10-K: Ready Capital Reports 2025 Net Loss Amid Strategic Shifts

Ready Capital Corporation reported a net loss of $221.1 million for the year ended December 31, 2025, driven by decreased net interest income and increased realized losses, despite strategic acquisitions and a significant bargain purchase gain.

Summary

• Net loss from continuing operations improved to $(215.8) million in 2025, compared to $(412.0) million in 2024.
• Total assets decreased by $2.4 billion to $7.8 billion as of December 31, 2025, primarily due to a decrease in assets of consolidated variable interest entities (VIEs).
• Total liabilities decreased by $2.1 billion to $6.1 billion, mainly from reduced securitized debt obligations of consolidated VIEs.
• Total stockholders' equity decreased by $0.3 billion to $1.6 billion, primarily due to net losses, common stock repurchases, and dividends paid, partially offset by shares issued in connection with the UDF IV Merger.
• Distributable earnings (non-GAAP) showed a significant loss of $(246.0) million in 2025, a substantial deterioration from a gain of $28.4 million in 2024.
• The loan portfolio was $5.9 billion (excluding PPP loans) as of December 31, 2025, diversified across 50 states and Europe, with 96% secured by senior liens.
• LMM loan originations were $626.1 million in 2025, a decrease from $1,198.1 million in 2024.
• SBL loan originations were $1,168.4 million in 2025, slightly down from $1,202.6 million in 2024.
• The company has substantial debt maturing in 2026, totaling approximately $550.0 million of senior secured notes and corporate debt.
• Liquidity sources as of December 31, 2025, included approximately $200.0 million of unrestricted cash and $700.0 million of unencumbered assets.
• The company expects approximately $287 million in net liquidity from portfolio maturities and pending asset resolutions over the next 12 months.
• The disposition of the Residential Mortgage Banking segment was completed effective June 30, 2025.
• The acquisition of United Development Funding IV (UDF IV) on March 13, 2025, resulted in a bargain purchase gain of $109.5 million.
• The acquisition of Funding Circle USA, Inc. on July 1, 2024, for approximately $41.2 million in cash, resulted in a bargain purchase gain of $32.2 million.
• The acquisition of Madison One on June 5, 2024, for approximately $32.9 million in cash, resulted in goodwill of $11.0 million.
• The 5.75% Senior Notes due 2026 were repaid in full in February 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging period marked by significant financial losses and a decline in key metrics like distributable earnings and book value per share, despite strategic acquisitions and an improved net loss from continuing operations. The substantial debt maturities in 2026 and ongoing litigation add to the concerns.

Positives

• Net loss from continuing operations improved to $(215.8) million in 2025 from $(412.0) million in 2024.
• A significant bargain purchase gain of $109.5 million was recognized from the UDF IV Merger in 2025.
• The company completed the disposition of its Residential Mortgage Banking segment, streamlining its core focus.
• Maintained strong liquidity with $200.0 million in unrestricted cash and $700.0 million in unencumbered assets as of December 31, 2025.
• Expected net liquidity of $287 million from portfolio maturities and pending asset resolutions over the next 12 months provides financial flexibility.
• Successfully repaid the 5.75% Senior Notes due 2026 in full in February 2026, addressing an upcoming debt maturity.
• The company maintained effective internal control over financial reporting as of December 31, 2025, as attested by its independent registered public accounting firm.

Negatives

• The company reported a net loss of $(221.1) million for the year ended December 31, 2025.
• Distributable earnings showed a significant loss of $(246.0) million in 2025, a substantial decline from a gain of $28.4 million in 2024.
• Total assets decreased by $2.4 billion and total stockholders' equity decreased by $0.3 billion in 2025.
• Interest income decreased by $327.8 million in 2025, primarily due to an increase in non-accrual loans, a decrease in loan balances, and interest rates.
• The provision for loan losses in the Small Business Lending segment increased by $16.4 million, driven by changes in macroeconomic inputs for reserve modeling and an increase in asset-specific reserves.
• Approximately $550.0 million of senior secured notes and corporate debt are maturing in 2026, posing a significant refinancing or repayment challenge.
• Non-accrual loans constituted 25.5% of total loans, net, as of December 31, 2025, indicating potential credit quality issues.
• Loans with LTV ratios greater than 100% represented 18.2% of the loan portfolio, increasing the risk of loss.
• The company is involved in multiple ongoing legal proceedings, including class action and derivative lawsuits related to past mergers and alleged securities law violations.

