includes assets acquired and liabilities assumed as a result of the Madison One Acquisition.

Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Madison One Acquisition.

The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of the change in circumstances that caused the transfer.

2 unchanged sentences

The table below presents the carrying value and estimated fair value of financial instruments that are not carried at fair value and are classified as Level 3.

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

Securitized debt obligations of consolidated VIEs, net

Senior secured note, net

Senior secured notes, net

Guaranteed loan financing

1 unchanged sentence

Total liabilities

As of both March 31, 2024 and December 31, 2023, other assets and accounts payable and accrued liabilities are not carried at fair value but generally approximate fair value.

As of both June 30, 2024 and December 31, 2023, other assets and accounts payable and accrued liabilities are not carried at fair value but generally approximate fair value.

Further details are presented in Note 18 – Other Assets and Other Liabilities.

3 unchanged sentences

The table below presents information about servicing rights.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Beginning net carrying amount

Additions due to loans sold, servicing retained

Recovery (impairment)

2 unchanged sentences

Beginning net carrying amount

Additions due to loans sold, servicing retained

Ending net carrying amount

Total servicing rights, at amortized cost

The Company’s SBA and multi-family servicing rights are carried at amortized cost and evaluated quarterly for impairment.

USDA servicing rights, at amortized cost

Beginning net carrying amount

Ending net carrying amount

Total servicing rights

The Company’s servicing rights are carried at amortized cost and evaluated quarterly for impairment.

The Company estimates the fair value of these servicing rights by using a combination of internal models and data provided by third-party valuation experts.

4 unchanged sentences

The table below presents additional information about servicing rights.

As of March 31, 2024

As of June 30, 2024

As of December 31, 2023

3 unchanged sentences

The table below presents significant assumptions used in the estimated valuation of servicing rights carried at amortized cost.

March 31, 2024

June 30, 2024

December 31, 2023

13 unchanged sentences

Servicing expense

USDA servicing rights (1)

Forward prepayment rate

Discount rate

Servicing expense

(1) Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Madison One Acquisition

Assumptions can change between and at each reporting period as market conditions and projected interest rates change.

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

23 unchanged sentences

Impact of 20% adverse change

USDA servicing rights

Forward prepayment rate

Impact of 10% adverse change

Impact of 20% adverse change

Discount rate

Impact of 10% adverse change

Impact of 20% adverse change

Servicing expense

Impact of 10% adverse change

Impact of 20% adverse change

The table below presents estimated future amortization expense for servicing rights.

(in thousands)

March 31, 2024

June 30, 2024

Discontinued Operations and Assets and Liabilities Held for Sale

In the fourth quarter of 2023, the Board approved a plan to strategically shift the Company’s core focus to LMM commercial real estate lending and government backed small business loans, which contemplates the disposition of assets and liabilities of the Company’s residential mortgage banking activities.

Accordingly, the Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of income, and excluded from continuing operations for all periods presented.

The Company expects to consummate this transaction in the current year.

Accordingly, the then Residential Mortgage Banking segment met the criteria to be classified as held for sale on the consolidated balance sheets, presented as discontinued operations on the consolidated statements of operations, and excluded from continuing operations for all periods presented.

As of June 30, 2024, the Company sold $ 4.7 billion of residential mortgage servicing rights for net proceeds of $ 61.8 million as part of the Company’s disposition of its residential mortgage banking segment.

The Company expects to complete the disposition of its residential mortgage banking segment in the current year.

The table below presents the assets and liabilities of the Residential Mortgage Banking segment classified as held for sale.

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

13 unchanged sentences

The table below presents the operating results of the Residential Mortgage Banking segment presented as discontinued operations.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Interest expense

Net interest income (loss) before provision for loan losses

Net interest expense

Non-interest income

Residential mortgage banking activities

Net realized gain (loss) on financial instruments

Net unrealized gain (loss) on financial instruments

18 unchanged sentences

Carrying Value

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

Total borrowings under credit facilities and other financing agreements

July 2024 - November 2026

November 2024 - November 2026

SOFR + 3.18 %

1 unchanged sentence

EURIBOR + 3.00 %

April 2024 - August 2024

July 2024 - June 2025

Total borrowings under repurchase agreements

5 unchanged sentences

In the table above, the agreements governing secured borrowings require maintenance of certain financial and debt covenants.

As of both March 31, 2024 and December 31, 2023, certain financing counterparties covenants calculations were amended to exclude the PPPLF from certain covenant calculations.

As of both March 31, 2024 and December 31, 2023 the Company was in compliance with all debt and financial covenants.

As of both June 30, 2024 and December 31, 2023, certain financing counterparties covenants calculations were

amended to exclude the PPPLF from certain covenant calculations.

As of both June 30, 2024 and December 31, 2023 the Company was in compliance with all debt and financial covenants.

The table below presents the carrying value of collateral pledged with respect to secured borrowings outstanding.

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

Loans, held for sale

Loans, held at fair value

Real estate acquired in settlement of loans

4 unchanged sentences

On October 20, 2021, ReadyCap Holdings, an indirect subsidiary of the Company, completed the offer and sale of $ 350.0 million of its 4.50 % Senior Secured Notes due 2026 (the “Senior Secured Notes”).

The Senior Secured Notes are fully and unconditionally guaranteed by the Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the Senior Secured Notes (collectively, the “Guarantors”).

ReadyCap Holdings’ and the Guarantors’ respective obligations under the Senior Secured Notes are secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “SSN Collateral”) owned by certain subsidiaries of the Company.

