Residential Mortgage Banking Overview
Distributable Earnings Reconciliation by Quarter
(In thousands, except share data)
Net Income
Reconciling items:
READY CAPITAL.
Q3 2022
$
66,253
$
Q4 2022
13,682
Q1 2023
Q2 2023
36,978
$
253,373
Q3 2023
47,179
Unrealized (gain) loss on MSR
S
(16,649)
S
3,167
S
6,093
S
(8,818) S
(2,563)
Increase (decrease) in CECL reserve
2,462
30,735
(7,321)
19,410
(12,151)
Non-cash compensation
1,392
1,345
1,853
2,062
2,275
Merger transaction costs and other non-recurring expenses
1,535
5,827
1,733
14,177
2,536
Bargain purchase (gain) loss
—
―
(229,894)
14,862
Total reconciling items
S
(11,260) S
Distributable earnings before income taxes
$
54,993
41,074 S
54,756 $
Income tax adjustments
3,193
(3,175)
Distributable earnings
$
58,186
$
51,581 $
Less: Distributable earnings attributable to non-controlling interests
S
2,655
S
2,711 S
2,358 $
39,336 $
(1,187)
38,149 $
1,869 $
(203,063) $
4,959
50,310
973
51,283 S
$
52,138
26
52,164
Less: Income attributable to participating shares
408
Less: Dividends on preferred stock
1,999
331
1,999
Distributable earnings attributable to Common Stockholders
S
53,124
S
Distributable earnings per share-basic
$
0.46
$
46,540 $
0.42 $
372
1,999
33,909 $
0.31 $
2,035
373
2,000
46,875 S
0.36
S
1,566
335
1,999
48,264
$
0.28
Weighted average common shares outstanding
114,371,160
110,739,644
110,672,939
131,651,125
171,973,933
The Company believes that this non-U.S. GAAP financial information, in addition to the related U.S. GAAP measures, provides investors greater transparency into the information used by management in its financial and operational decision-making,
including the determination of dividends. However, because Distributable Earnings is an incomplete measure of the Company's financial performance and involves differences from net income computed in accordance with U.S. GAAP, it should be
considered along with, but not as an alternative to, the Company's net income computed in accordance with U.S. GAAP as a measure of the Company's financial performance. In addition, because not all companies use identical calculations, the
Company's presentation of Distributable Earnings may not be comparable to other similarly-titled measures of other companies.
We calculate Distributable earnings as GAAP net income (loss) excluding the following:
i)
ii)
iii)
iv)
v)
vi)
vii)
any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses
any realized gains or losses on sales of certain MBS
any unrealized gains or losses on Residential MSRs
any unrealized change in current expected credit loss reserve
any unrealized gains or losses on de-designated cash flow hedges
any non-cash compensation expense related to stock-based incentive plan
one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses
In calculating Distributable Earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by the Company in the secondary market but is not adjusted to exclude unrealized gains and losses
on MBS retained by Ready Capital as part of its loan origination businesses, where the Company transfers originated loans into an MBS securitization and the Company retains an interest in the securitization. In calculating Distributable Earnings, the
Company does not adjust Net Income (in accordance with U.S. GAAP) to take into account unrealized gains and losses on MBS retained by us as part of the loan origination businesses because the unrealized gains and losses that are generated in the
loan origination and securitization process are considered to be a fundamental part of this business and an indicator of the ongoing performance and credit quality of the Company's historical loan originations. In calculating Distributable Earnings, Net
Income (in accordance with U.S. GAAP) is adjusted to exclude realized gains and losses on certain MBS securities considered to be non-distributable. Certain MBS positions are considered to be non-distributable due to a variety of reasons which may
include collateral type, duration, and size. In 2016, the Company liquidated the majority of its MBS portfolio from distributable earnings to fund recurring operating segments.
In addition, in calculating Distributable Earnings, Net Income (in accordance with U.S. GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value. The Company treats its commercial MSRS and residential MSRs as
two separate classes based on the nature of the underlying mortgages and the treatment of these assets as two separate pools for risk management purposes. Servicing rights relating to the Company's small business commercial business are
accounted for under ASC 860, Transfer and Servicing, while the Company's residential MSRs are accounted for under the fair value option under ASC 825, Financial Instruments. In calculating Distributable Earnings, the Company does not exclude
realized gains or losses on either commercial MSRS or residential MSRs, held at fair value, as servicing income is a fundamental part of Ready Capital's business and is an indicator of the ongoing performance.
To qualify as a REIT, the Company must distribute to its stockholders each calendar year at least 90% of its REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding
net capital gain. There are certain items, including net income generated from the creation of MSRs, that are included in distributable earnings but are not included in the calculation of the current year's taxable income. These differences may result in
certain items that are recognized in the current period's calculation of distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution requirement until future years.
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