Risks

• Dependence on Waterfall Asset Management, LLC (Waterfall) and its key personnel for success, with potential difficulty in finding a suitable replacement if the management agreement is terminated or key personnel leave.
• Conflicts of interest arising from the relationship with Waterfall and its affiliates, which could lead to decisions not in the best interests of stockholders.
• The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, even for unsatisfactory performance.
• Future pandemics and epidemics may adversely affect borrowers, the real estate industry, global markets, and business operations, financial condition, liquidity, and capital resources.
• Substantial debt maturing in 2026, including approximately $550 million of senior secured notes and corporate debt, could negatively impact liquidity, results of operations, and book value.
• The lack of liquidity of assets may adversely affect the ability to value and sell assets.
• A significant portion of investments in LMM loans are subject to credit risk, including higher loan-to-value (LTV) ratios and potential for increased delinquencies and defaults.
• Loans made to self-employed borrowers carry a higher risk of delinquency and default.
• New entrants in the market for LMM loan acquisitions and originations could adversely impact the ability to acquire loans at attractive prices and originate LMM loans at attractive risk-adjusted returns.
• Unintended consequences and market distortions may stem from far-ranging interventions in the financial system and oversight of financial markets.
• Interest rate fluctuations may adversely affect the level of net income and the value of assets and common stock.
• Periods of higher inflation in the U.S. may have an adverse impact on the valuation of investments.
• Maintenance of the 1940 Act exception imposes limits on operations and investment flexibility.
• Accounting rules for certain transactions are highly complex and involve significant judgment and assumptions; changes could adversely impact the ability to timely and accurately prepare consolidated financial statements.
• Provisions for credit losses under the Current Expected Credit Loss (CECL) model are difficult to estimate.
• Cybersecurity risk and cyber incidents may adversely affect business by causing disruptions, compromising data, or damaging reputation.
• Potential adverse effects from tenant defaults, bankruptcies, or insolvencies on properties to which the company takes title.
• Exposure to environmental liabilities with respect to properties acquired through foreclosure.
• Mezzanine loan assets may involve greater risks of loss than senior loans secured by income-producing properties.
• Investments outside the United States denominated in foreign currencies subject the company to foreign currency risks and the uncertainty of foreign laws and markets.
• Failure to obtain or maintain required approvals and/or state licenses necessary to operate mortgage-related activities may adversely impact the investment strategy.
• A diminished role and other changes in the role of Freddie Mac in the mortgage market may adversely affect the business.
• Acquisitions and the integration of acquired businesses subject the company to various risks and may not result in all of the cost savings and benefits anticipated.
• Unique risks related to integrating a construction lending platform into existing operations and the origination and ownership of construction loans.
• Underestimation of the credit analysis and the expected risk-adjusted return by Waterfall relative to other comparable investment opportunities may lead to losses.
• Reliance on analytical models and data, which if incorrect, misleading, or incomplete, would subject the company to potential risks.
• The failure of a third-party servicer or the failure of the company's own internal servicing system to effectively service the portfolio of mortgage loans would materially and adversely affect the company.
• The bankruptcy of a third-party servicer would adversely affect the business, results of operations, and financial condition.
• Downgrades of the U.S. government's sovereign credit rating and uncertain political and financial market conditions may affect the terms or stability of securities issued or guaranteed by the U.S. federal government.
• The inability to acquire, make, or sell government-guaranteed or other loans may generate less interest income and fewer origination fees.
• Joint venture investments could be adversely affected by lack of sole decision-making authority, reliance on joint venture partners' financial condition and liquidity, and disputes.
• The inability to manage future growth could have an adverse impact on financial condition and results of operations.
• Declines in the fair market values of assets may adversely affect periodic reported results and credit availability.
• Investments may include subordinated tranches of ABS which are subordinate in right of payment to more senior securities.