ReadyCap Holdings’ and the SSN Guarantors’ respective obligations under the Senior Secured Notes are secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “SSN Collateral”) owned by certain subsidiaries of the Company.

The Senior Secured Notes are redeemable by ReadyCap Holdings’ following a non-call period, through the payment of the outstanding principal balance of the Senior Secured Notes plus a “make-whole” or other premium that decreases the closer the Senior Secured Notes are to maturity.

ReadyCap Holdings is required to offer to repurchase the Senior Secured Notes at 101 % of the principal balance of the Senior Secured Notes in the event of a change in control and a downgrade of the rating on the Senior Secured Notes in connection therewith, as set forth more fully in the note purchase agreement.

The Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary negative covenants and requirements relating to the collateral and our company, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates.

As of March 31, 2024, the Company was in compliance with all covenants with respect to the Senior Secured Notes.

The Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary negative covenants and requirements relating to the collateral and our company, ReadyCap Holdings, and the SSN Guarantors, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates.

Ready Term Holdings, LLC (“Ready Term Holdings”) term loan due 2029.

On April 12, 2024, Ready Term Holdings, an indirect subsidiary of the Company, entered into a credit agreement which provides for a delayed draw term loan to the Company in an aggregate principal amount not to exceed $ 115.25 million (the “Term Loan”).

The Term Loan is fully and unconditionally guaranteed by the Company and other direct or indirect subsidiaries of the Company from time to time that pledge collateral to secure the Term Loan (collectively, the “Term Loan Guarantors”).

Ready Term Holdings’ and the Term Loan Guarantors’ respective obligations under the Term Loan are secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “Term Loan Collateral”) owned by certain subsidiaries of the Company.

The Term Loan matures on April 12, 2029, and may be drawn at any time on or prior to January 12, 2025, subject to the satisfaction of customary conditions.

The Company borrowed $ 75.0 million in connection with the initial closing of the Term Loan.

The Term Loan bears interest on the outstanding principal amount thereof at a rate equal to (a) SOFR plus 5.50 % per annum or (b) base rate plus 4.50 % per annum;

provided that if at any time the Term Loan is rated below investment grade, the interest rate shall increase to (x) SOFR plus 6.50 % per annum or (y) base rate plus 5.50 % per annum until the rating is no longer below investment grade.

In connection with the entry into the credit agreement, the Company

also agreed to pay certain upfront fees on the initial borrowing date.

The Company will also pay, with respect to any unused portion of the Term Loan, a commitment fee of 1.00 % per annum.

The Term Loan was issued pursuant to a credit agreement, which contains certain customary representations and warranties and affirmative and negative covenants and requirements relating to the collateral and our Company, Ready Term Holdings, and the Term Loan Guarantors, including maintenance of a minimum asset coverage ratio.

As of June 30, 2024, the Company was in compliance with all covenants with respect to the Senior Secured Notes and the Term Loan.

Corporate debt, net

7 unchanged sentences

The supplemental indentures governing the notes often contain customary negative covenants and financial covenants relating to maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and limitations on transactions with affiliates.

In addition, in connection with the Broadmark Merger, RCC Merger Sub, a wholly owned subsidiary of the Company, assumed Broadmark’s obligations on certain senior unsecured notes.

In addition, in connection with the Broadmark Merger, RCC Merger Sub, a wholly owned subsidiary of the operating partnership, assumed Broadmark’s obligations on certain senior unsecured notes.

The note purchase agreement governing these notes contain financial covenants that require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other customary affirmative and negative covenants.

As of March 31, 2024, the Company was in compliance with all covenants with respect to Corporate debt.

As of June 30, 2024, the Company was in compliance with all covenants with respect to Corporate debt.

The Debt ATM Agreement

4 unchanged sentences

The Agent is not required to sell any specific number of the notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between the Agent and the Company.

No such sales through the Debt ATM Program were made during the three months ended March 31, 2024 or March 31, 2023, respectively.

No such sales through the Debt ATM Program were made during the three or six months ended June 30, 2024 or June 30, 2023, respectively.

The table below presents information about senior secured notes and corporate debt.

1 unchanged sentence

Maturity Date

March 31, 2024

June 30, 2024

Senior secured notes principal amount (1)

Term loan principal amount (2)

Unamortized discount - Term loan

Unamortized deferred financing costs - Senior secured notes

13 unchanged sentences

(1) Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.

(2) Interest on the term loan is payable quarterly on January 12, April 12, July 12, and October 12 of each year.

(3) Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year.

8 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

Total contractual amounts

3 unchanged sentences

Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment in the consolidated balance sheets and the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets.

Guaranteed loan financings are secured by loans of $ 815.2 million and $ 845.0 million as of March 31, 2024 and December 31, 2023, respectively.

Guaranteed loan financings are secured by loans of $ 782.7 million and $ 845.0 million as of June 30, 2024 and December 31, 2023, respectively.

The table below presents guaranteed loan financing and the related interest rates and maturity dates.

5 unchanged sentences

Ending Balance

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

Variable Interest Entities and Securitization Activities

In the normal course of business, the Company enters into certain types of transactions with entities that are considered to be VIEs.

The Company’s primary involvement with VIEs has been related to its securitization transactions in which it

transfers assets to securitization vehicles, most notably trusts.

The Company’s primary involvement with VIEs has been related to its securitization transactions in which it transfers assets to securitization vehicles, most notably trusts.

The Company primarily securitizes its acquired and originated loans, which provides a source of funding and has enabled it to transfer a certain portion of economic risk on loans or related debt securities to third parties.

6 unchanged sentences

The Company consolidates variable interests held in an acquired joint venture investment for which it is the primary beneficiary.

The equity held by the remaining owners and their portions of net income (loss) are reflected in stockholders’ equity on the consolidated balance sheets as Non-controlling interests and in the consolidated statements of income as Net income attributable to noncontrolling interests, respectively.

As of March 31, 2024 and December 31, 2023, income and expenses on joint venture investments identified as consolidated VIEs were not material.

The equity held by the remaining owners and their portions of net income (loss) are reflected in stockholders’ equity on the consolidated balance sheets as Non-controlling interests and in the consolidated statements of operations as Net income attributable to noncontrolling interests, respectively.

As of June 30, 2024 and December 31, 2023, income and expenses on joint venture investments identified as consolidated VIEs were not material.

The table below presents assets and liabilities of consolidated VIEs.

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

21 unchanged sentences

The table below presents additional information on the Company’s securitized debt obligations.

March 31, 2024

June 30, 2024

December 31, 2023

21 unchanged sentences

Ready Capital Mortgage Financing 2023-FL12

The table above excludes non-company sponsored securitized debt obligations of $ 1.3 million and $ 1.6 million that are included in the consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively.

The table above excludes non-company sponsored securitized debt obligations of $ 0.7 million and $ 1.6 million that are included in the consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively.

Repayment of securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust that collateralize such debt.

11 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

Interest Income and Interest Expense

Interest income and expense are recorded in the consolidated statements of income and classified based on the nature of the underlying asset or liability.

Interest income and expense are recorded in the consolidated statements of operations and classified based on the nature of the underlying asset or liability.

The table below presents the components of interest income and expense.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Total loans, net (2)

Loans, held for sale, at fair value

Total loans, held for sale, at fair value (2)

Loans, held for sale

Total loans, held for sale (2)

Investments held to maturity (1)

6 unchanged sentences

Guaranteed loan financing

Senior secured note

Senior secured notes

Convertible note

10 unchanged sentences

For derivative instruments where the Company has not elected hedge accounting, fair value adjustments are recorded in earnings.

The fair value adjustments for interest rate swaps, along with the related interest income, interest expense and gains (losses) on termination of such instruments, are reported as a net realized gain on financial instruments in the consolidated statements of income.

As described in Note 3, for qualifying cash flow hedges, the change in the fair value of derivatives is recorded in OCI and not recognized in the consolidated statements of income.

As described in Note 3, for qualifying cash flow hedges, the change in the fair value of derivatives is recorded in OCI and not recognized in the consolidated statements of operations.

Derivative movements impacting earnings are recognized on a consistent basis with the classification of the hedged item, primarily interest expense.

1 unchanged sentence

The table below presents average notional derivative amounts, as this is the most relevant measure of volume, and derivative assets and liabilities by type.

March 31, 2024

Refer to Note 22 for further details on derivative assets and liabilities by product type.

June 30, 2024

December 31, 2023

6 unchanged sentences

Foreign exchange rate risk

(1) Refer to Note 22 - Offsetting Assets and Liabilities for further details.

The table below presents gains and losses on derivatives.

1 unchanged sentence

(in thousands)

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Interest rate swaps

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Interest rate swaps

Six Months Ended June 30, 2024

Interest rate swaps

Six Months Ended June 30, 2023

Interest rate swaps

In the table above:

● Gains (losses) on interest rate swaps and FX forwards are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income.

● For qualifying hedges of interest rate risk on interest rate swaps, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in AOCI.

2 unchanged sentences

Derivatives - effective portion reclassified from AOCI to income

Hedge ineffectiveness recorded directly in income

Total income statement impact

Derivatives - effective portion recorded in OCI

1 unchanged sentence

Interest rate swaps

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023

Three Months Ended June 30, 2024

Three Months Ended June 30, 2023

Six Months Ended June 30, 2024

Six Months Ended June 30, 2023

In the table above:

5 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

(1) Refer to Note 5 for further details on assets acquired and liabilities assumed in connection with the Broadmark Merger.

In the table above, Other REO excludes $ 3.1 million and $ 1.9 million as of March 31, 2024 and December 31, 2023, respectively, of real estate owned, held for sale within consolidated VIEs.

In the table above, Other REO excludes $ 3.4 million and $ 1.9 million as of June 30, 2024 and December 31, 2023, respectively, of real estate owned, held for sale within consolidated VIEs.

Subsequent to the determination of the preliminary purchase price allocation, based on updated valuations obtained, the Company recorded a measurement period adjustment of $ 23.7 million to decrease the value of real estate owned, held for sale in connection with the Broadmark Merger.

7 unchanged sentences

The table below presents the management fee payable to the Manager.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Management fee - total

5 unchanged sentences

The table below presents the Incentive fee payable to the Manager.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Incentive fee distribution - total

3 unchanged sentences

Additionally, upon such a termination by the Company without cause (or upon termination by the Manager due to the Company’s material breach), the management agreement provides that the Company will pay the Manager a termination fee equal to three times the average annual base management fee earned by the Manager during the prior 24 month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, except upon an internalization.

Additionally, if the management agreement is terminated under circumstances in which the Company is obligated to make a termination payment to the Manager, the operating partnership shall repurchase, concurrently with such termination, the Class A special unit for an amount equal to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24 month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

Additionally, if the management agreement is terminated under circumstances in which the Company is obligated to make a termination payment to the Manager, the operating partnership shall repurchase,

concurrently with such termination, the Class A special unit for an amount equal to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24 month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

The current term of the Management Agreement will expire on October 31, 2024 and is automatically renewed for successive one-year terms on each anniversary thereafter;

2 unchanged sentences

In addition to the management fees and incentive distribution described above, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company and for certain services provided by the Manager to the Company.