• In certain cases, the company may not control the special servicing of the mortgage loans included in the securities in which it may invest, and the special servicer may take actions that could adversely affect its interests.
• Any credit ratings assigned to LMM loans and ABS assets will be subject to ongoing evaluations and revisions and may be downgraded.
• The receivables underlying the ABS the company may acquire are subject to credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks, and legal risks.
• Securitization transactions may expose the company to potentially material risks, including litigation and repurchase obligations if representations and warranties are breached.
• Certain financing arrangements restrict operations and expose the company to additional risk.
• Repurchase agreements used to finance assets may restrict leveraging and require additional collateral (margin calls).
• Rights under repurchase agreements may be subject to the effects of bankruptcy laws in the event of bankruptcy or insolvency of the company or its lenders.
• Change of control provisions in senior secured notes and corporate debt could deter, delay, or prevent an otherwise beneficial merger, acquisition, tender offer, or other takeover attempt.
• Hedging transactions could expose the company to contingent liabilities in the future and adversely impact financial condition.
• Hedging against interest rate exposure may adversely affect earnings, which could reduce cash available for distribution to stockholders.
• Use of derivatives may expose the company to counterparty and other risks.
• Regulation as a commodity pool operator could subject the company to additional regulation and compliance requirements.
• If the company attempts to qualify for hedge accounting treatment for its derivative instruments but fails, it may suffer losses.
• Failure to qualify as a REIT would subject the company to U.S. federal income tax and applicable state and local taxes, reducing cash available for distribution.
• The percentage of assets represented by Taxable REIT Subsidiaries (TRSs) and the amount of income from TRSs are subject to statutory limitations that could jeopardize REIT qualification.
• Complying with REIT requirements may force the company to liquidate or forego otherwise attractive investments, reducing returns.
• Distributions from the company or gain on the sale of common stock may be treated as unrelated business taxable income (UBTI) to U.S. tax-exempt holders.
• REIT distribution requirements could adversely affect the business plan and may require incurring debt, selling assets, or taking other actions to make distributions.
• The company may be required to report taxable income with respect to certain investments in excess of the economic income ultimately realized.
• The interest apportionment rules may affect the ability to comply with the REIT asset and gross income tests.
• The failure of excess Mortgage Servicing Rights (MSRs) held by the company to qualify as real estate assets, or the failure of income from excess MSRs to qualify as interest from mortgages, could adversely affect REIT qualification.
• If the company were to make a taxable distribution of shares of its stock, stockholders may be required to sell such shares or other assets to pay any tax imposed.
• Complying with REIT requirements may limit the ability to hedge effectively.
• Even if the company qualifies as a REIT, it may face tax liabilities that reduce cash flow.
• REIT qualification and exemption from U.S. federal income tax may be dependent on the accuracy of legal opinions or advice, statements by issuers, or information provided by shareholders or other third parties.
• Potential changes to U.S. tax laws could adversely impact the company.
• There may be tax consequences to any modifications to hedging transactions and other contracts to replace references to LIBOR.
• Conflicts of interest could arise as a result of the REIT structure.
• Certain provisions of Maryland law could inhibit changes in control and prevent stockholders from realizing a premium.
• The ability to issue additional shares of common and preferred stock may prevent a change in control.
• Rights to take action against directors and officers are limited, which could limit recourse in the event of actions not in stockholders' best interests.
• Bylaws designate the Circuit Court for Baltimore City, Maryland, or the U.S. District Court for the District of Maryland, Baltimore Division, as the sole and exclusive forum for some litigation.
• Future offerings of debt or equity securities, which may rank senior to common stock, may adversely affect the market price of common stock.
• The company cannot assure its ability to pay distributions in the future.
• Changes in accounting rules could occur at any time and could impact the company in significantly negative ways.
• Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on business and stock price.
• Inability to access funding could have a material adverse effect on results of operations, financial condition, and business.