Expenses incurred by the Manager and reimbursed by the Company are typically included in salaries and benefits or general and administrative expense in the consolidated statements of income.

Expenses incurred by the Manager and reimbursed by the Company are typically included in salaries and benefits or general and administrative expense in the consolidated statements of operations.

The table below presents reimbursable expenses payable to the Manager.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Reimbursable expenses payable to Manager - total

4 unchanged sentences

The Fund focuses on commercial real estate equity through the acquisition of distressed and value-add real estate across property types with local operating partners.

As of March 31, 2024, the Company has contributed $ 61.2 million of cash into the Fund for a remaining commitment of $ 63.8 million.

As of June 30, 2024, the Company has contributed $ 61.2 million of cash into the Fund for a remaining commitment of $ 63.8 million.

Other Assets and Other Liabilities

1 unchanged sentence

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

7 unchanged sentences

Deferred tax asset

Tax receivable

Right-of-use lease asset

13 unchanged sentences

Total accounts payable and other accrued liabilities

In the table above, investments held to maturity was $ 3.4 million as of both March 31, 2024 and December 31, 2023.

As of both March 31, 2024 and December 31, 2023 substantially all of the investments held to maturity consisted of multi-family preferred equities with maturities of one through five years and a weighted average interest rate of 10.0 %.

The provision for credit losses on held to maturity securities was not material for the three months ended March 31, 2024 or March 31, 2023.

In the table above, investments held to maturity was $ 3.4 million as of both June 30, 2024 and December 31, 2023.

As of both June 30, 2024 and December 31, 2023 substantially all of the investments held to maturity consisted of multi-family preferred equities with maturities of one through five years and a weighted average interest rate of 10.0 %.

The provision for credit losses on held to maturity securities was not material for the three and six months ended June 30, 2024 or June 30, 2023.

The table below presents the carrying value of goodwill by reportable segment.

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

(in thousands)

March 31, 2024

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

June 30, 2024

Amortized intangible assets:

Internally developed software

Customer relationships

Broker network

Unamortized intangible assets:

Total intangible assets

December 31, 2023

Estimated Useful Life

Internally developed software to be sold, leased, or marketed

Customer Relationships - Red Stone

Trade name - Red Stone

Indefinite life

Internally developed software - Knight Capital

Indefinite life

Trade name - Knight Capital

Broker network - Knight Capital

Amortized intangible assets:

Internally developed software

Customer relationships

Unamortized intangible assets:

Total intangible assets

The amortization expense related to intangible assets was $ 0.4 million and $ 0.6 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

Such amounts are recorded as other operating expenses in the consolidated statements of income.

The table below presents accumulated amortization for finite-lived intangible assets.

(in thousands)

March 31, 2024

Internally developed software - Knight Capital

Internally developed software to be sold, leased, or marketed

Broker network - Knight Capital

Customer Relationship - Red Stone

Trade name - Knight Capital

Total accumulated amortization

The amortization expense related to intangible assets was $ 0.9 million and $ 1.7 million for the three and six months ended June 30, 2024 and $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2023, respectively.

Such amounts are recorded as other operating expenses in the consolidated statements of operations.

The table below presents amortization expense related to finite-lived intangible assets for the subsequent five years.

(in thousands)

March 31, 2024

June 30, 2024

Other Income and Operating Expenses

The table below presents the composition of other income and operating expenses.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Change in repair and denial reserve

Employee retention credit consulting income

ERC consulting income

Total other income

13 unchanged sentences

Dividend per Share

March 15, 2023

March 31, 2023

April 28, 2023

June 15, 2023

10 unchanged sentences

April 30, 2024

June 14, 2024

June 28, 2024

July 31, 2024

Stock incentive plans

10 unchanged sentences

Dividends are paid on all above-mentioned time-based awards, vested and non-vested.

Additionally, as part of the Broadmark Merger, the Company assumed the Broadmark RSU Awards outstanding immediately prior to the Effective Time and converted them into 736,666 Company RSUs after applying the Exchange Ratio.

The Broadmark RSU Awards have the same terms and conditions as were applicable to them immediately prior to the Effective Time and, accordingly, are not dividend eligible.

The table below summarizes RSU and RSA activity.

The table below summarizes RSU and RSA activity, excluding performance-based equity awards.

See below for further details on performance-based equity awards.

Restricted Stock Units/Awards

(in thousands, except share data)

Number of shares

Grant date fair value

2 unchanged sentences

Outstanding, March 31, 2024

During each of the three months ended March 31, 2024 and 2023, the Company recognized $ 1.9 million of non-cash compensation expense related to its stock-based incentive plan in the consolidated statements of income.

As of March 31, 2024 and December 31, 2023, approximately $ 12.2 million and $ 9.9 million, respectively, of non-cash compensation expense related to unvested awards had not yet been charged to net income.

Outstanding, June 30, 2024

The Company recognized $ 1.9 million and $ 3.8 million for the three and six months ended June 30, 2024, respectively, and $ 2.0 million and $ 3.9 million for the three and six months ended June 30, 2023, respectively, of non-cash compensation expense related to its stock-based incentive plan in the consolidated statements of operations.

As of June 30, 2024 and December 31, 2023, approximately $ 10.9 million and $ 9.9 million, respectively, of non-cash compensation expense related to unvested awards had not yet been charged to net income.

These costs are expected to be amortized into compensation expense ratably over the course of the remaining vesting periods.

1 unchanged sentence

2024 performance-based RSUs.