Future Outlook

The company intends to grow its investment portfolio and expand its LMM securitization capabilities, adapting to market conditions to deploy capital to asset classes and segments with the most attractive risk-adjusted returns. It expects to utilize its existing liquidity, access to the capital markets, and potential asset sales to fund ongoing obligations and address upcoming debt maturities.

Management Comments

• Our objective is to provide attractive risk-adjusted returns to our stockholders.
• We intend to grow our investment portfolio and believe that the breadth of our full-service real estate finance platform will allow us to adapt to market conditions and deploy capital to asset classes and segments with the most attractive risk-adjusted returns.
• We believe that our sources of liquidity will provide sufficient liquidity to fund ongoing obligations and address upcoming debt maturities, including the approximately $550.0 million of debt maturing in 2026.
• We expect the combination of these items to de-lever the balance sheet, which may impact book value depending on the size, timing and pricing of such actions.

Industry Context

StockSavvy.ai notes that Ready Capital Corporation operates in a fragmented LMM commercial mortgage market, where large banks are less focused, and smaller banks have geographic limitations. This market structure, combined with specialized servicing expertise, provides opportunities for the company. The company's strategy of expanding LMM securitization capabilities aligns with industry trends seeking match-term financing and efficient capital deployment. The company's acquisitions of Funding Circle and Madison One reflect a broader industry trend towards consolidating specialized lending platforms and leveraging technology for loan origination and servicing.

Comparison to Industry Standards

• The company holds an SBA license as one of only 16 non-bank Small Business Lending Companies (SBLCs), indicating a specialized position in the market.
• The company has been granted preferred lender status by the SBA, which is a competitive advantage in the government-guaranteed loan sector.
• The company's LMM loan origination volume has shown a 15.6% compound annual growth rate (CAGR) since inception in 2013, demonstrating strong growth in a specialized market segment.
• The company's total leverage ratio of 3.5x and recourse leverage ratio of 1.6x as of December 31, 2025, provide context for its financial risk profile compared to other mortgage REITs or financial institutions, though specific industry benchmarks for these ratios are not provided in the filing.

Management Changes

Corporate Governance

Legal Proceedings

• Broadmark Merger Action: A class action lawsuit filed on June 6, 2024, in Maryland, alleging Broadmark's former board breached fiduciary duties in connection with the Broadmark Merger. The company is subject to contractual indemnification obligations. Defendants moved to dismiss the amended complaint on April 14, 2025, with briefing completed on July 22, 2025.
• UDF IV Merger Action: A class action lawsuit filed on March 18, 2025, in Maryland, alleging UDF IV's former board breached fiduciary duties in connection with the UDF IV Merger. The company is subject to contractual indemnification obligations. Defendants moved to dismiss the amended complaint on September 9, 2025, with briefing completed on December 18, 2025.
• Exchange Act Class Actions (In re Ready Capital Securities Litigation): Two consolidated class action lawsuits filed in March and April 2025 in New York, alleging violations of Section 10(b) and Rule 10b-5 by the company and certain executive officers regarding loan portfolio performance. Defendants moved to dismiss the amended complaint on November 10, 2025, with briefing completed on February 9, 2026.
• Ready Capital Derivative Actions: Parallel derivative lawsuits filed between March and July 2025 in New York and Maryland, asserting claims for Exchange Act violations, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. These actions are currently stayed pending resolution of the Exchange Act Litigation.
• Derivative Demand Letter: Received in early August 2025 from a purported Ready Capital stockholder, mirroring allegations of the Exchange Act Litigation and Ready Capital Derivative Actions. The letter is held in abeyance.
• Broadmark State Court Actions (In re Ready Capital Corporation Securities Litigation): Two consolidated class action lawsuits filed in May 2025 in Washington, alleging Securities Act violations by the company and certain executive officers/directors regarding false and misleading statements in connection with the Broadmark Merger. Motions to dismiss and stay were denied on February 19, 2026.
• Broadmark Federal Court Litigation: A class action filed on May 28, 2025, in Washington, alleging Exchange Act and Securities Act violations regarding false and misleading statements in connection with the Broadmark Merger. Defendants moved to dismiss the amended complaint on January 12, 2026 (briefing expected by March 2026) and to transfer the litigation on January 8, 2026 (briefing completed February 5, 2026).
• Broadmark Derivative Litigation: A double derivative action filed on July 18, 2025, in Maryland, asserting claims for Exchange Act violations, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. This litigation is currently stayed pending resolution of the Broadmark Exchange Act Litigation.
• Legacy UDF IV Litigation (Megatel Action): A lawsuit filed on March 20, 2020, in Texas, against UDF Defendants (assumed by the company) alleging Racketeer Influenced and Corrupt Organizations Act (RICO) and common law fraud. Discovery is complete, and summary judgment motions are due by March 11, 2026.
• Legacy UDF IV Litigation (UDF Advisor Action): A lawsuit filed on August 17, 2022, in Texas, against former UDF IV officers, trustees, and advisors (company subject to indemnification) alleging improper indemnification and fees. The Texas Supreme Court granted a writ and directed the trial court to dismiss the action with prejudice on November 14, 2025.