In February 2024, the Company granted, to certain key employees, 132,450 performance-based RSUs.

In February 2024, the Company granted, to certain key employees, 132,450 performance-based RSUs at a grant date fair value of $ 9.06 per performance-based RSU.

Subject to the pre-established metrics achieved during the performance period, the actual number of shares that the key employees receive at the end of the performance period remains at risk and subject to forfeiture.

2 unchanged sentences

2023 performance-based RSUs.

In June 2023, the Company granted, to certain key employees, 222,552 performance-based RSUs which may be earned based on the achievement of performance goals by the end of 2024 in relation to the Broadmark Merger.

In June 2023, the Company granted, to certain key employees, 222,552 performance-based RSUs at a grant date fair value of $ 10.11 per performance-based RSU, which may be earned based on the achievement of performance goals by the end of 2024 in relation to the Broadmark Merger.

The awards are allocated 30 % to awards that may be earned based on cost savings in 2024 as a percentage of the pre-merger Broadmark expense run rate, 15 % to awards that may be earned based on the volume of Broadmark product originated from the time of the merger through the end of 2024, 30 % to awards that may be earned based on the generation of incremental liquidity from asset level financing, portfolio run-off, sales or corporate re-levering through the end of 2024, and 25 % to awards that may be earned based on distributable return on equity (“ROE”) for 2024.

Subject to the level of achievement of these goals during the performance period, the actual number of shares that the key employees receive may range from 0 % to 200 % of the target award.

The fair value of the performance-based RSUs granted

is recorded as compensation expense over the performance period and will vest 2/3 rds on December 31, 2024, and 1/3 rd on December 31, 2025, with an offsetting increase in stockholders’ equity.

The fair value of the performance-based RSUs granted is recorded as compensation expense over the performance period and will vest 2/3 rds on December 31, 2024, and 1/3 rd on December 31, 2025, with an offsetting increase in stockholders’ equity.

Any awards earned on December 31, 2024 based on achievement of the applicable performance metrics but vesting on December 31, 2025 will convert into RSAs that are eligible to vest on December 31, 2025 based on the key employee’s continued employment or service through that date.

In February 2023, the Company granted, to certain key employees, 92,451 performance-based RSUs which are allocated 50 % to awards that may be earned based on achievement of performance goals related to distributable ROE for the three-year forward-looking period ending December 31, 2025 and 50 % to awards that may be earned based on achievement of performance goals related to relative TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

In February 2023, the Company granted, to certain key employees, 92,451 performance-based RSUs at a grant date fair value of $ 12.98 per performance-based RSU.

The performance-based RSUs are allocated 50 % to awards that may be earned based on achievement of performance goals related to distributable ROE for the three-year forward-looking period ending December 31, 2025 and 50 % to awards that may be earned based on achievement of performance goals related to relative TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

Subject to the distributable ROE metric and relative TSR achieved during the performance period, the actual number of shares that the key employees receive at the end of the performance period may range from 0 % to 200 % of the target award.

1 unchanged sentence

2022 performance-based RSUs.

In February 2022, the Company granted, to certain key employees, 84,566 performance-based RSUs which are allocated 50 % to awards that may be earned based on achievement of performance goals related to distributable ROE for the three-year forward-looking period ending December 31, 2024 and 50 % to awards that may be earned based on achievement of performance goals related to relative TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

In February 2022, the Company granted, to certain key employees, 84,566 performance-based RSUs at a grant date fair value of $ 14.19 per performance-based RSU.

During April 2024, 8,809 performance-based RSUs were forfeited.

and 50 % to awards that may be earned based on achievement of performance goals related to relative TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

Subject to the distributable ROE metric and relative TSR achieved during the vesting period, the actual number of shares that the key employees receive at the end of the performance period may range from 0 % to 200 % of the target award.

1 unchanged sentence

2021 performance-based RSUs .

In February 2021, the Company granted, to certain key employees, 43,327 performance-based RSUs which are allocated 50 % to awards that may be earned based on achievement of performance goals related to absolute TSR for the three-year forward-looking period ending December 31, 2023 and 50 % to awards that may be earned based on achievement of performance goals related to TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

In February 2021, the Company granted, to certain key employees, 61,895 performance-based RSUs at a grant date fair value of $ 12.82 per performance-based RSU.

During October 2021, 18,568 performance-based RSUs were forfeited.

The performance-based RSUs are allocated 50 % to awards that may be earned based on achievement of performance goals related to absolute TSR for the three-year forward-looking period ending December 31, 2023 and 50 % to awards that may be earned based on achievement of performance goals related to TSR for such three-year forward-looking performance period relative to the performance of a designated peer group.

Subject to the absolute and relative TSR achieved during the performance period, the actual number of shares that the key employees receive at the end of the performance period may range from 0 % to 300 % of the target award.

6 unchanged sentences

The Series C Preferred Stock contains certain fundamental change provisions that allow the holder to redeem the preferred stock for cash only if certain events occur, such as a change in control.

As of March 31, 2024, the conversion rate was 1.4686 shares of common stock per $ 25 principal amount of the Series C Preferred Stock, which is equivalent to a conversion price of approximately $ 17.02 per share of common stock.

As of June 30, 2024, the conversion rate was 1.5285 shares of common stock per $ 25 principal amount of the Series C Preferred Stock, which is equivalent to a conversion price of approximately $ 16.36 per share of common stock.

As redemption under these circumstances is not solely within the Company’s control, the Series C Preferred Stock has been classified as temporary equity.