Related Party Transactions

• The company is externally managed and advised by Waterfall Asset Management, LLC (Waterfall) under a Management Agreement, which outlines services and compensation, including a base management fee and an incentive distribution.
• The management fee is calculated quarterly in arrears at 1.5% per annum of stockholders' equity up to $500 million and 1.00% per annum of stockholders' equity in excess of $500 million.
• Waterfall is entitled to an incentive distribution equal to 15% of incentive fee core earnings (IFCE) on a rolling four-quarter basis, exceeding an 8.00% hurdle, payable 50% in cash and 50% in common stock or OP units.
• The company reimburses Waterfall for certain expenses, which are typically included in salaries and benefits or general and administrative expense.
• The company has a $125.0 million commitment to invest in Waterfall Atlas Anchor Feeder, LLC, a fund managed by Waterfall, entitling the company to 15% of any carried interest distributions received by the fund's general partner.
• The company's Chief Financial Officer, Chief Operating Officer, and Chief Credit Officer are employed by Waterfall and dedicated exclusively to the company, along with several accounting professionals.

Stakeholder Impact

• Shareholders: Experienced negative impacts from net losses, decreased distributable earnings, reduced dividends, and a decline in book value per share. Potential for dilution from future equity offerings and uncertainty from ongoing litigation.
• Employees/Management: Retention Awards (performance-based restricted stock units, restricted stock awards, and cash awards) were approved for key management personnel to support leadership continuity and company success. Several management changes occurred, including new appointments and resignations.
• Borrowers: The company provides loan modifications to borrowers experiencing financial difficulty, including interest rate reductions, principal forgiveness, and term extensions, aimed at minimizing economic loss and avoiding foreclosure.
• Lenders/Counterparties: The company faces substantial debt maturities in 2026, requiring careful management of liquidity. Repurchase agreements and credit facilities expose the company to margin calls and counterparty risk, which could impact its ability to secure future financing.

Next Steps

• Continue to grow the investment portfolio and expand LMM securitization capabilities.
• Utilize existing liquidity and access capital markets to fund ongoing obligations and address upcoming debt maturities.
• Potentially sell additional assets to de-lever the balance sheet.
• The Compensation Committee approved Retention Awards (PSUs, Retention RSAs, Cash Awards) for key management personnel, with PSUs vesting based on stock price milestones and Retention RSAs vesting on December 31, 2028.
• The company expects to enter into hedging arrangements to protect against share price volatility related to PSU and Retention RSA vesting.
• The 2023 Equity Incentive Plan Amendment to increase the share pool for grants will be presented at the 2026 annual meeting of stockholders.
• The company expects to enter into a consulting agreement with Adam Zausmer post-separation.
• Summary judgment motions in the Megatel Action are due by March 11, 2026, with a trial date likely after decisions on these motions.
• Briefing on the defendants' motion to dismiss the Broadmark Federal Court Litigation is expected to be completed by March 2026.

Key Dates

Recommendation

The company is undergoing a strategic shift and has completed significant acquisitions, but the financial results for 2025 show substantial net losses and a decline in distributable earnings and book value per share. While the company has identified liquidity sources to address upcoming debt maturities, the overall financial performance is weak. The ongoing legal proceedings add uncertainty. A 'hold' recommendation is appropriate as the company navigates these challenges and works to realize the benefits of its strategic changes, but significant improvements are needed before a more positive outlook can be justified.

Keywords

Real Estate Finance, LMM Loans, SBA Loans, USDA Loans, Commercial Real Estate, REIT, Securitization, Mortgage-Backed Securities, Debt, Preferred Stock, Financial Services, Asset Management, Credit Risk, Interest Rate Risk, Liquidity, Acquisitions, Corporate Governance, Cybersecurity, Loan Origination, Servicing, Capital Markets