7 unchanged sentences

Annual Dividend (per share)

March 31, 2024

June 30, 2024

In the table above,

4 unchanged sentences

Dividends will be payable in arrears to holders of record as they appear on the Company’s records at the close of business on the last day of each of March, June, September and December, as the case may be, immediately preceding the applicable dividend payment date.

● The Company declared dividends of $ 0.1 million and $ 1.9 million on its Series C Preferred Stock and Series E Preferred Stock, respectively, during the three months ended March 31, 2024.

The dividends were paid on April 15, 2024 for Series C Preferred Stock and on April 30, 2024 for Series E Preferred Stock to the holders of record as of the close of business on March 28, 2024.

● The Company may, at its option, redeem the Series E Preferred Stock, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100 % of the liquidation preference of $ 25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

● The Company declared dividends of $ 0.1 million and $ 1.9 million on its Series C Preferred Stock and Series E Preferred Stock, respectively, during the three months ended June 30, 2024.

The dividends were paid on July 15, 2024 for Series C Preferred Stock and on July 31, 2024 for Series E Preferred Stock to the holders of record as of the close of business on June 28, 2024.

accrued and unpaid dividends, if any, to the redemption date.

Series E Preferred Stock is not redeemable prior to June 10, 2026, except under certain conditions.

1 unchanged sentence

As part of the Broadmark Merger, the Company assumed public and private placement warrants that represented the right to purchase shares of Broadmark Common Stock.

As of March 31, 2024, there were 41.7 million public warrants outstanding, each representing the right to purchase 0.1180825 shares of our common stock, and 5.2 million private placement warrants outstanding, each representing the right to purchase 0.47233 shares of common stock.

As of June 30, 2024, there were 41.7 million public warrants outstanding, each representing the right to purchase 0.1180825 shares of our common stock, and 5.2 million private placement warrants outstanding, each representing the right to purchase 0.47233 shares of common stock.

In the aggregate, the Company has outstanding warrants to purchase approximately 7.4 million shares of common stock at a price of $ 24.34 per whole share.

1 unchanged sentence

Unless earlier redeemed, the public warrants will expire on November 19, 2024.

The liability for the private placement warrants was less than $ 0.1 million as of March 31, 2024 and is included in accounts payable and other accrued liabilities in the consolidated balance sheets.

The liability for the private placement warrants was less than $ 0.1 million as of June 30, 2024 and is included in accounts payable and other accrued liabilities in the consolidated balance sheets.

Equity ATM Program

On July 9, 2021, the Company entered into an Equity Distribution Agreement, as amended on March 8, 2022 (the “Equity Distribution Agreement”), with JMP Securities LLC (the “Sales Agent”), pursuant to which the Company may sell, from time to time, shares of the Company’s common stock, par value $ 0.0001 per share, having an aggregate offering price of up to $ 150 million, through the Sales Agent either as agent or principal (the “Equity ATM Program”).

The Company made no such sales through the Equity ATM Program during the three months ended March 31, 2024 or March 31, 2023.

As of March 31, 2024, shares representing approximately $ 78.4 million remain available for sale under the Equity ATM Program.

The Company made no such sales through the Equity ATM Program during the three or six months ended June 30, 2024 or June 30, 2023.

As of June 30, 2024, shares representing approximately $ 78.4 million remain available for sale under the Equity ATM Program.

Earnings per Share of Common Stock

The table below provides information on the basic and diluted EPS computations, including the number of shares of common stock used for purposes of these computations.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except for share and per share amounts)

30 unchanged sentences

When an OP unit holder redeems an OP unit, non-controlling interests in the operating partnership is reduced and the Company’s equity is increased.

As of March 31, 2024 and December 31, 2023, the non-controlling interest OP unit holders owned 1,240,582 and 1,330,582 OP units, respectively.

As of June 30, 2024 and December 31, 2023, the non-controlling interest OP unit holders owned 1,225,582 and 1,330,582 OP units, respectively.

Offsetting Assets and Liabilities

6 unchanged sentences

In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Company’s stockholders’ equity declines by a stated percentage or the Company fails to meet the terms of its ISDA Master Agreements, which would cause the Company to accelerate payment of any net liability owed to the counterparty.

As of March 31, 2024 and December 31, 2023, the Company was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.

As of June 30, 2024 and December 31, 2023, the Company was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.

For derivatives traded under an ISDA Master Agreement, the collateral requirements are listed under the Credit Support Annex, which is the sum of the mark to market for each derivative contract, the independent amount due to the derivative counterparty and any thresholds, if any.

7 unchanged sentences

The Company attempts to mitigate counterparty risk by establishing ISDA agreements with only high-grade counterparties that have the financial health to honor their obligations and diversification by entering into agreements with multiple counterparties.

In accordance with ASU 2013-01, Balance Sheet (Topic 210):

Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , the Company is required to disclose the impact of offsetting of assets and liabilities represented in the consolidated balance sheets to enable users of the consolidated financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities.

The Company discloses the impact of offsetting of assets and liabilities represented in the consolidated balance sheets to enable users of the consolidated financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities.

These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master Agreements or meet the following right of setoff criteria:

(a) the amounts owed by the Company to another party are determinable, (b) the Company has the right to set off the amounts owed with the amounts owed by the counterparty, (c) the Company intends to offset, and (d) the Company’s right of offset is enforceable at law.

As of March 31, 2024 and December 31, 2023, the Company has elected to offset assets and liabilities associated with its OTC derivative contracts in the consolidated balances sheets.

The table below presents the gross fair value of derivative contracts by product type, Paycheck Protection Program Liquidity Facility borrowings and secured borrowings, the amount of netting reflected in the consolidated balance sheets, as well as the amount not offset in the consolidated balance sheets as they do not meet the enforceable credit support criteria for netting under U.S.

As of June 30, 2024 and December 31, 2023, the Company has elected to offset assets and liabilities associated with its OTC derivative contracts in the consolidated balances sheets.

as well as the amount not offset in the consolidated balance sheets as they do not meet the enforceable credit support criteria for netting under U.S.

Gross amounts not offset in the Consolidated Balance Sheets (1)

5 unchanged sentences

Cash Collateral Received / Paid

March 31, 2024

June 30, 2024

Interest rate swaps

Secured borrowings

7 unchanged sentences

Financial Instruments with Off-Balance Sheet Risk, Credit Risk, and Certain Other Risks

In the normal course of business, the Company enters into transactions in various financial instruments that expose us to various types of risk, both on and off-balance sheet.

Such risks are associated with financial instruments and markets in

which the Company invests.

In the normal course of business, the Company enters into transactions that expose us to various types of risk, both on and off-balance sheet.

Such risks are associated with financial instruments and markets in which the Company invests.

These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off-balance sheet risk and prepayment risk.

5 unchanged sentences

The Company further mitigates its risk of potential losses while managing and servicing loans by performing various workout and loss mitigation strategies with delinquent borrowers.

Nevertheless, unanticipated credit losses could occur, which could adversely impact operating results.

Nevertheless, unanticipated credit losses could occur, which may adversely impact operating results.

The Company is also subject to credit risk with respect to the counterparties to derivative contracts.

If a counterparty becomes bankrupt or otherwise fails to perform its obligation under a derivative contract due to financial difficulties, the Company may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding.

If a counterparty fails to perform its obligation under a derivative contract due to financial difficulties, the Company may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding.

In the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value.

1 unchanged sentence

The Company may obtain only a limited recovery or may obtain no recovery in such circumstances.

In addition, the business failure of a counterparty with whom it enters a hedging transaction will most likely result in its default, which may result in the loss of potential future value and the loss of our hedge and force the Company to cover its commitments, if any, at the then current market price.

In addition, the business failure of a counterparty with whom it enters a hedging transaction will most likely result in its default, which may result in the loss

of potential future value and the loss of our hedge and force the Company to cover its commitments, if any, at the then current market price.

Counterparty credit risk is the risk that counterparties may fail to fulfill their obligations, including their inability to post additional collateral in circumstances where their pledged collateral value becomes inadequate.

10 unchanged sentences

Because certain interest rate swaps were not cleared through a central counterparty, the Company remains exposed to the counterparty’s ability to perform its obligations under each such swap and cannot look to the creditworthiness of a central counterparty for performance.

As a result, if an OTC swap counterparty cannot perform under the terms of an interest rate swap, the Company’s subsidiary would not receive payments due under that agreement, the Company may lose any unrealized gain associated with the interest rate swap and the hedged liability would cease to be

hedged by the interest rate swap.

While the Company would seek to terminate the relevant OTC swap transaction and may have a claim against the defaulting counterparty for any losses, including unrealized gains, there is no assurance that the Company would be able to recover such amounts or to replace the relevant swap on economically viable terms or at all.

9 unchanged sentences

While the Company may finance certain investments in security positions using traditional margin arrangements and reverse repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer term financing vehicles may be utilized to provide it with sources of long-term financing.

Off-Balance Sheet Risk —The Company has undrawn commitments on outstanding loans which are disclosed in Note 24.

Interest Rate — Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control.

Off-Balance Sheet Risk —The Company has undrawn commitments on outstanding loans.

Refer to Note 24 for further information.

Interest Rate Risk — Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control.

The Company’s operating results will depend, in part, on differences between the income from its investments and financing costs.

9 unchanged sentences

Commitments, Contingencies and Indemnifications

The Company may be subject to litigation and administrative proceedings arising in the ordinary course of its business and as such, has entered into agreements which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements.

The Company has had no prior claims or payments pursuant to these agreements and the individual maximum exposure is unknown as this would involve future claims that may be made against the Company that have not yet occurred.

However, based on history and experience, the risk of loss is expected to be remote.

The Company may be subject to litigation and administrative proceedings arising in the ordinary course of business and as such, has entered into agreements which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements.

Such indemnification obligations may not be subject to maximum loss clauses.

Historically, payments related to these indemnification obligations have not been material to the Company.

Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated financial statements.

2 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

12 unchanged sentences

If the Company fails to maintain its qualification as a REIT for any taxable year, it may be subject to material penalties as well as federal, state and local income tax on its taxable income at regular corporate rates and it would not be able to qualify as a REIT for the subsequent four taxable years.

As of March 31, 2024 and December 31, 2023, the Company was in compliance with all REIT requirements.

As of June 30, 2024 and December 31, 2023, the Company was in compliance with all REIT requirements.

Certain subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”).

TRSs permit the Company to participate in certain activities that would not be qualifying income if earned directly by the parent REIT, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Internal Revenue Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code.

To the extent these criteria are met, the Company will continue to maintain our qualification as a REIT.

7 unchanged sentences

A full valuation allowance was recorded against these deferred tax assets at year-end as it was more likely than not that these assets would not be realized.

In the three months ended March 31, 2024, the Company completed a reorganization which will allow the Company to recover the deferred tax assets recorded, and as such, the valuation allowance was released in the first quarter.

The Company’s framework for assessing the recoverability of deferred tax assets requires it to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets, the cumulative net income in its consolidated statements of income in recent years, the future reversals of existing taxable temporary differences, and the carryforward periods for any carryforwards of net operating losses.

In the first quarter of 2024, the Company completed a reorganization which will allow the Company to recover the deferred tax assets recorded, and as such, the valuation allowance was released in the first quarter.

There was no such valuation allowance activity during the three months ended June 30, 2024.

The Company’s framework for assessing the recoverability of deferred tax assets requires it to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets, the cumulative net income in its consolidated statements of operations in recent years, the future reversals of existing taxable temporary differences, and the carryforward periods for any carryforwards of net operating losses.

Segment Reporting

1 unchanged sentence

i) LMM Commercial Real Estate (formerly our SBC Lending and Acquisitions segment) and ii) Small Business Lending.

The Company’s organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), the Chief

Executive Officer, uses to evaluate, view, and run its business operations, which includes customer base and nature of loan program types.

The Company’s organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, uses to evaluate, view, and run its business operations, which includes customer base and nature of loan program types.

The segments are based on this organizational structure and the information reviewed by the CODM and management to evaluate segment results.

2 unchanged sentences

As part of this segment, the Company originates and services multi-family loan products under the Freddie Mac SBL program.

LMM originations include construction and permanent financing activities for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds, through Red Stone.

LMM originations include construction and permanent financing activities for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds.

This segment also reflects the impact of LMM securitization activities.

1 unchanged sentence

Small Business Lending

The Company acquires, originates and services loans guaranteed by the SBA under the SBA Section 7(a) Program.

The Company acquires, originates and services loans guaranteed by the SBA under the SBA Section 7(a) Program and government guaranteed loans focused on the USDA.

This segment also reflects the impact of SBA securitization activities.

The Company also acquires purchased future receivables through Knight Capital.

Corporate- Other

2 unchanged sentences

The tables below present reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other.

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

LMM Commercial

2 unchanged sentences

Interest expense

Net interest income before recovery of (provision for) loan losses

Recovery of (provision) for loan losses

Net interest income after recovery of (provision for) loan losses

Net interest income before recovery of loan losses

Recovery of loan losses

Net interest income after recovery of loan losses

Non-interest income

3 unchanged sentences

Servicing income, net

Income on purchased future receivables, net

Loss on bargain purchase

Income on unconsolidated joint ventures

Total non-interest income (loss)

Non-interest expense

Employee compensation and benefits

Allocated employee compensation and benefits from related party

Professional fees

Management fees – related party

Loan servicing expense

Transaction related expenses

Other operating expenses

Total non-interest expense

Income (loss) before provision for income taxes

Six Months Ended June 30, 2024

LMM Commercial

(in thousands)

Interest income

Interest expense

Net interest income before recovery of loan losses

Recovery of loan losses

Net interest income after recovery of loan losses

Non-interest income

Net realized gain (loss) on financial instruments and real estate owned

Net unrealized gain (loss) on financial instruments

Valuation allowance, loans held for sale

Servicing income, net

Loss on bargain purchase

Income on unconsolidated joint ventures

Total non-interest income (loss)

Non-interest expense

Employee compensation and benefits

Allocated employee compensation and benefits from related party

Professional fees

Management fees – related party

Loan servicing expense

Transaction related expenses

Other operating expenses

Total non-interest expense

Income (loss) before provision for income taxes

Three Months Ended June 30, 2023

LMM Commercial

(in thousands)

Interest income

Interest expense

Net interest income before provision for loan losses

Provision for loan losses

Net interest income after provision for loan losses

Non-interest income

Net realized gain (loss) on financial instruments and real estate owned

Net unrealized gain (loss) on financial instruments

Servicing income, net

Gain on bargain purchase

Income on unconsolidated joint ventures

Total non-interest income

4 unchanged sentences

Management fees – related party

Incentive fees – related party

Loan servicing expense

3 unchanged sentences

Income before provision for income taxes

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

LMM Commercial

2 unchanged sentences

Interest expense

Net interest income before recovery of (provision for) loan losses

Recovery of (provision for) loan losses

Net interest income after recovery of (provision for) loan losses

Net interest income before provision for loan losses

Provision for loan losses

Net interest income after provision for loan losses

Non-interest income

2 unchanged sentences

Servicing income, net

Income on purchased future receivables, net

Gain on bargain purchase

Income on unconsolidated joint ventures

10 unchanged sentences

Total non-interest expense

Income (loss) before provision for income taxes

Income before provision for income taxes

Subsequent Events

On April 12, 2024, the Company, through its indirect wholly-owned subsidiaries, entered into a credit agreement which provides for a delayed draw term loan to the Company in an aggregate principal amount not to exceed $ 115.25 million (the “Term Loan”).

The Term Loan may be drawn at any time on or prior to January 12, 2025, subject to the satisfaction of customary conditions.

The Company borrowed $ 75.0 million on April 12, 2024 in connection with the initial closing of the credit agreement.

The scheduled maturity date of the Term Loan is April 12, 2029.

The Term Loan bears interest on the outstanding principal amount thereof at a rate equal to (a) SOFR plus 5.50 % per annum or (b) base rate plus 4.50 % per annum;

In connection with the entry into the credit agreement, the Company also agreed to pay certain upfront fees on the initial borrowing date.

The Company will also pay, with respect to any unused portion of the Term Loan, a commitment fee of 1.00 % per annum.

During April 2024, the Company acquired approximately 1.6 million shares of the Company’s common stock, $ 0.0001 par value per share, at an average price of $ 8.57 per share through the Company’s stock repurchase program.

On July 1, 2024, the Company acquired Funding Circle USA, Inc., which operates an online lending platform to originate and service small business loans, for approximately $ 41.2 million in cash.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements