Broadmark Realty Capital Inc.

Unaudited Condensed Consolidated Balance Sheets

(~~Dollar amounts~~ in thousands, except share ~~amounts)~~data)

March 31, 2020

December 31, 2019
Assets




Cash and cash equivalents

$
258,435

$
238,214
Mortgage notes receivable, net

782,752

821,589
Interest and fees receivable

6,459

4,108
Investment in real property, net

3,703

5,837
Intangible assets, net

874

4,970
Goodwill

136,965

131,965
Other Assets

5,880

2,046
Total assets

$
1,195,068

$
1,208,729

Liabilities and Equity




Accounts payable and accrued liabilities

$
3,534

$
8,415
Dividends payable

10,569

15,842
Total liabilities

$
14,103

$
24,257
Commitments and Contingencies




Common stock, $0.001 par value, 500,000,000 shares authorized, 132,111,329 and 132,015,635 shares issued and outstanding at March 31, 2020 and December 31, 2019

132

132
Preferred Stock, $0.001 par value, 100,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2020 and December 31, 2019

—

—
Additional Paid in Capital

1,210,034

1,209,120
Accumulated deficit

(29,201)

(24,780)
Total equity

1,180,965

1,184,472
Total liabilities and equity

$
1,195,068

$
1,208,729


	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	173,602	$	238,214
Mortgage notes receivable, net		858,713		821,589
Interest and fees receivable, net		11,917		4,108
Investment in real property, net		3,743		5,837
Intangible assets, net		706		4,970
Goodwill		136,965		131,965
Other assets		4,981		2,046
Total assets	$	1,190,627	$	1,208,729

Liabilities and Equity
Accounts payable and accrued liabilities	$	3,504	$	8,415
Dividends payable		7,934		15,842
Total liabilities	$	11,438	$	24,257
Commitments and Contingencies
Common stock, $0.001 par value, 500,000,000 shares authorized, 132,236,307 and 132,015,635 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		132		132
Preferred stock, $0.001 par value, 100,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2020 and December 31, 2019		—		—
Additional Paid in Capital		1,212,914		1,209,120
Accumulated deficit		(33,857)		(24,780)
Total equity		1,179,189		1,184,472
Total liabilities and equity	$	1,190,627	$	1,208,729

See accompanying notes to the unaudited condensed consolidated financial statements

Table of Contents

Broadmark Realty Capital Inc.

Unaudited Condensed Consolidated Statements of Income

(~~Dollar amounts~~ in thousands, except share and per share ~~amounts)~~data)

Successor

Predecessor

Three Months Ended

Three Months Ended

March 31,

March 31,

2020

2019(2)
Revenues




Interest income

$
24,553

$
20,623
Fee income

7,215

9,160
Total Revenue

31,768

29,783
Other Income:

Change in fair value of optional subscription liabilities

4,604

—
Expenses




Impairment:




Loan loss provision (recovery)

3,622

(224)
Operating expenses:




Compensation and employee benefits

3,193

1,928
General and administrative

2,278

3,090
Total Expenses

9,093

4,794
Income before income taxes

27,279

24,989
Income tax provision

—

—
Net income

$
27,279

$
24,989
Earnings per common share: (1)




Basic

$
0.21

—
Diluted

$
0.21

—
Weighted-average shares of common stock outstanding, basic and diluted




Basic

132,111,329

—
Diluted

132,336,315

—


	Successor		Predecessor		Successor		Predecessor
	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019⁽²⁾		2020		2019⁽²⁾
Revenues
Interest income	$	21,844	$	25,284	$	68,577	$	69,363
Fee income		7,139		9,297		21,244		31,574
Total Revenue		28,983		34,581		89,821		100,937
Other Income:
Change in fair value of optional subscription liabilities		1,948		—		5,094		—
Expenses
Impairment:
Loan loss (benefit) provision		(652)		2,704		3,279		2,777
Operating expenses:
Compensation and employee benefits		5,160		794		11,397		4,647
General and administrative		3,199		5,227		9,977		11,468
Total Expenses		7,707		8,725		24,653		18,892
Income before income taxes		23,224		25,856		70,262		82,045
Income tax provision		—		—		—		—
Net income	$	23,224	$	25,856	$	70,262	$	82,045
Earnings per common share: ⁽¹⁾
Basic	$	0.18	$	—	$	0.53	$	-
Diluted	$	0.18	$	—	$	0.53	$	-
Weighted-average shares of common stock outstanding, basic and diluted
Basic		132,282,252		—		132,156,844		—
Diluted		132,316,746		—		132,207,605		—

See accompanying notes to the unaudited condensed consolidated financial statements

(1)

⁽¹⁾

The Company determined that earnings per unit in the Predecessor periods would not be meaningful to the users of this filing, given the different unit holders and ~~members'~~members’ equity structures of each individual entity in the Predecessor Company Group.

(2)

⁽²⁾

Predecessor periods are combined as disclosed in Note 1.

Table of Contents

Broadmark Realty Capital Inc.

Unaudited Condensed Consolidated Statement of ~~Stockholders'~~Stockholders’ Equity

(~~Dollar amounts~~ in thousands, except share ~~amounts)~~data)

Preferred

Common stock

Additional

Retained Earnings




Shares

Amount

Shares

Amount

Paid-in Capital

(Accumulated Deficit)

Total
Balances as of December 31, 2019

—

$
—

132,015,635

$
132

$
1,209,120

$
(24,780)

$
1,184,472
Issuance of shares from vested RSUs

—

—

95,694

—

—

—

—
Net Income

—

—

—

—

—

27,279

27,279
Dividends

—

—

—

—

—

(31,700)

(31,700)
Share based compensation expense

—

—

—

—

914

—

914
Balances as of March 31, 2020

—

$
—

132,111,329

$
132

$
1,210,034

$
(29,201)

$
1,180,965


	Preferred			Common stock				Additional
	Shares	Amount		Shares		Amount		Paid-in Capital		Accumulated Deficit		Total
Balances as of December 31, 2019	—	$	—		132,015,635	$	132	$	1,209,120	$	(24,780)	$	1,184,472
Issuance of shares from vested RSUs	—		—		95,694		—		—		—		—
Net Income	—		—		—		—		—		27,279		27,279
Dividends	—		—		—		—		—		(31,700)		(31,700)
Stock-based compensation expense	—		—		—		—		914		—		914
Balances as of March 31, 2020	—	$	—		132,111,329	$	132	$	1,210,034	$	(29,201)	$	1,180,965
Issuance of shares from vested RSUs	—		—		119,855		—		—		—		—
Net Income	—		—		—		—		—		19,759		19,759
Dividends	—		—		—		—		—		(23,793)		(23,793)
Stock-based compensation expense	—		—		—		—		967		—		967
Balances as of June 30, 2020	—	$	—		132,231,184	$	132	$	1,211,001	$	(33,235)	$	1,177,898
Issuance of shares from vested RSUs	—		—		5,098		—		—		—		—
Issuance of shares from exercised warrants	—		—		25		—		—		—		—
Net Income	—		—		—		—		—		23,224		23,224
Dividends	—		—		—		—		—		(23,846)		(23,846)
Stock-based compensation expense	—		—		—		—		1,913		—		1,913
Balances as of September 30, 2020	—	$	—		132,236,307	$	132	$	1,212,914	$	(33,857)	$	1,179,189

See accompanying notes to the unaudited condensed consolidated financial ~~statements.~~statements

Table of Contents

Broadmark Realty Capital Inc.

Unaudited Condensed Consolidated Statement of ~~Stockholders'~~Stockholders’ Equity

(~~Dollar amounts~~ in thousands, except share ~~amounts)~~data)

Class A Units

Class P Units

Preferred Units

Paid in

Retained Earnings


Units

Amount

Units

Amount

Units (1)

Amount

Capital

(Accumulated Deficit)

Total
Balances as of December 31, 2018 (Predecessor)

20,950

$
   1

50

$
—

6,827,701

$
684,979

$
767

$
(637)

$
685,110
Contributions

850

200

—

—

796,028

79,535

—

—

79,735
Reinvestments

—

—

—

—

71,086

7,094

—

—

7,094
Net Income

—

—

—

—

—

—

—

24,989

24,989
Distributions

—

—

—

—

—

—

—

(24,134)

(24,134)
Redemptions

—

—

—

—

(133,513)

(13,331)

—

—

(13,331)
Compensation expense related to grant of profits interest

(100)

—

100

—

—

—

734

—

734
Grants of restricted units

150

—

—

—

—

—

134

—

134
Balances as of March 31, 2019 (Predecessor)

21,850

$
201

150

$
—

7,561,302

$
758,277

$
1,635

$
218

$
760,331

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Unaudited Condensed Consolidated Statements of Cash Flows~~

Successor

Predecessor

Three Months Ended

Three Months Ended

March 31,

March 31,

(dollars in thousands)

2020

2019(1)

Cash flows from operating activities





Net income

$
27,279

$
24,989

Adjustments to reconcile net income to net cash provided by operating activities:



Amortization

(904)

—

Depreciation

—

18

Compensation expense related to grant of profits interest

—

734

Share-based compensation expense for restricted stock units

914

—

Grants of restricted units

—

134

Provision for loan losses

3,622

(224)

Write down of investment in real property

—

686

Fair value adjustment to optional subscription liability

(4,604)

—

Changes in operating assets and liabilities:



Interest and fees receivable

(2,351)

(1,185)

Change in other assets

(53)

109

Accounts payable and accrued liabilities

(277)

(450)

Net cash provided by operating activities

23,626

24,811

Cash flows from investing activities:



Investments in fixed assets

—

(14)

Proceeds from sale of real property

2,213

407

Improvements to investments in real property

(79)

(66)

Change in mortgage notes receivable

31,434

(71,236)

Net cash provided by (used in) investing activities

33,568

(70,909)

Cash flows from financing activities:



Contributions from members

—

79,535

Contributions received in advance

—

(117)

Dividends paid

(36,973)

—

Distributions

—

(16,116)

Redemptions of members

—

(13,331)

Net cash provided by (used in) financing activities

(36,973)

49,971

Net increase in cash and cash equivalents

20,221

3,873

Cash and cash equivalents, beginning of period

238,214

112,234

Cash and cash equivalents, end of period

$
258,435

$
116,107

Supplemental disclosure of non-cash investing and financing activities



Dividends payable

10,569

—

Reinvested distributions

—

7,094

Measurement period adjustment to goodwill and intangible assets

5,000

—


	Class A Units			Class P Units			Preferred Units			Additional		Retained Earnings
	Units	Amount		Units	Amount		Units ⁽¹⁾	Amount		Paid-in Capital		(Accumulated Deficit)		Total
Balances as of December 31, 2018 (Predecessor)	20,950	$	1	50	$	—	6,827,701	$	684,979	$	767	$	(637)	$	685,110
Contributions	850		200	—		—	796,028		79,535		—		—		79,735
Reinvestments	—		—	—		—	71,086		7,094		—		—		7,094
Net Income	—		—	—		—	—		—		—		24,989		24,989
Distributions	—		—	—		—	—		—		—		(24,134)		(24,134)
Redemptions	—		—	—		—	(133,513)		(13,331)		—		—		(13,331)
Compensation expense related to grant of profits interest	(100)		—	100		—	—		—		734		—		734
Grants of restricted units	150		—	—		—	—		—		134		—		134
Balances as of March 31, 2019 (Predecessor)	21,850	$	201	150	$	—	7,561,302	$	758,277	$	1,635	$	218	$	760,331
Contributions	—		—	—		—	1,441,711		122,414		—		—		122,414
Reinvestments	—		—	—		—	86,222		8,594		—		—		8,594
Net Income	—		—	—		—	—		—		—		31,200		31,200
Distributions	—		—	—		—	—		—		—		(29,125)		(29,125)
Redemptions	—		—	—		—	(227,248)		(22,927)		—		—		(22,927)
Grants of restricted units	—		—	—		—	—		—		170		—		170
Balances as of June 30, 2019 (Predecessor)	21,850	$	201	150	$	—	8,861,987	$	866,358	$	1,805	$	2,293	$	870,657
Contributions	—		—	—		—	567,905		154,437		—		—		154,437
Reinvestments	—		—	—		—	43,293		9,340		—		—		9,340
Net Income	—		—	—		—	—		—		—		25,856		25,856
Distributions	—		—	—		—	—		—		—		(29,357)		(29,357)
Redemptions	—		—	—		—	(116,613)		(19,510)		—		—		(19,510)
Grants of restricted units	—		—	—		—	—		—		170		—		170
Balances as of September 30, 2019 (Predecessor)	21,850	$	201	150	$	—	9,356,572	$	1,010,625	$	1,975	$	(1,208)	$	1,011,593

See accompanying notes to the unaudited condensed consolidated financial statements

(1)	⁽¹⁾The Company determined that earnings per unit in the Predecessor periods would not be meaningful to the users of this filing, given the different unit holders and members’ equity structures of each individual entity in the Predecessor Company Group.

(2)

Predecessor periods are combined as disclosed in Note 1.

Table of Contents

Broadmark Realty Capital Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Successor		Predecessor
	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
	2020		2019(1)
Cash flows from operating activities
Net income	$	70,262	$	82,045
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of deferred origination and amendment fees		(7,270)		—
Amortization of intangible assets		(736)		—
Depreciation		54		35
Compensation expense related to grant of profits interest		—		734
Stock-based compensation expense for restricted stock units		3,794		—
Grants of restricted units		—		474
Provision for loan losses		3,279		2,777
Write down of investment in real property		—		179
Change in fair value of optional subscription liabilities		(5,094)		—
Changes in operating assets and liabilities:
Interest and fees receivable, net		(7,809)		(1,419)
Change in other assets		(2,989)		(867)
Accounts payable and accrued liabilities		183		581
Net cash provided by operating activities		53,674		84,539
Cash flows from investing activities:
Investments in fixed assets		—		(63)
Proceeds from sale of real property		2,213		6,363
Improvements to investments in real property		(119)		(229)
Change in mortgage notes receivable, net		(33,133)		(220,197)
Net cash provided by (used in) investing activities		(31,039)		(214,126)
Cash flows from financing activities:
Contributions from members		—		356,386
Contributions received in advance		—		(24,507)
Dividends paid		(87,247)		—
Distributions		—		(55,619)
Redemptions of members		—		(55,768)
Net cash provided by (used in) financing activities		(87,247)		220,492
Net increase (decrease) in cash and cash equivalents		(64,612)		90,905
Cash and cash equivalents, beginning of period		238,214		112,209
Cash and cash equivalents, end of period	$	173,602	$	203,114
Supplemental disclosure of non-cash investing and financing activities
Dividends payable		7,934		—
Reinvested distributions		—		25,028
Measurement period adjustment to goodwill and intangible assets		5,000		—
Mortgage notes receivable converted to real property owned		—		2,046

See accompanying notes to the unaudited condensed consolidated financial statements

(1)	Predecessor periods are combined as disclosed in Note 1.

Table of Contents

Broadmark Realty Capital Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Organization and business

Broadmark Realty Capital Inc. (“Broadmark Realty,” ~~“Company”, or “Successor”~~“the Company,” “Successor,” “we,” “us” and “our”) is an internally managed commercial real estate finance company that ~~offers short-term, first deed of trust loans,~~provides secured byfinancing to real estate ~~to fund the construction~~investors and ~~development of, or investment in, residential or commercial properties.~~developers. Broadmark Realty’s objective is to preserve and protect shareholder capital while producing attractive risk-adjusted returns primarily through dividends generated from current income from its loan portfolio. Broadmark Realty operates in select states that it believes to have favorable demographic trends and ~~those which~~ provide ~~a more efficient and quicker~~Broadmark Realty the ability to efficiently access tothe underlying collateral in the event of borrower default.

On November 14, 2019 (the “Closing Date”), Broadmark Realty Capital Inc., a Maryland corporation (formerly named Trinity Sub Inc.) (“Broadmark Realty”), consummated a business combination (the “Business Combination”) pursuant to an Agreement and Plan of Merger, dated August 9, 2019 (the “Merger Agreement”), by and among the Company, Trinity Merger Corp. (“Trinity”), Trinity Merger Sub I, Inc. (“Merger Sub I”), Trinity Merger Sub II, LLC (“Merger Sub II” and together with Trinity and Merger Sub I, the “Trinity Parties”), PBRELF I, LLC (“PBRELF”), BRELF II, LLC (“BRELF II”), BRELF III, LLC (“BRELF III”), BRELF IV, LLC (“BRELF IV”) and, together with PBRELF, BRELF II and BRELF III, the “Predecessor Companies” and each a “Predecessor Company”), Pyatt Broadmark Management, LLC (“MgCo I”), Broadmark Real Estate Management II, LLC (“MgCo II”), Broadmark Real Estate Management III, LLC (“MgCo III”), and Broadmark Real Estate Management IV, LLC (“MgCo IV” and, together with MgCo I, MgCo II and MgCo III, the “Predecessor Management Companies” and each a “Predecessor Management Company,” and the Predecessor Management Companies, together with the Predecessor Companies and their subsidiaries, the “Predecessor Company Group”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub I merged with and into Trinity, with Trinity being the surviving entity of such merger (the “Trinity Merger”), (ii) immediately following the Trinity Merger, each of the Predecessor Companies merged with and into Merger Sub II, with Merger Sub II being the surviving entity of such merger (the “Company Merger”), and (iii) immediately following the Company Merger, each of the Predecessor Management Companies merged with and into Trinity, with Trinity being the surviving entity of such merger (the “Management Company Merger” and, together with the Trinity Merger and the Company Merger, the “Mergers”). As a result of the Mergers, Merger Sub II and Trinity became wholly owned subsidiaries of Broadmark Realty.

The consolidated subsidiaries of Broadmark Realty after the Business Combination include BRMK Lending, LLC, BRMK Management, Corp., and Broadmark Private REIT Management, LLC. BRMK Lending, LLC originates short-term ~~first position~~ loans secured by ~~deeds~~first deed of trust liens on residential and commercial real estate. BRMK Management, Corp. ~~(“Manager”~~(the “Manager”) manages the underwriting, closing, servicing and disposition of mortgage notes, and performs all general and administrative ~~duties.~~duties for Broadmark Realty. Broadmark Private REIT Management, LLC ~~(“Private~~(the “Private REIT Manager”) ~~was designed to manage~~manages the newly organized Broadmark Private REIT, LLC ~~(“Private~~(the “Private REIT”), an unconsolidated affiliate of the Company that primarily participates in loans originated, underwritten and serviced by a subsidiary of Broadmark Realty.

Broadmark Realty ~~intends to elect~~has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with the tax period ending December 31, 2019. Broadmark Realty generally will not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. The Company also operates its business in a manner that permits it to maintain an exclusion from registration under the Investment Company Act of 1940. As a REIT, Broadmark Realty may own up to 100% of the stock of one or more taxable REIT subsidiaries (“TRSs”), which may earn income that would not be qualifying income if earned directly by a REIT. ~~Broadmark Realty has two TRSs being~~The Manager is a TRS and this election applies to the wholly owned subsidiaries of the Manager, ~~and~~including the Private ~~Manager, respectively.~~ REIT Manager.

Unless the context otherwise requires, references to “Broadmark ~~Realty”,~~Realty,” the ~~“Company”, “we”,~~“Company,” “we,” “us” and “our” in the remainder of this report refer to Broadmark Realty and its consolidated subsidiaries after the Business Combination and refer to the Predecessor Company Group for periods prior to the Business Combination.

Table of Contents

Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Note 2 - Summary of significant accounting policies

Basis of Presentation

For periods prior to November 15, 2019, the accompanying consolidated financial statements do not represent the financial position and results of operations of one controlling legal entity, but rather a combination of the historical results of the Predecessor Company Group, which was under common management. Therefore, any reference herein to the Predecessor financial statements is made on a combined basis. For periods ~~from~~beginning November 15, 2019, ~~on,~~ the accompanying consolidated financial statements represent the consolidated financial statements of the Company, beginning with BRELF II as the accounting acquirer and successor entity. In addition, as a result of the Business Combination, the consolidated financial statements for periods ~~from~~beginning November 15, 2019 ~~on,~~ are presented on a new basis of accounting pursuant to Accounting Standards Codification ~~("ASC"~~(“ASC”) 805, Business Combinations (refer to Note 3) to reflect BRELF II acquiring the other entities within the Predecessor Company Group and Trinity in the successor period.

The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“~~U.S.~~ GAAP”) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements and notes include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in ~~the Company’s~~our Annual Report on Form 10-K filed on March 16, 2020 with the SEC (the “Annual Report”). The condensed consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements of Broadmark Realty Capital Inc. as of that date. The results of the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, for other interim periods or future years.

The presentation of the Predecessor period has been conformed to the current ~~period's~~period’s presentation for the purposes of these consolidated financial statements. Additionally, certain balance sheet captions as of December 31, 2019 have been reclassified to conform to the current period's presentation.

Principles of Consolidation

For the Predecessor period, all intra-entity accounts, balances and transactions have been eliminated in the preparation of the unaudited condensed consolidated financial statements. Beginning November 15, 2019, all significant intercompany accounts, balances and transactions have been eliminated in consolidation. Broadmark Realty consolidates those entities in which it has control over significant operating, financial and investing decisions of the entity, as well as those entities deemed to be variable interest entities (“VIEs”), if any, in which Broadmark Realty is determined to be the primary beneficiary. ~~As of March 31, 2020,~~ Broadmark Realty is not the primary beneficiary of, and therefore does not consolidate, any ~~VIEs.~~ VIEs at September 30, 2020 and December 31, 2019.

Table of Contents

~~The mortgage~~Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Mortgage notes receivable are recorded at ~~their~~ cost, which ~~approximate their face amounts,~~represents the carrying value, and interest rates generally range from a fixed annual rate of 10% to 13%. ~~The mortgage~~Mortgage notes receivable are considered to be short-term financings, with initial terms typically ranging from five to 18 months in duration based on the ~~expectation~~size of ~~repayment generally within 5~~the project and expected timeline for completion of construction, which we often elect to ~~12 months.~~extend for several months based on our evaluation of the project. All loans require monthly interest only payments. Most loans are structured with an interest reserve holdback that covers the interest payments for most of the initial term of the loan. Once the interest reserve is depleted, borrowers are expected to make their monthly interest payment within 10 days of month end.

Mortgage notes receivable are presented net of construction holdbacks, interest reserves, allowance for loans losses and deferred origination ~~and extension~~ fee income in the consolidated balance sheets. The construction holdback represents amounts withheld from the funding of construction loans until ~~the Company’s management deems~~we deem construction to be sufficiently completed. The interest reserve represents amounts withheld from the funding of certain mortgage notes receivable for the purpose of satisfying monthly interest payments over all or part of the term of the related note. Accrued interest is paid out of the interest reserve and recognized as interest income at the end of each month. The deferred origination ~~and extension~~ fee income represents amounts that will be recognized over the contractual life of the underlying mortgage notes receivable.

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

~~A summary of~~The following table summarizes information pertaining to mortgage notes receivable ~~at March 31,~~as of September 30, 2020 and December 31, ~~2019 is as follows:~~2019:



(dollars in thousands)	September 30, 2020		December 31, 2019
Total loan commitments	$	1,220,354	$	1,101,275
Less:
Construction holdbacks ⁽¹⁾		305,410		253,708
Interest reserves ⁽¹⁾		24,988		18,601
Private REIT participation ⁽²⁾		15,597		0
Total principal outstanding for our mortgage notes receivable		874,359		828,966
Less:
Allowance for loan losses		6,143		4,096
Deferred origination fees		9,503		3,281
Mortgage notes receivable, net	$	858,713	$	821,589

(dollars in thousands)

March 31, 2020

December 31, 2019
Total loan commitments

$
1,099,458

$
1,101,275
Less:

Construction holdbacks (1)

272,274

253,708
Interest reserves (1)

21,703

18,601
Total principal outstanding for mortgage notes, receivable

805,481

828,966
Less:

Allowance for loan losses

7,182

4,096
Deferred fees

6,847

3,281
Private REIT participation (2)

8,700

-
Mortgage notes receivable, net

$
782,752

$
821,589

(1)

~~(1)~~

Includes construction holdbacks of ~~$4.5~~$19.8 million and interest reserves of ~~$0.7~~$2.0 million on participating interests sold to the Private REIT

as of September 30, 2020.

(2)

~~(2)~~

The Private REIT was determined to be a voting interest entity for which ~~the Company,~~we, through ~~its~~our wholly owned subsidiary acting as manager with no0 equity ~~interest, does~~investment, do not hold a controlling interest in and ~~does~~do not ~~consolidate the Private REIT.~~consolidate. Furthermore, the Private REIT participation in loans originated by ~~the Company~~us meets the characteristics of a participating interest ~~per~~in accordance with ASC 860 and therefore, is treated as a sale of mortgage notes receivable and is derecognized from ~~the Company’s~~our unaudited condensed consolidated financial statements.

~~Defaulted mortgage~~20

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Non-accrual status

Mortgage notes receivable

that are in contractual default are deemed to be non-performing and are evaluated for impairment. Loans can be placed in contractual default status iffor any of the following reasons: (1) an interest payment is more than 30 days past due; if(2) a note matures and the borrower fails to ~~extend;~~make payment of all amounts owed or ifextend the loan; or (3) the collateral becomes impaired in such a way that the ultimate collection of the note is doubtful. A loan can be removed from contractual default status if the late interest payments are brought ~~current; if~~current, the borrower complies with appropriate re-underwriting to extend the ~~note;~~note, or if additional collateral is provided for the note to provide cash flow or bring the ~~loan to collateral value ratio~~LTV below 65%. ~~The average recorded investment in defaulted and impaired loans was $82.3 and $10.6 million and for the three months ended March 31, 2020 and December 31, 2019, respectively.~~

~~Non-accrual on defaulted loans and impaired loans~~

NoNaN interest income is ~~reported~~recognized on mortgage notes receivable that are in contractual default, unless the interest is paid in cash ~~and~~or collectability of all amounts due is reasonably assured. At March 31, 2020 and December 31, 2019, defaulted and impaired loans total $152.2 million and $32.9 million in principal outstanding and $145.0 and $28.8 million in mortgage notes receivable, net, respectively, and all defaulted and impaired loans were on nonaccrual status. In addition, in certain instances, where the interest reserve on a current loan has been fully depleted and the interest payment is not expected to be collected from the borrower, ~~the Company~~we may place a current loan on ~~nonaccrual~~non-accrual status and recognize interest income on a cash-basis. As of ~~March~~September 30, 2020, and December 31, 2019, the principal outstanding on loans placed on non-accrual status were $173.5 and $32.9 million, respectively. For the three and nine months ended September 30, 2020, the ~~Company’s portfolio included four current~~average recorded investments in loans ~~totaling $31.7~~placed on non-accrual status were $175.3 and $133.9 million, respectively. For the three and nine months ended September 30, 2019, the average recorded investments in loans placed on non-accrual status were $9.7 and $15.5 million, respectively.

Impaired mortgage notes receivable

We evaluate each loan for impairment at least quarterly. Loans in contractual default are designated as non-performing and are considered impaired as we have some expectation that the repayment of the loan, including both contractual interest and principal payments, may not be realized in full. Placing a loan in contractual default does not in and of itself result in an impairment if we deem it probable that we will ultimately collect all amounts due. If a loan is determined to have impairment, we record an allowance through the provision for loan losses to reduce the carrying value of the loan to the fair value of the collateral less estimated costs to sell, as all of our loans are classified as collateral dependent as repayment is expected solely from the collateral.

As of September 30, 2020 and December 31, 2019, the principal outstanding ~~placed~~ on ~~nonaccrual status.~~

~~Table~~impaired loans was $217.7 and $32.9 million, respectively. As of ~~Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

September 30, 2020 and December 31, 2019, the principal outstanding on loans with impairment was $63.0 and $20.8 million, respectively. For the three and nine months ended September 30, 2020, the average recorded investments in loans with impairment was $227.3 and $159.9 million, respectively. For the three and nine months ended September 30, 2019, the average recorded investments in loans with impairment was $14.5 and $11.9 million, respectively.

The following table summarizes the activity in the allowance for loan losses for the three and nine months ended ~~March 31,~~September 30, 2020 and ~~March 31, 2019, respectively.~~September 30, 2019. All of the allowance for loan losses relates to loans ~~in default.~~deemed to be impaired.


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
(dollars in thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Beginning	$	6,795	$	1,777	$	4,096	$	1,704
Provision for loan losses (benefits)		(652)		2,704		3,279		2,777
Charge offs		—		(453)		(1,232)		(453)
Ending	$	6,143	$	4,028	$	6,143	$	4,028

Three Months Ended

Three Months Ended
(dollars in thousands)

March 31, 2020

March 31, 2019

Beginning

$
4,096

$
1,704
Provision for loan losses

3,654

(224)
Charge offs

(568)

—
Recoveries

—

—
Ending

$
7,182

$
1,480

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Note 5 – Fair value measurements

The following tables present estimated fair values of our financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:


	September 30, 2020				Fair Value Measurements Using
		Carrying		Estimated
(dollars in thousands)		Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	173,602	$	173,602	$	173,602	$	—	$	—
Mortgage notes receivable, net		858,713		858,713		—		—		858,713
Interest and fees receivable		11,917		11,917		—		11,917		—
Investment in real property, net		3,743		3,743		—		—		3,743
Financial Liabilities
Accounts payable and accrued liabilities ⁽¹⁾	$	3,504	$	3,504	$	—	$	3,106	$	398


	December 31, 2019				Fair Value Measurements Using
		Carrying		Estimated
(dollars in thousands)		Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	238,214	$	238,214	$	238,214	$	—	$	—
Mortgage notes receivable, net		821,589		821,589		—		—		821,589
Interest and fees receivable		4,108		4,108		—		4,108		—
Investment in real property, net		5,837		5,837		—		—		5,837
Financial Liabilities
Accounts payable and accrued liabilities ⁽¹⁾	$	8,415	$	8,415	$	—	$	2,923	$	5,492

(1)	Includes the level 3 valuation of the optional subscription liability derivative measured at fair value on a recurring basis.

We follow the accounting guidance in ASC 820, ~~“Fair~~Fair Value Measurements and ~~Disclosures”,~~Disclosures, which requires the categorization of fair value measurement into three broad levels of the fair value hierarchy as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

The following table sets forth assets and liabilities measured and reported at fair value on a recurring and nonrecurring basis, as well as for which fair value is only disclosed, as of ~~March 31,~~September 30, 2020 and December 31, 2019. All of these fair values are categorized as Level 3. The table also contains information about valuation methodologies and inputs used for assets that are measured at fair value and categorized within Level 3 as of ~~March 31,~~September 30, 2020 and December 31, ~~2019. (amounts in thousands)~~:2019:


	Level 3				Valuation	Unobservable	Range of
(dollars in thousands)		September 30, 2020		December 31, 2019	technique	inputs	inputs
Optional subscription liability ⁽¹⁾	$	398	$	5,492	Valuation model	Refer to Note 7 for assumptions	0 - 5	%
Real property ⁽²⁾		3,743		5,837	Collateral valuations	Discount to appraised value based on comparable market prices	0 - 10	%
Impaired loans, net of allowance for loan losses ⁽³⁾		211,575		28,853	Collateral valuations	Discount to appraised value based on comparable market prices	0 - 10	%
Total	$	215,716	$	40,182

Valuation

Unobservable

Range of

(dollars in thousands)

March 31, 2020

December 31, 2019

technique

inputs

inputs

Optional subscription liability (A)

$
888

$
5,492

Valuation Model

See Note 7

0 - 5
%
Real property (B)

3,703

5,837

Market Comparable

Market prices for similar properties adjusted for comparability

0 - 10
%
Current mortgage notes receivable (C)

637,751

792,736

Market Comparable

Market interest rates and collateral value

0 - 10
%
Defaulted and impaired loans, net of allowance for loan losses (D)

145,001

28,853

Market Comparable

Market interest rates and collateral value

0 - 10
%
Total

$
787,343

$
832,918

(1)

~~Warrant~~Optional subscription liability derivative measured at fair value on a recurring basis.

(2)

Real estate property is ~~measured~~stated at lower of cost or ~~market,~~fair value, a non-recurring measurement of fair value.

(3)

~~The carrying value of Mortgage notes receivable approximates fair value.~~

For ~~collateral dependent~~impaired loans, the fair value is based on the fair value less the costs to sell the underlying property. The carrying value of the ~~defaulted and~~ impaired loans, net of the allowance for loan losses, approximates fair value.

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

Fair value on a recurring basis

In connection with the Mergers, Trinity Merger Corp. issued $75 million of common stock, along with 7.2 million warrants and an optional subscription of up to $25 million of additional common stock (the “Optional Subscription Liability”) in a private placement transaction with certain entities affiliated with Farallon Capital Management, LLC (“Farallon”), which ~~are~~transaction is described in further detail in Note 11. ~~The Company accounts~~We account for the Optional Subscription Liability as a derivative and, in accordance with ASC 815, ~~the Company measures~~we measure at fair value on a recurring basis. The value of this ~~warrant liability~~Optional Subscription Liability is included in accounts payable and accrued liabilities in the accompanying consolidated balance ~~sheet.~~sheets. The ~~$4.6~~$5.1 million decrease in value for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was recorded as other income in the accompanying unaudited condensed consolidated statement of income for that period. The Optional Subscription Liability is valued using a lattice model that primarily incorporates observable inputs such as ~~the Company’s~~our common stock price, exercise price term of the option and the risk-free rate, however, it also incorporates an assumption for equity volatility based on the volatility of the common stock of comparable public companies. As the result of ~~the Company~~ using unobservable inputs in the valuation, ~~the Company classifies~~we classify the Optional Subscription Liability as Level 3 within the fair value hierarchy.

Fair value on a nonrecurring basis

Investments in real properties are initially recorded at the acquisition cost less estimated costs to ~~dispose,~~sell, which approximates fair value. Upon transfer from mortgage notes receivable to investment in real estate property, the fair value less costs to sell becomes the new cost for the property. Costs related to acquisition, development, construction and improvements are capitalized. At each reporting date, the fair value of real properties is based upon the most recent independent third-party appraisals of value discounted based upon ~~the Company’s~~our experience with actual liquidation values. These discounts to the appraisals generally range from 0% to 10%. As the result of ~~the Company~~ using unobservable inputs in the valuation, ~~the Company classifies~~we classify investments in real properties as Level 3 within the fair value hierarchy.

For ~~mortgage notes receivable in default status,~~impaired loans, fair values are based on the value of the underlying collateral less the costs to sell. At each reporting date, loans in contractual default status are evaluated based upon the most recent independent third-party appraisals of ~~valued~~value discounted based upon ~~the Company’s~~our experience with actual liquidation values. These discounts to the appraisals generally range from 0% to 10%. As the result of ~~the Company~~ using unobservable inputs in the valuation, ~~the Company classifies investments in real properties~~we classify impaired loans as Level 3 within the fair value hierarchy.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Fair value disclosure only

For certain of ~~the Company’s~~our financial instruments, including cash equivalents, interest and fees receivable, other receivables, accounts payable, and accrued liabilities, which are classified under Level 1 within the fair value hierarchy, the carrying amounts approximate fair value due to their short-term maturities.

~~For mortgage notes receivable in current status, fair values are based on discounted cash flows considering interest rate risk and creditworthiness of the borrower.~~ The mortgage notes receivable are secured by first deeds of trust, security agreements or legal title to real estate located in the United States. The mortgage notes receivable generally have initial terms ranging between 5five and 1218 months based on the size of the project and expected timeline for completion of construction and may be extended by paying additional fees. Due to the short-term maturity of the mortgage notes receivable in current status, a premium or discount is not relevant and carrying value approximates fair value. As a result of the use of unobservable inputs, including ~~discount rates and~~ third-party appraisals ~~the Company classifies~~for estimating as-complete appraised values, we classify mortgage notes receivable as Level 3 within the fair value hierarchy.

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

Note 6 – Goodwill and Intangible Assets

Goodwill

All of ~~the Company’s~~our goodwill relates to the Business Combination. As discussed in Note 3, ~~during~~in the ~~three months ended March 31,~~first quarter of 2020, ~~the Company~~we recorded a measurement period adjustment to reduce the preliminary fair value of intangible assets in the form of customer relationships by $5.0 million and increased ~~the Company’s~~our preliminary value of goodwill by $5.0 million resulting in $137.0 million of goodwill as of ~~March 31,~~September 30, 2020. As a result of this adjustment to preliminary values, $0.9 million of amortization of intangible assets recorded in 2019 was reversed ~~during~~in the ~~three months ended March 31,~~first quarter of 2020.

In accordance with ASC Topic 350, ~~the Company~~we continuously ~~evaluates~~evaluate the presence of triggering events that require an impairment test. AsIn the first quarter of ~~March 31,~~ 2020, ~~the Company~~we determined that ~~the coronavirus pandemic (“COVID-19”)~~COVID-19 was a triggering event based on the adverse impact on ~~the Company’s~~our business and results of operations. Specifically, ~~the Company~~we noted that ~~the~~ COVID-19 ~~pandemic~~ and containment measures have contributed to, among other things, adverse impacts on the progress of construction on our borrowers’ projects, the demand for and value of commercial and residential real estate that our borrowers have developed, the creditworthiness of our borrowers and other counterparties, the capital and credit market conditions and potential delays in foreclosure proceedings. ~~The Company~~We performed a quantitative assessment of ~~its~~our goodwill based on both the market and income approach and determined that, as of March 31, 2020, the fair value of the reporting unit exceeded the carrying value and there was no0 goodwill impairment. ~~The Company will~~During the second and third quarters of 2020, we continued to monitor the impact of COVID-19 and determined there were no new triggering events to warrant updating our quantitative assessment of goodwill performed as of March 31, 2020. We continue to monitor the impact of COVID-19 and ~~will reevaluate~~reevaluated the fair value of the reporting unit during ~~its~~our annual assessment in October 2020 ~~or earlier in~~and the ~~case~~fair value of ~~another triggering event.~~ the reporting unit exceeded the carrying value and there was 0 goodwill impairment.

Intangible Assets

All of ~~the Company’s~~our intangible assets ~~which resulted from purchase accounting for~~relate to the Business Combination, ~~relate to~~specifically the value of customer ~~relationships and~~relationships. The following table summarizes the ~~recorded amounts~~balances of intangible assets as of ~~March 31, 2020 consist~~September 30, 2020:


	Acquired
(dollars in thousands)	Intangibles
Asset Type
Customer relationships	$	1,000
Less: Accumulated amortization		294
Intangible assets, net	$	706

Table of ~~the following:~~Contents

Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Acquired
(dollars in thousands)

Intangibles
Asset Type

Customer relationships

$
1,000
Less Accumulated Amortization

126

$
874

The weighted average life remaining of the intangible assets is approximately ~~2.7~~2.1 years. Amortization expense ~~for the next three years, based on preliminary valuations and determinations of useful lives,~~ is expected to be as follows:


	Year ended December 31,

							Year ended December 31,
(dollars in thousands)	2020		2021		2022		2020		2021		2022
Estimated future intangible amortization expense	$	251	$	333	$	290	$	85	$	339	$	282

Note 7 - Stockholders’ Equity and Members’ Equity

Stockholders’ Equity

The Company is authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share and 100,000,000 shares of preferred stock with a par value of $0.001 per share. Holders of ~~the Company’s~~our common

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

stock are entitled to ~~one~~1 vote for each share. ~~At March 31,~~As of September 30, 2020 and December 31, 2019, there were ~~132,111,329~~132,236,307 and 132,015,635 shares of common stock issued and outstanding, respectively, and no0 shares of preferred stock issued and outstanding.

As of ~~March 31,~~September 30, 2020 and December 31, 2019there were 41.7 million Public Warrants ~~(including 7.2 million Public Warrants issued to affiliates of Farallon Capital Management, L.L.C.),~~ and 5.2 million warrants outstanding to acquire ~~one~~1 share of our common stock at a price of $11.50 per share outstanding (the “Private Warrants”). In the aggregate, ~~the Company has~~we have outstanding warrants to purchase approximately 15.6 million shares of common stock at a price of $11.50 per whole share.

As part of the PIPE Investment (for further details, refer to Note 11), the Farallon Entities have an option to purchase up to $25 million of additional shares of common stock, which will be exercisable during the 365-day period following the consummation of the Business Combination at the Reference Price (the “Optional Subscription”). The Farallon Entities are entitled to cash settle, in whole or in part, the exercise of the Optional Subscription, and therefore, the Optional Subscription does not meet the requirements for equity classification and is assumed to be settled in cash and classified as a liability in our consolidated balance sheet. The liability for the Optional Subscription was ~~$0.9~~$0.4 million as of ~~March 31,~~September 30, 2020 and $5.5 million as of December 31, 2019 and is included in accounts payable and accrued liabilities. Descriptions of the warrants and the Optional Subscription Liability can be found in Note 7 of the Company’s unaudited condensed consolidated financial statements included in the Company’s Annual Report on Form 10-K filed on March 16, 2020 with the SEC

The fair value of the Optional Subscription Liability was estimated using a lattice model in accordance with ASC 820, Fair Value, using the assumptions noted below in the following table. Expected volatility is based on the historical volatility of a peer group of public companies. The risk-free interest rate is based on the US Treasury Constant Maturity curve, commensurate with the time to expiry of warrants.


	As of September 30, 2020		As of December 31, 2019
Expected volatility	30.0	%	13.0	%
Expected dividend yield	7.3	%	7.3	%
Expected life (in years)	0.1		0.9
Risk-free interest rate	0.1	%	1.6	%

As of March 31, 2020


As of  December 31, 2019

Expected volatility

56.0
%

13.0
%
Expected dividend yield

12.8
%

7.3
%
Expected life (in years)

0.6

0.9

Risk-free interest rate

0.2
%

1.6
%

Table of Contents

Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Earnings per Share

~~The Company presents~~We present both basic and diluted earnings per share (“EPS”) amounts in ~~its~~our condensed 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. Diluted EPS reflects the maximum potential dilution that could occur from ~~the Company’s~~our outstanding warrants and restricted stock units. ~~The Company considers two ways~~We consider the two-class method to measure dilution to earnings per share: (a) calculate the net number of shares that would be issued assuming any related proceeds are used to buy back outstanding shares (the treasury stock method), or (b) assume the gross number of shares are issued and calculate any related effects on net income available for shareholders, considering participating securities, such as certain unvested restricted stock units which are entitled to nonforfeitable dividends rights (the two-class method). For the period presented within these unaudited condensed consolidated financial statements, the two-class method was deemed to be insignificant. In accordance with ~~U.S.~~ GAAP, ~~the Company's~~our policy

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

is to apply the more dilutive methodology upon issuance of such instruments. The table below presents the computation of basic and diluted net income per share of common stock for the three and nine months ended ~~March 31,~~September 30, 2020.



	Three Months Ended		Nine Months Ended
(dollars in thousands, except share and per share data):	September 30, 2020		September 30, 2020
Net income	$	23,224	$	70,262
Basic weighted-average shares of common stock outstanding		132,282,252		132,156,844
Dilutive effect of share-based compensation		34,494		50,761
Diluted weighted-average shares of common stock outstanding ⁽¹⁾		132,316,746		132,207,605
Basic earnings per share	$	0.18	$	0.53
Diluted earnings per share	$	0.18	$	0.53

Three Months Ended
(amounts in thousands, except share and per share data):

March 31, 2020
Basic Earnings


Net income and Basic Earnings

$
27,279

Diluted Earnings


Net income and Diluted Earnings

$
27,279
Number of Shares:


Basic weighted-average shares of common stock outstanding

132,111,329
Shares for warrants and restricted stock units

224,986
Diluted weighted-average shares of common stock outstanding (a)

132,336,315
Earnings Per Share Attributable to common stockholders


Basic

$
0.21
Diluted

$
0.21

(1)

~~The Company excludes~~We exclude anti-dilutive shares from calculation of weighted-average shares for diluted earnings per share. There were 15.6 million shares related to the Public Warrants and Private Warrants, 2.4 million shares of optional subscription warrants and 662,400 and 615,715 shares of unvested restricted stock unit awards for the three and nine months ended September 30, 2020, respectively, which are not included in the above calculation of diluted earnings per share because in doing so they ~~were~~would be anti-dilutive.

Members’ Equity (Predecessor)

Members’ Equity is presented on a consolidated basis for the Predecessor Company Group, which includes the consolidated preferred units for the Predecessor Companies and the total consolidated Class A and Class P units for the Predecessor Management Companies. The applicable Predecessor Management Company was the sole common unit holder of the Predecessor Company it managed, and, therefore all common units have been eliminated in the preparation of the condensed consolidated Predecessor Company Group financial statements, as they represent intra-entity balances between entities within the consolidated Predecessor Company Group.

Earnings Per ~~Unit:~~Unit (Predecessor)

~~The Company~~We determined that earnings per unit would not be meaningful to the users of these financial statements for the Predecessor period.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Note 8 - Income Taxes

For the Successor period, ~~BRMK Management Corp. and~~ the ~~Broadmark Private REIT Management LLC, subsidiaries of the Company, have~~Manager has elected to be treated as ~~TRSs. Having~~ a TRS ~~permits~~and this election applies to the ~~Company~~wholly owned subsidiaries of the Manager, including the Private REIT Manager. Having TRSs permit us to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, ~~the Company~~we will continue to maintain ~~its~~the qualification as a REIT.

~~The Company~~We generally must distribute annually at least 90% of ~~its~~our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to ~~the Company’s~~our earnings that ~~it distributes.~~we distribute. To the extent that ~~the Company satisfies~~we satisfy this distribution requirement but ~~distributes~~distribute less than

~~Table of Contents~~

~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

100% of ~~its~~our net taxable income, ~~the Company~~we will be subject to U.S. federal income tax on ~~its~~our undistributed taxable income. In addition, ~~the Company~~we will be subject to a 4% nondeductible excise tax if the actual amount that ~~it pays~~we pay out to ~~its~~our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

~~The Company’s~~Our qualification as a REIT also depends on ~~its~~our ability to meet various other requirements imposed by the Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of assets and the sources of income. Even if ~~the Company qualifies~~we qualify as a REIT, itwe may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If ~~the Company fails~~we fail to maintain ~~its~~our qualification as a REIT for any taxable year, ~~the Company~~we may be subject to material penalties as well as federal, state, and local income tax on ~~its~~our taxable income at regular corporate rates and ~~the Company~~we would not be able to qualify as a REIT for the subsequent four full taxable years. As of ~~March~~September 30, 2020 and December 31, ~~2020, the Company was~~2019, we were in compliance with all REIT requirements.

Based on ~~the Company’s~~our evaluation, ~~it was~~we concluded that there are no0 significant uncertain tax positions requiring recognition in ~~the Company’s~~our unaudited condensed consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no0 amounts accrued for penalties or interest as of or during the periods presented in ~~these~~the accompanying unaudited condensed consolidated financial statements.

The state and local tax jurisdictions for which ~~the Company is~~we are subject to tax-filing obligations recognize ~~the Company’s~~our status as a REIT, and therefore, ~~the Company~~we generally ~~does~~do not pay income tax in such jurisdictions. ~~The Company~~We may, however, be subject to certain minimum state and local tax filing fees as well as certain excise or business taxes. ~~The Company’s TRS is~~Our TRSs are subject to federal, state and local income taxes.

Note 9 - Equity Incentive Plan

Stock Incentive Plan

On November 14, 2019, ~~the Company~~we established the Broadmark Realty 2019 Stock Incentive Plan (the “Plan”), which allows for the issuance of up to 5,000,000 stock options, stock appreciation rights, restricted stock awards, restricted stock units or other equity-based awards or any combination thereof to the directors, employees, consultants or any other party providing services to ~~the Company.~~us. The Plan is administered by the compensation committee of ~~the Company’s~~our board of directors.

As of ~~March~~September 30, 2020 and December 31, ~~2020, 4,478,313~~2019, respectively, 4,049,134 and 4,569,378 share awards were available to be issued under the Plan. The ~~Company awarded 521,687~~ restricted stock units ~~(RSUs) to employees and directors with grant dates during the Successor Period for financial reporting purposes. The RSUs~~(“RSUs”) generally vest from one to three years depending on the terms of the specific ~~award other than one RSU grant which vested immediately.~~award.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

All RSUs awarded will be settled upon vesting in shares of ~~Company~~our common stock. If ~~(i)~~(1) the recipient becomes disabled and the recipient’s employment or service is terminated as a result, ~~(ii)~~(2) the recipient dies during the vesting period, or ~~(iii) solely with respect to the Company’s Chief Executive Officer and Chief Financial Officer,~~(3) the recipient’s employment is terminated without ~~Cause~~cause (as defined in the Plan) in connection with, or in certain cases within ~~24 months~~a specified period following a ~~Change~~change in ~~Control~~control (as defined in the Plan), then the vesting of the RSUs will fully accelerate as of the date of termination of employment.

Dividend equivalents ~~will~~are not beaccrued or paid on RSUs granted to executive officers and directors ~~until settlement of~~and accordingly those RSUs ~~in shares of Company common stock and these~~ are not considered participating securities.

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~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

The ~~RSU’s~~RSUs granted to non-executive officer employees are considered participating or entitled to receive all dividends and other distributions paid with respect to those unvested shares of ~~Common Stock,~~common stock, unless determined otherwise by the Compensation Committee.

If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid will again become available for the issuance of additional awards.

The following table summarizes the activity related to RSUs during ~~the three months ended March 31,~~ 2020:

Weighted Average

Grant Date Fair

Shares

Market Value
Unvested RSUs outstanding at January 1, 2020

334,928

11.08
Granted

91,065

$
12.50
Vested

—

$
—
Forfeited

—

—
Unvested RSUs outstanding at March 31, 2020

425,993

$
11.38


		Weighted Average
		Grant Date Fair
	Shares	Market Value
Unvested RSUs outstanding as of January 1, 2020	334,928	$	11.08
Granted	186,759		11.77
Vested	(95,694)		11.08
Unvested RSUs outstanding as of March 31, 2020	425,993
Granted	47,226		9.64
Vested	(119,855)	$	11.08
Unvested RSUs outstanding as of June 30, 2020	353,364
Granted	382,041		10.64
Vested	(5,098)	$	11.08
Unvested RSUs outstanding as of September 30, 2020	730,307

For the three and nine months ended ~~March 31,~~September 30, 2020, ~~the Company~~we recognized compensation expense related to RSUs of ~~$0.9~~$1.9 and $3.8 million, respectively, based on amortizing the fair value of the awards over the service (vesting) period. As of ~~March 31,~~September 30, 2020, there was ~~$3.6~~$5.2 million of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on a straight-line basis ~~with over half of the compensation expected to be expensed in the next twelve months and~~ has a weighted-average recognition period of 1.7 years.

Profits Interests and Equity Compensation (Predecessor)

The Predecessor Company Group expensed the fair value of share-based compensation awards granted to ~~its~~ employees and directors over the period each award vests. Compensation cost was measured using the Black-Scholes model. The Predecessor Company Group expensed the fair value of restricted unit awards granted to ~~our~~ employees over the period each award ~~vests.~~vested. There were 150 units granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 at $11,717 per unit, which were to vest ratably over 48 ~~months.~~months. The fair value of restricted unit awards was equal to the fair value of the Predecessor Company’s units at the date of grant. The units were valued using an internal model with market inputs available on the date of grant. The restricted units were settled as part of the Business Combination and, accordingly, ~~no share based~~0 share-based compensation related to the unit awards was recognized during the three and nine months ended ~~March 31,~~September 30, 2020.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Note 10 - Commitments and contingencies

The ~~Company’s~~following table illustrates our contractual obligations and commercial commitments by due date as of September 30, 2020:


			Less than 1						More than
(dollars in thousands)	Total		year		1-3 years		3-5 years		5 years
Construction holdbacks⁽¹⁾		305,410		234,845		70,565		—		—
Operating lease obligations	$	11,962	$	761	$	1,893	$	2,008	$	7,300
Total	$	317,372	$	235,606	$	72,458	$	2,008	$	7,300

(1)	Includes construction holdbacks of $19.8 million on participating interests sold to the Private REIT as of September 30, 2020.

Our commitments and contingencies include usual obligations incurred by real estate lending companies in the normal course of ~~business. These include interest reserves and~~business, including construction holdbacks as disclosed in Note 4.

In addition, on March 18, 2020, ~~the Company~~we signed a new ten-year lease agreement for ~~its~~our Seattle headquarters which is expected to commence in the first quarter of 2021 upon completion of tenant ~~improvements. In~~improvements, which is included in the ~~opinion of management, these matters will not have a material adverse effect on the Company’s financial position and results of operations.~~above table.

From time to time, ~~the Company is~~we are named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, ~~the Company does~~we do not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect ~~its~~our results of operations, financial condition or cash flows.

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~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

Concentration Risk

~~The Company originates~~We originate primarily short-term ~~commercial and single-family construction and land development mortgage notes receivable~~loans secured by first ~~deeds~~deed of trust ~~mortgages or legal title in~~liens on residential and commercial real ~~property~~estate located in 13 states and the District of Columbia. ~~The Company's~~Our loan portfolio is also concentrated within ~~ten~~10 counties, the largest being ~~King County, Washington, which comprises the cities of Seattle and Bellevue.~~Wasatch in Utah. As of ~~March 31,~~September 30, 2020, the top ~~ten~~10 counties make up ~~50.6%~~50.0% of the ~~face~~total committed amount of loans in ~~the Company's~~our total portfolio.

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Broadmark Realty Capital Inc.

Notes to Consolidated Financial Statements

Note 11 - Related party transactions

Private Placement with Farallon

In connection with the Business Combination and concurrently with the execution of the Merger Agreement, the Company entered into certain subscription agreements with affiliates of Farallon Capital Management, L.L.C. (the “Farallon Entities”) for a private placement (the “PIPE Investment”) of the Company’s shares of common stock, pursuant to which, immediately prior to the consummation of the Business Combination, the Company issued and sold to the Farallon Entities an aggregate of 7,174,163 shares of common stock for an aggregate purchase price of approximately $75.0 million ~~immediately prior to the consummation of the Business Combination~~ at a price per share equal to $10.45352229 (the “Reference Price”). In addition, pursuant to the subscription agreements, the Farallon Entities have an option to purchase up to $25.0 million of additional shares of common stock, exercisable at the Reference ~~Price during the 365-day period following the consummation of the Business Combination.~~Price. This option expires on November 14, 2020. In connection with the PIPE Investment, the Company issued to the Farallon Entities an aggregate of 7,174,163 Public Warrants. The Farallon Entities received a fee for each warrant equal to the cash payable per each warrant held by unaffiliated Public Warrant holders in connection with the warrant amendment proposal approved as part of the Business Combination, in an amount equal to ~~$1.60.~~$1.60 per warrant. In addition, the Farallon Entities are entitled to cash settle, in whole or in part, the exercise of their option to purchase up to $25.0 million of additional shares of common stock to the extent the delivery of the additional shares to the Farallon Entities would result, together with their affiliates and any other persons whose beneficial ownership of shares of common stock would be aggregated with the Farallon Entities or their affiliates for purpose of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in beneficial ownership in excess of 9.9% of the shares of common stock outstanding immediately after giving effect to such issuance of the shares of common stock.

As a result of the PIPE Investment, the Farallon Entities own more than 5% of our outstanding common stock.

The Company also provided the Farallon Entities with certain registration rights in connection with the PIPE Investment, pursuant to which we registered in December 2019 the shares of our common stock, Public Warrants and shares issuable upon exercise of the option and Public Warrants under the Securities Act.

Broadmark Private REIT, LLC

The Private REIT is a private real estate finance company that primarily participates in short-term, first deed of trust loans secured by real estate that are originated, underwritten and serviced by Broadmark Realty Capital Inc. The Private REIT was determined to be a voting interest entity for which we, through our wholly owned subsidiary acting as manager with 0 equity investment, do not hold a controlling interest in and do not consolidate. Furthermore, the Private REIT participation in loans originated by us meets the characteristics of a participating interest in accordance with ASC 860 and therefore, is treated as a sale of mortgage notes receivable and is derecognized from our unaudited condensed consolidated financial statements. As of September 30, 2020, the Private REIT’s assets under management were approximately $15.6 million.

Note 12 - Subsequent events

Dividend Declaration

On ~~April~~October 13, 2020, ~~the Company’s~~our board of directors declared a ~~common stock~~cash dividend of $0.06 per common share ~~for the month of April 2020, which is~~ payable on ~~May~~November 13, 2020 to stockholders of record as of October 30, 2020, and on November 9, 2020, the board of directors declared a cash dividend of $0.06 per common share payable on December 15, 2020 to stockholders of record as of ~~April~~November 30, 2020.

~~Loan Portfolio~~

~~Subsequent to March 31, 2020, through May 8, 2020, the Company originated and/or refinanced six mortgage notes receivable with a face amount of $6.0 million.~~

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~~Broadmark Realty Capital Inc.~~

~~Notes to Consolidated Financial Statements~~

Subsequent to March 31, 2020, through May 8, 2020, the Company had 5 loans enter default status totaling $50.5 million in principal outstanding. These loans have not shown any indications of impairment at this time. In addition, the Company partially or fully cured 6 loans in default status as March 31, 2020 totaling $4.1 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1 and the “Risk Factors” section in Part II, Item 1A of this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 16, 2020 including the “Risk Factors” section and consolidated financial statements and notes included therein. The following discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from those contained in any forward-looking statements. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2020 or for any other period. Unless the context otherwise requires, references to “Broadmark ~~Realty”,~~Realty,” the ~~“Company”, “we”,~~“Company,” “we,” “us” and “our” refer to Broadmark Realty and its consolidated subsidiaries after the Business Combination and refer to the Predecessor Company Group for periods prior to the Business Combination.

Broadmark Realty, a Maryland corporation, is an internally managed commercial real estate finance company that ~~intends~~provides secured financing to ~~elect~~real estate investors and developers. We have elected to be taxed as a REIT for U.S. federal income tax ~~purposes.~~purposes commencing with our taxable year ending December 31, 2019. Based in Seattle, Washington, ~~Broadmark Realty offers~~we specialize in underwriting, funding, servicing and managing a portfolio of short-term, first deed of trust loans ~~secured by real estate~~ to fund the construction and development of, or investment in, primarily residential orand, to a lesser extent, commercial properties. We operate in select states that we believe to have favorable demographic trends, and that provide ~~more efficient and quicker~~us the ability to efficiently access tothe underlying collateral in the event of borrower default. As of ~~March 31,~~September 30, 2020, our ~~combined~~ portfolio of active loans had approximately ~~$1.1~~$1.2 billion of ~~principal~~total commitments outstanding across borrowers in 13 states and the District of Columbia, of which ~~approximately $805.5~~our portion and the Private REIT’s portion of the total principal balance funded and outstanding was $874.4 and $15.6 million, ~~was funded.~~respectively. We operate our business as one reportable segment.

Properties securing our loans are generally classified as ~~either~~ residential orproperties, commercial properties or undeveloped land, and are typically not income producing. Each loan is secured by a first ~~mortgage~~deed of trust lien on real estate. Our lending policy limits the committed amount of ~~the~~each loan to a maximum loan-to-value (“LTV”) ratio of up to 65% of the “as-complete” appraised value of the underlying collateral as determined by an independent appraiser at the time of the loan origination. ~~The~~Our lending policy also limits the initial outstanding principal balance of ~~the~~each loan to a maximum LTV of up to 65% of the “as-is” appraised value of the underlying collateral as determined by an independent appraiser at the time of the loan origination. At the time of origination, the difference between the initial outstanding principal and the total commitment is the amount held back for future release subject to property inspections, progress reports and other conditions in accordance with the loan documents. Unless otherwise indicated, LTV is measured by the ~~face value~~total commitment amount of the loan at origination divided by the ~~“as-complete “appraisal.~~“as-complete” appraisal. LTVs do not reflect interim activity such as construction draws or interest payments capitalized to loans, or partial repayments of the loan. As of ~~March 31,~~September 30, 2020, the weighted average LTV was 60.4% across our active loan portfolio based on ~~this~~ “as-complete” ~~appraisal was 50.6%.~~appraisals. In addition, each loan is also personally guaranteed on a recourse basis by the principals of the borrower, and/or others at our discretion to provide further credit support for the loan. The guaranty may be collaterally secured by a pledge of the guarantor’s interest in the borrower or other real estate or assets owned by the guarantor.

Our loans typically range from $0.1 to ~~$35~~$42 million in ~~face value (average of $2.2 million~~total commitment at ~~March 31, 2020),~~origination, generally bear interest at a fixed annual rate of 10% to 13% and have initial terms typically ranging from five to ~~twelve~~18 months in duration ~~(which may be renewed or extended before~~based on the ~~expiration~~size of the ~~loan’s term).~~project and expected timeline for completion of construction, which we often elect to extend for several months based on our evaluation of the project. As of September 30, 2020, the average total commitment of our active loans was $5.7 million and the weighted average remaining term to maturity of our active loans was approximately seven months. We usually receive loan origination fees, or “points,” typically ranging from 4% to 5% of the ~~original principal amount of the loan,~~total commitment at origination, along with loan ~~renewal~~extension fees, each of which varies in amount based upon the term of the loan and the quality of the borrower and the underlying ~~real estate.~~collateral. In addition to loan origination fees, we receive late fees paid by borrowers and/or isare reimbursed by borrowers for costs associated with services provided by us, such as closing costs, collection costs on defaulted loans and construction draw inspection fees.

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In addition to the natural seasonality inherent in our business whereby winter months are typically less favorable to construction, restrictions related to the Business Combination decreased the amount of our loan originations for the second half of 2019 and early 2020. ~~After August 2019, the~~The pending Business Combination required us to essentially pause our ability to raise capital and in turn originate new ~~loans.~~loans for most of the second half of 2019. In the first quarter of 2020, we focused on rebuilding our pipeline and began to strategically deploy the proceeds from the Business ~~Combination, which was slowed~~Combination; these rebuilding efforts began to slow in March due to the uncertainty associated with the impacts of COVID-19. We believe that the launch of the Private REIT in March 2020 will provide access to additional capital in the future to participate in loans originated by

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~~the Company,~~ Broadmark Realty, which we expect to position us to increase originations and grow our asset base, subject to market conditions. ~~At March 31,~~As of September 30, 2020, the Private ~~REIT has raised $8.7 million in equity interests from third parties.~~REIT’s assets under management were approximately $15.6 million.

The COVID-19 pandemic is significantly affecting, and can be expected to continue to impact, the capital markets and the construction lending market, at least in the near term. While we have implemented a variety of business continuity initiatives, restrictions imposed in connection with COVID-19 or the impact on key employees could create significant challenges for our operations. We have experienced an adverse impact on our loan portfolio primarily in the form of a significant increase in defaulted loans, a slow-down in construction progress and an expected reduction in demand for and the value of commercial and residential real estate properties. For example, delays in local government permitting and inspections arising from measures to limit the spread of COVID-19 have delayed some projects, adversely affecting the ability of ~~borrower~~borrowers to complete the projects in accordance with the terms of the loans. Similarly, the COVID-19 pandemic and containment measures have contributed to, among other things, adverse impacts on demand for and the value of commercial and residential real estate that our borrowers have developed that make it less likely that a borrower can sell or lease the property ~~they are~~it is developing in an amount sufficient to repay the borrower’s loan, or that a developer, who would be our borrower, will elect to go forward with a new project. As a result, during the first half of 2020, we ~~are seeing~~saw an increase in delinquencies and requests for extensions or ~~forbearance.~~forbearance, which have since stabilized or declined during the three months ended September 30, 2020. In addition, market conditions, and in some cases moratoriums on the foreclosure process, have increased the timeline to resolve non-performing loans. Delays in repayment of our outstanding loans or resales of foreclosed properties reduce the capital available for future loan originations. If the pandemic is prolonged, it could increase the adverse impact on our business and results of operations.

Key Indicators of Financial Condition and Operating Performance

In assessing the performance of our business, we consider a variety of financial and operating metrics, which include both GAAP and non-GAAP metrics, including the following:

Interest income earned on our loans. A primary source of our revenue is interest income earned on our loan portfolio. Our loans typically bear interest at a fixed annual rate of 10% to 13%, paid monthly, ~~through~~primarily from interest reserves and, to a lesser extent, cash ~~payments or interest reserves.~~payments. As we have historically had no debt outstanding, we have had no borrowing costs ~~making~~and accordingly our gross interest income earned on our loans has been equivalent to ~~its~~ net interest income.

Fees and other revenue recognized from originating and servicing our loans. Fee income is comprised of loan origination fees, loan renewal fees and inspection fees. The majority of fee income is comprised of loan origination fees, or “points,” which typically range from 4% to 5%, on an annualized basis, of the ~~original principal amount of the loan.~~total commitment at origination. In addition to origination fees, we earn loan ~~renewal~~extension fees when maturing loans are renewed or extended. Loans are generally only renewed or extended if the loan is not in default and satisfies our underwriting criteria, including our maximum LTV ratio of up to 65% of the appraised value as determined by an independent appraiser at the time of loan origination, or based on an updated appraisal if required. ~~We also earn inspection fees when an inspection of work progress is required to fund a loan draw, although inspection fees are typically passed on to pay third party inspectors.~~

Loan originations. Our operating performance is heavily dependent upon our ability to originate new loans to invest new capital and re-invest returning capital from loans being repaid. Given the short-term nature of our loans, loan principal is generally repaid on a faster basis than to other types of lenders, making our originations function an important factor in our success.

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The following tables contains the total amount of our loan originations and repayments for the periods indicated:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in millions)	2020		2020
Loans originated	$	153.4	$	312.6
Loans repaid	$	52.2	$	225.8

Credit quality of our loan portfolio. ~~Maintaining the~~The credit quality of the loans in our portfolio is of critical importance as loans that do not perform in accordance with their terms may have a negative impact on our earnings and liquidity. As of September 30, 2020, a total of 30 loans were in contractual default totaling $194.4 million in principal balance outstanding, which excludes five loans for which forbearance agreements were executed totaling $23.3 million in principal outstanding. Of the loans in contractual default, 13 loans had impairment as of September 30, 2020 with our estimated losses reflected in our allowance for loan losses of $6.1 million. During the three months ended September 30, 2020, we resolved six loans in contractual default and limited new contractual defaults to one compared to eight and 17 new contractual defaults during the three months ended June 30, 2020 and March 31, 2020, 18respectively.

Principal Factors Affecting the Comparability of our Results of Operations

As a commercial real estate finance company, our results are affected by factors such as changes in economic climate, demand for housing, population trends, construction costs and the availability of alternative real estate financing from other lenders. These factors may have an impact on our ability to originate new loans ~~went into default status with an aggregate outstanding principal amount~~or the performance of ~~$122.7 million. As of March 31, 2020, a total of 32 loans are in default representing 14.3%~~our existing loan portfolio.

From November 15, 2019, our consolidated financial statements reflect BRELF II, one of the ~~aggregate outstanding principal amount.~~Predecessor Companies, as the accounting acquirer and Successor entity, acquiring the other three Predecessor Companies, the four Predecessor Management Companies, and Trinity in the Successor period. The Business Combination transaction reflects a change in accounting basis for the Predecessor Company Group (other than BRELF II). As Trinity was a special purpose acquisition company, its acquisition is reflected as the issuance of shares for cash. For periods prior to November 15, 2019, in lieu of presenting separate financial statements of each of the Predecessor Companies and Predecessor Management Companies, consolidated financial statements have been presented, as these entities were under common management. Broadmark Realty is the successor issuer to Trinity.

As a result of the Business Combination, beginning from November 15, 2019, our consolidated financial statements are presented on a new basis of accounting pursuant to ASC 805, Business Combinations to reflect BRELF II acquiring the other entities within the Predecessor Company Group and Trinity. For more information refer to “Note 3 – Business Combination” to the unaudited condensed consolidated financial statements included in this Report.

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Results of Operations

The period-to-period comparison of results is not necessarily indicative of results for future periods. The tables below set forth the results of our operations and the results of the operations of our Predecessor for the periods presented, both in dollars and as a percentage of revenue (dollars in thousands, except percentage data):


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019		2020		2019
Statements of Operations Data:	(Successor)		(Predecessor)		(Successor)		(Predecessor)
Revenues
Interest income	$	21,844	$	25,284	$	68,577	$	69,363
Fee income		7,139		9,297		21,244		31,574
Total Revenue		28,983		34,581		89,821		100,937
Other Income:
Change in fair value of optional subscription liabilities		1,948		—		5,094		—
Expenses
Impairment:
Loan loss (benefit) provision		(652)		2,704		3,279		2,777
Operating expenses:
Compensation and employee benefits		5,160		794		11,397		4,647
General and administrative		3,199		5,227		9,977		11,468
Total Expenses		7,707		8,725		24,653		18,892
Income before income taxes		23,224		25,856		70,262		82,045
Income tax provision		—		—		—		—
Net income	$	23,224	$	25,856	$	70,262	$	82,045


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2020		2019		2020		2019
Percentage of Revenue:	(Successor)		(Predecessor)		(Successor)		(Predecessor)
Revenues:
Interest income	75	%	73	%	76	%	69	%
Fee income	25		27		24		31
Total Revenue	100		100		100		100
Other Income:
Change in fair value of optional subscription liability	7		0		6		0
Expenses
Impairment:
Loan loss (benefit) provision	(2)		8		4		3
Operating expenses:
Compensation and employee benefits	18		2		13		5
General and administrative	11		15		11		11
Total Expenses	27		25		28		19
Income before income taxes	80		75		78		81
Income tax provision	0		0		0		0
Net income	80	%	75	%	78	%	81	%

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Core Earnings

Core earnings is a non-GAAP financial measure used by management as a supplemental measure to evaluate our performance. We define core earnings as net income attributable to common stockholders adjusted for: (i) impairment recorded on our investments in mortgage notes receivable; (ii) realized and unrealized gains or losses on both our

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~~investments;~~ investments and optional subscription liabilities; (iii) non-capitalized transaction-related expenses and first year public company transition expenses; (iv) non-cash stock-based compensation; (v) amortization of our intangible assets; and (vi) deferred taxes, which are subject to variability and generally not indicative of future economic performance or representative of current operations.

Management believes that the adjustments to compute “core earnings” specified above allow investors and analysts to readily identify and track the operating performance of the assets that form the core of our activity, assist in comparing the core operating results between periods and enable investors to evaluate our current core performance using the same measure that management uses to operate the business. Core earnings excludes certain recurring items, such as gains and losses (including provision for loan losses) and non-capitalized transaction-related expenses, because they are not considered by management to be part of our core operations for the reasons described herein. As such, core earnings is not intended to reflect all of our activity and should be considered as only one of the factors used by management in assessing our performance, along with GAAP net income which is inclusive of all of our activities.

Core earnings does not represent, and should not be considered as a substitute, for ~~or superior to,~~ net income or as a substitute for ~~or superior to,~~ cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly ~~entitled~~titled measures reported by other companies. Set forth below is a reconciliation of core earnings to the most directly comparable GAAP financial measure:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in thousands, except share and per share data)	2020		2020
Net income attributable to common stockholders	$	23,224	$	70,262
Adjustments for non-core earnings:
Stock-based compensation expense		1,913		3,794
First year public company transition expenses ⁽¹⁾		684		2,750
Change in fair value of optional subscription liabilities		(1,948)		(5,094)
Amortization of intangible assets		103		(682)
Loan loss (benefit) provision		(652)		3,279
Core earnings	$	23,324	$	74,309

Earnings per share, basic	$	0.18	$	0.53
Earnings per share, diluted	$	0.18	$	0.53
Core earnings per share, basic	$	0.18	$	0.56
Core earnings per share, diluted	$	0.18	$	0.56
Weighted-average number of shares of common stock outstanding, basic and diluted
Basic		132,282,252		132,156,844
Diluted		132,316,746		132,207,605

Successor

Three Months Ended

March 31,
(amounts in thousands, except share and per share data)

2020

Net income attributable to common stockholders

$
27,279
Adjustments for non-core earnings:

Non-cash stock compensation expense

914
Other non-recurring professional fees

1,232
Change in fair value of warrant liabilities

(4,604)
Amortization of intangible assets

(904)
Loan loss provision

3,622
Core earnings

$
27,539

Earnings per share, basic

$
0.21
Earnings per share, diluted

$
0.21
Core earnings per share, basic

$
0.21
Core earnings per share, diluted

$
0.21
Weighted-average number of shares of common stock outstanding, basic and diluted

Basic

132,111,329
Diluted

132,336,315

(1)	Expenses directly related to first year of public company reporting and compliance, primarily professional fees in connection with the design and implementation of internal controls and procedures under Section 404 of the Sarbanes-Oxley Act.

~~Principal Factors Affecting the Comparability~~

Table of ~~our~~Contents

Comparison of Results of Operations

~~As a commercial real estate finance company, our results are affected by factors such as changes~~Unless otherwise stated, for purposes of this Management’s Discussion and Analysis of Financial Condition and Results Of Operations, in ~~economic climate, demand for housing, population trends, construction costs and~~ the ~~availability of real estate financing from other lenders. These factors may have an impact on our ability to originate new loans or the performance of its existing loan portfolio.~~

~~From November 15, 2019, our consolidated financial statements reflect BRELF II, one~~comparison of the Predecessor Companies, as the accounting acquirer and successor entity, acquiring the other three Predecessor Companies, the four Predecessor Management Companies, and Trinity in the successor period. The Business Combination transaction reflects a change in accounting basis for the Predecessor Company Group (other than BRELF II). As Trinity was a special purpose acquisition company, its acquisition is reflected as the issuance of shares for cash. For periods prior to November 15, 2019, in lieu of presenting separate financial statements of each of the Predecessor Companies and

~~Table of Contents~~

~~Predecessor Management Companies, consolidated financial statements have been presented, as these entities were under common management. Broadmark Realty is the successor issuer to Trinity.~~

~~Results from Operations~~

The table below sets forth the results of our operations and the results of the operations of our Predecessor for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.

As a result of the Business Combination, beginning from November 15, 2019, our consolidated financial statements are presented on a new basis of accounting pursuant to Accounting Standards Codification ("ASC") 805, Business Combinations (refer to Note 3 to the unaudited condensed consolidated financial statements included in this quarterly report), to reflect BRELF II acquiring the other entities within the Predecessor Company Group and Trinity.

~~The following tables summarizes key components of our~~ results of operations for the ~~periods indicated, both in dollars~~three months ended September 30, 2020 and ~~as a percentage of revenue.~~

~~Comparison of Results of Operations~~September 30, 2019, Successor period refers to the three months ended September 30, 2020, and references to Predecessor period refer to the three months ended September 30, 2019, and for the discussion of the results of operations for the nine months ended September 30, 2020 and 2019, Successor period refers to the nine months ended September 30, 2020, and references to Predecessor period refer to the nine months ended September 30, 2019.

Three Months Ended ~~March 31,2020 and March 31,~~September 30,2020 Compared to September 30, 2019

Three Months Ended

Increase (Decrease)

March 31,

March 31,

2020

2019

(dollars in thousands)

(Successor)

(Predecessor)

Amount

%

Revenues












Interest income

$
24,553

$
20,623

$
3,930

19.1
%
Fee income

7,215

9,160

(1,945)

(21.2)
%
Total Revenue

31,768

29,783

1,985

6.7
%
Other Income:

Change in fair value of optional subscription liability

4,604

—

4,604

100.0
%
Expenses







Impairment:







Loss provision (recovery)

3,622

(224)

3,846

> 100
%
Operating expenses:









Compensation and employee benefits

3,193

1,928

1,265

65.7
%
General and administrative

2,278

3,090

(812)

(26.3)
%
Total Expenses

9,093

4,794

4,299

89.7
%
Income before income taxes

27,279

24,989

2,290

9.2
%
Income tax provision

—

—

—

—
%
Net income

$
27,279

$
24,989

$
2,290

9.2
%

Revenue

Total revenue for the three months ended ~~March 31,~~September 30, 2020 ~~(the “Successor Period”)~~ and 2019 were $29.0 and $34.6 million, respectively, a decrease of $5.6 million. The decrease relates to a decrease in interest and fee income relative to the Predecessor period, which are discussed below.

Expenses

Total expenses for the three months ended ~~March 31,~~September 30, 2020 and 2019 ~~(the “Predecessor Period”)~~were $7.7 and $8.7 million, respectively. The decrease in total expenses from the prior period was ~~$31.8~~due to decreases in the provision for loan losses and ~~$29.8 million, respectively,~~general and administrative; partially offset by an increase ~~of $2.0 million. The increase primarily relates~~in compensation and employee benefits compared to ~~increased access to capital through fundraising and~~ the ~~related expansion of the lending portfolio.~~three months ended September 30, 2020, which are discussed below.

~~Expenses~~Interest Income

~~Total expenses~~Interest income decreased by $3.4 million or 13.6% for the ~~Successor Period and~~three months ended September 30, 2020 from the ~~Predecessor Period was $9.1 and $4.8 million, respectively, an increase of $4.3 million. The increase was~~three months ended September 30, 2019, primarily due to an increase in loans placed in non-accrual status largely as a result of the ~~loan loss provision expense resulting from~~

~~Table~~impact of ~~Contents~~

anthe COVID-19 pandemic on our borrowers’ ability to complete projects in the timeframe originally contemplated. The decreases in interest income were partially offset by increase in ~~defaults and an increase in compensation and benefits primarily associated with compensation expense for RSUs granted to employees and directors.~~

~~Interest Income~~

~~Interest~~interest income ~~increased by $3.9 million or 19.1% for the Successor Period from the Predecessor Period primarily attributable to incremental interest income~~resulting from a net increase in the average size of our loan portfolio of ~~more than 18.4% from March 31, 2019~~approximately 10.1% for the three months ended September 30, 2020 compared to ~~March 31, 2020.~~ the three months ended September 30, 2019.

Fee Income

Fee income decreased by ~~$1.9~~$2.2 million or ~~21.2%~~23.2% for the ~~Successor Period~~three months ended September 30, 2020 from the ~~Predecessor Period~~three months ended September 30, 2019 primarily attributable to a decrease in origination and extension fee income relative to the Predecessor ~~Period primarily~~period as a result ~~the Company~~of (1) beginning to defer and amortize these fees on November 15, 2019 whereas in the past, the Predecessor’s policy was to record the fees when ~~received.~~billed and (2) decrease in new originations during 2020 due to disruptions in our construction lending activity associated with the COVID-19 pandemic.

Provision for loan losses

~~Provision~~The provision for loan losses ~~increased by $3.8~~decreased $3.4 million for the ~~Successor Period~~three months ended September 30, 2020 from the ~~Predecessor Period as a result of an increase in loans in default associated with the current economic environment~~three months ended September 30, 2019 primarily related to changes in estimates reducing the ~~impact~~allowance for loan losses from amounts recorded earlier in 2020. This was the result of progress or completion of construction during the three months ended September 30, 2020 resulting in stabilizations or increases in the fair value of the ~~COVID-19 pandemic.~~collateral of the non-performing and impaired loans.

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Other Income

The change in fair value of the Optional Subscription Liability is an unrealized gain or loss based on the fair value of an optional subscription of up to $25 million of additional common stock issued as a part of the Business Combination. The Optional Subscription Liability warrants contain a cash settlement feature, which requires accounting for the fair value of the liability at each reporting period. Other income of ~~$4.6~~$1.9 million was recognized during the three months ended September 30, 2020 resulting from the decrease in value of the optional subscription warrants during the period which primarily resulted from the shorter expected term as the warrants approach the expiration date on November 14, 2020 and the market price of our common stock remains below the exercise price.

Compensation and Employee Benefits

Compensation and employee benefits expense increased by $4.4 million or 549.9% for the three months ended September 30, 2020 from the three months ended September 30, 2019 primarily attributable to $1.9 million of stock-based compensation expense recorded for the three months ended September 30, 2020 and $2.5 million related to an increase in employee headcount and a change in the compensation structure for executives who were compensated through distribution of earnings from the Predecessor Company during the three months ended September 30, 2019. The stock-based compensation expenses resulted from grants of RSUs at fair value, which are being amortized over the respective vesting periods. The equity-based compensation expense recorded in the Predecessor Period was $0.2 million.

General and Administrative

General and administrative expense decreased by $2.0 million or 38.8% for the three months ended September 30, 2020 from the three months ended September 30, 2019 primarily as a result of $2.0 million in accounting and legal fees incurred during the three months ended September 30, 2019 by the Predecessor Company in connection with the execution of the Business Combination, and $2.2 million of non-recurring broker commissions associated with growth in the loan portfolio during the three months ended September 30, 2019. These decreases from the prior period were partially offset by $2.2 million in accounting and legal fees associated with being a public company, including certain non-recurring expenses, such as design and implementation of internal controls and procedures under Section 404 of the Sarbanes-Oxley Act.

Nine Months Ended September 30,2020 Compared to September 30, 2019

Revenue

Total revenue for the nine months ended September 30, 2020 and the nine months ended September 30, 2019 were $89.8 and $100.9 million, respectively, a decrease of $11.1 million. The decrease from the prior period primarily relates to a decrease in origination and extension fee income relative to the Predecessor period, which are discussed below.

Expenses

Total expenses for the nine months ended September 30, 2020 and the nine months ended September 30, 2019 were $24.7 and $18.9 million, respectively, an increase of $5.8 million. The increase during the nine months ended September 30, 2020 was primarily due to an increase in compensation and employee benefits and also due to an increase in the provision for loan losses; partially offset by decreases during the nine months ended September 30, 2020 in general and administrative expenses, which are discussed below.

Table of Contents

Interest Income

Interest income decreased by $0.8 million or 1.1% for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The decrease resulted primarily from the increase in loans designated as non-performing and placed on non-accrual status primarily as a result of the impact of the COVID-19 pandemic on our borrowers’ ability to complete projects in the timeframe originally contemplated. The decreases in interest income were partially offset by increase in interest income resulting from a net increase in the average size of our loan portfolio of approximately 17.8% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Fee Income

Fee income decreased by $10.3 million or 32.7% for the nine months ended September 30, 2020 from the nine months ended September 30, 2019 primarily attributable to a decrease in origination and extension fee income relative to the Predecessor period as a result of (1) beginning to defer and amortize these fees on November 15, 2019 whereas in the past, the Predecessor’s policy was to record the fees when billed and (2) decrease in new originations during the nine months ended September 30, 2020 due to disruptions in our construction lending activity associated with the COVID-19 pandemic.

Provision for loan losses

Provision for loan losses increased by $0.5 million for the nine months ended September 30, 2020 from the nine months ended September 30, 2019. The increase resulted primarily from an increase in non-performing and impaired loans associated with the current economic environment primarily related to the impact of the COVID-19 pandemic; partially offset by the $2.8 million in the provision for loan losses during the nine months ended September 30, 2019.

Other Income

The change in fair value of the Optional Subscription Liability is an unrealized gain or loss based on the fair value of an optional subscription of up to $25 million of additional common stock issued as a part of the Business Combination. The Optional Subscription Liability warrants contain a cash settlement feature, which requires accounting for the fair value of the liability at each reporting period. Other income of $5.1 million was recognized during the Successor ~~Period~~period resulting from the decline in value of the optional subscription warrants during the period which resulted from the decrease in the market price of ~~the Company’s~~our common stock.

Compensation and Employee Benefits

Compensation and employee benefits expense increased by ~~$1.3~~$6.8 million or ~~65.7%~~145.3% for the ~~Successor Period~~nine months ended September 30, 2020 from the ~~Predecessor Period primarily attributable~~nine months ended September 30, 2019 due to ~~$0.9~~$3.8 million of stock-based compensation expense recorded for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 ~~and an increase~~compared to $0.5 million of equity-based compensation in ~~employee headcount and performance-based bonuses.~~the Predecessor Period. The stock-based compensation expenses resulted from grants of ~~restricted stock units.~~RSUs. The fair values of the RSUs are being amortized over the vesting periods. In addition, the increase was due to an increase of $3.5 million related to an increase in employee headcount and a change in the compensation structure for executives who were compensated through distribution of earnings from the Predecessor Company during the three months ended September 30, 2019.

Table of Contents

General and Administrative

General and administrative expense decreased by ~~$0.8~~$1.5 million or ~~26.3%~~13.0% for the ~~Successor Period~~nine months ended September 30, 2020 from the ~~Predecessor Period~~nine months ended September 30, 2019. This decrease is primarily as a result of ~~$1.3~~a decrease of $5.3 million of non-recurring broker commissions associated with growth in the loan portfolio during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and a reversal of intangible asset amortization of ~~$0.9~~$0.7 million that was originally recognized in 2019 but was a measurement period adjustment in 2020 when the ~~Successor Period.~~preliminary valuation of intangible assets was decreased. These decreases were partially offset by an increase in accounting and legal fees of ~~$1.4~~$4.5 million associated with being a new public ~~company.~~ company, including certain non-recurring expenses, such as design and implementation of internal controls and procedures under Section 404 of the Sarbanes-Oxley Act.

Liquidity and Capital Resources

Overview

Our primary liquidity needs include ongoing commitments to fund our lending activities and future funding obligations for our existing loan portfolio, paying dividends and funding other general business needs. Our primary sources of liquidity and capital resources to date have been derived from the capital contributions from members of the

~~Table of Contents~~

Predecessor Companies, cash flow from operations and payoffs of loans in our existing ~~loans.~~portfolio. Neither the Successor nor the Predecessor, has utilized any borrowings since inception. As of ~~March 31,~~September 30, 2020, our cash and cash equivalents totaled ~~$258.4~~$173.6 million.

We seek to meet our long-term liquidity requirements, such as real estate lending needs, including future construction draw commitments through our existing cash resources and return of capital from investments, including loan repayments. Additionally, going forward, we intend to fund our growth through the issuance of common stock, potential use of cash management tools such as a credit facility, and the sale of participation interests in loans we originate to the Private REIT, and fee income from the Private REIT. As of ~~March 31,~~September 30, 2020, we had ~~$1.1~~$1.2 billion of total loan commitments outstanding, of which ~~$805.5 million~~our portion and the Private REIT’s portion of the total principal balance ~~were~~ funded and ~~outstanding.~~outstanding were $874.4 and $15.6 million, respectively.

We believe our existing sources of liquidity are sufficient to fund our existing commitments. However, we are continuing to monitor the COVID-19 pandemic and its impact on us, our borrowers and the economy as a whole. Because the magnitude, duration and severity of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict. We anticipate the ~~COVID-19~~ pandemic may ~~result in some delays in~~continue to slow the ~~payoff~~pace of repayments of our outstanding loans, which would reduce the capital available to fund new loans. As a result, we ~~plan to~~ seek to fund ~~growth~~new loans in the near term through the sale of participation interests in new mortgage loans to the Private REIT, which will depend on the ability of the Private REIT to raise capital. To the extent funds available for new loans are limited, we will manage our capital deployment based on the receipt of payoffs. In the longer term, we plan to raise equity capital from time to time as a key component of our growth strategy, subject to market conditions. In addition, we are ~~currently evaluating the addition of~~seeking to obtain a working capital credit ~~facility.~~facility to increase our available cash for deployment. By providing backup liquidity for future draws, a working capital credit facility would enable us to use a larger percentage of our cash balances for lending activities without planning to incur debt in the ordinary course of business. We cannot assure whether will be available to obtain a credit facility on favorable terms or at all.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where Broadmark Realty does not receive corresponding cash. We intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Code and to avoid federal income tax and the non-deductible excise tax.

Table of Contents

Sources and Uses of Cash

The following table sets forth changes in cash and cash equivalents for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~ 2019:

Successor

Predecessor

Three Months Ended

Three Months Ended

March 31,

March 31,
(dollars in thousands)

2020

2019
Cash provided by (used in):

Operating activities

23,626

24,811
Investing activities

33,568

(70,909)
Financing activities

(36,973)

49,971
Net increase / (decrease) in cash & cash equivalents

20,221

3,873


	Successor		Predecessor
	Nine Months Ended		Nine Months Ended
	September 30,		September 30,
(dollars in thousands)	2020		2019
Cash provided by (used in):
Operating activities		53,674		84,539
Investing activities		(31,039)		(214,126)
Financing activities		(87,247)		220,492
Net increase / (decrease) in cash & cash equivalents		(64,612)		90,905

Comparison of Results of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,2020~~September 30, 2020 and ~~March 31,~~September 30, 2019

Net cash provided by operating activities ~~was $19.8 million~~ for the ~~Successor Period~~nine months ended September 30, 2020 and ~~$24.8~~2019 were $53.7 and $84.5 million, respectively. The $30.9 million decrease partially resulted from an $11.8 million decline in net income caused by declines in revenue and increases in expenses, which are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of Results of Operations – Nine Months Ended September 30,2020 Compared to September 30, 2019. The decrease in cash flow from operations partially resulted from an $8.5 million change in the amount of increases in operating assets related to receivables and other assets and the $5.1 million of noncash other income for the ~~Predecessor Period. While the amounts are comparable, the results of operating activities were affected by an increase~~change in the ~~loan portfolio since March 31,~~fair value of optional subscription liabilities with no corresponding amount for the 2019 period. The decrease also partially resulted from the ~~effects~~subtraction of $7.3 million of accretion of deferred origination and amendment fees within the ~~COVID-19 pandemic in 2020 and an increase in expenses resulting from our growth and associated costs of becoming a public company.~~

~~Net~~adjustments to reconcile net income to net cash provided by operating activities for the nine months ended September 30, 2020 with no corresponding amount for the nine months ended September 30, 2019. We began to defer and amortize loan origination and amendment fees on November 15, 2019 upon consummation of the Business Combination for our consolidated financial reporting. Under the business model used by the Predecessor entities (whose financial results were not consolidated, but are being presented on a combined basis for the nine months ended September 30, 2019), 80% of the loan origination and amendment fees were paid to the Predecessor management entities. The Predecessor management entities classified the management fees received as cash provided by operating activities. The 20% of loan origination and amendment fees retained by the Predecessor lending entities were included in the total for cash flows provided by operating activities instead of being included in cash flows from investing activities, ~~was $37.3 million~~but the impact to the statement of cash flows of this treatment is immaterial to the statement of cash flows for the ~~Successor Period and net~~2019 period.

Net cash used in investing activities ~~was $70.9 million~~ for the ~~Predecessor Period.~~nine months ended September 30, 2020 and 2019 were $31.0 and $214.1 million, respectively. The decrease in cash used ~~in 2020~~ of ~~$108.2~~$183.1 million was primarily due to ~~a slowing~~smaller increases in the size of ~~new~~our loan ~~originations~~portfolio during the 2020 period compared to larger increases experienced in the 2019 period resulting from capital available for making loans from the ~~need to ramp up lending after~~$220.5 million of net contributions received from members in the ~~suspension of fundraising mandated by the guidelines of the Business Combination combined with a surge in pay-offs.~~2019 period.

Net cash used in financing activities ~~was $37.0 million~~ for the ~~Successor Period and this~~nine months ended September 30, 2020 was $87.2 million which consists entirely of dividends paid. Net cash provided by financing activities ~~was $50.0 million~~ for the ~~Predecessor Period and this relates primarily~~nine months ended September 30, 2019 was $220.5 million related to member contributions net of ~~distributions.~~

distributions and redemptions.

3340

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Contractual Obligations and Commitments

The following table illustrates our contractual obligations and commercial commitments by due date as of ~~March 31,2020 ($ in thousands):~~September 30,2020:


			Less than 1						More than
(dollars in thousands)	Total		year		1-3 years		3-5 years		5 years
Construction holdbacks⁽¹⁾		305,410		234,845		70,565		—		—
Operating lease obligations	$	11,962	$	761	$	1,893	$	2,008	$	7,300
Total	$	317,372	$	235,606	$	72,458	$	2,008	$	7,300

Less than 1





More than

Total

year

1-3 years

3-5 years

5 years
Operating lease obligations

$
9,915

$
373

$
2,120

$
3,181

$
4,241
Construction holdbacks

272,274

215,443

56,831

—

—
Total

$
282,189

$
215,816

$
58,951

$
3,181

$
4,241

(1)	Includes construction holdbacks of $19.8 million on participating interests sold to the Private REIT as of September 30, 2020.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of ~~March 31, 2020 .~~September 30, 2020. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets as of ~~March 31,~~September 30, 2020.

Critical Accounting Policies and Estimates

The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with loan impairment and valuation of investments in real estate and ~~income taxes.~~taxable income. Management evaluates ~~its~~our policies and assumptions on an ongoing basis.

~~Our~~For a description of our significant accounting policies related to these accounts in the preparation of our consolidated financial statements, ~~are described under the heading “Management Discussion and Analysis~~see “Note 2 - Summary of ~~Financial Condition and Results~~Significant Accounting Policies” of ~~Operations – Critical Accounting Policies and Significant Estimates”~~our unaudited condensed consolidated financial statements included in ~~our Annual Report on Form 10-K for the year ended December 31, 2019. As of the date of~~ this ~~filing, there were no significant changes to any of the critical accounting policies and estimates previously described in our Annual Report on Form 10-K.~~Report.

Recently Issued Accounting Pronouncements

For a description of our adoption of new accounting pronouncements and the impact thereof on our business, see “Note 2 - Summary of Significant Accounting Policies” of our unaudited condensed consolidated financial statements included in this ~~Quarterly Report on Form 10-Q~~Report.

JOBS Act

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for public companies that qualify as “emerging growth companies” under the JOBS Act. Emerging growth companies under the JOBS Act are allowed to elect to comply with new or revised accounting pronouncements based on the effective date for private companies rather than the effective date for publicly traded companies. Broadmark Realty is currently an emerging growth company and has elected to delay the adoption of new or revised accounting standards. As a result, Broadmark Realty may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for publicly traded companies that are not emerging growth companies. As such, Broadmark Realty’s financial statements may not be comparable to companies that comply with public company effective dates.

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We will cease to qualify as an emerging growth company effective December 31, 2020 unless the eligibility standards are modified. Loss of emerging growth company status will result in our losing our reporting exemptions noted above, and in particular require our independent registered public accounting firm to provide an attestation report on the effectiveness of our internal control over financial reporting as of and for the year ended December 31, 2020 under Section 404(b) of the Sarbanes-Oxley Act.

Internal Control over Financial Reporting and Disclosure Control

Management has identified certain material weaknesses in our internal control over financial reporting. See Item 4 below.

~~Table of Contents~~

~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

This Quarterly Report on Form 10-Q (this “Report”) and the exhibits hereto contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange of Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations of future operations, are forward-looking statements. Forward-looking statements reflect the Company’s current views with respect to, among other things, capital resources, portfolio performance and projected results of operations. Likewise, the Company’s statements regarding anticipated growth in its operations, anticipated market conditions, demographics and results of operations are forward-looking statements. In some cases, you can identify these forward-looking statements by the use of terminology such as “outlook,” “believes,” “expects,” “projects”, “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases.

The forward-looking statements contained in this Report and the exhibits hereto are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that it has anticipated. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause the Company’s actual results to differ include, but are not limited to:

Factors described under the heading “Risk Factors” in Part II, Item 1A of this Report, and in our Annual Report on Form 10-K for the year ended on December 31, 2019, including those set forth under the captions “Risk Factors” and “Business”;

~~defaults by borrowers in paying debt service on outstanding indebtedness;~~

~~impairment in the value of real estate property securing our loans;~~

~~availability of origination and acquisition opportunities acceptable to us;~~

~~potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;~~

~~general economic uncertainty and the effect of general economic conditions on the real estate and real estate capital markets in particular;~~

~~general and local commercial and residential real estate property conditions;~~

~~changes in federal government policies;~~

~~changes in federal, state and local governmental laws and regulations that impact our business, assets or classification as a real estate investment trust;~~

~~increased competition from entities engaged in construction lending activities;~~

~~disruptions in our business operations and construction lending activity relating to coronavirus (COVID-19);~~

~~adverse impact of COVID-19 on the value of our goodwill established in the Business Combination;~~

~~changes in interest rates;~~

~~the availability of, and costs associated with, sources of liquidity;~~

~~the ability to manage future growth; and~~

~~changes in personnel and availability of qualified personnel.~~

Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~At March 31,~~As of September 30, 2020, the Company did not have any outstanding “market risk sensitive instruments,” as such term is used within the meaning of Item 305 of SEC Regulation S-K. However, the Company is subject to other types of business risk described below and under “Market Risks Related to Real Estate Loans” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.

~~Table of Contents~~

Interest Rate Risk

While all the ~~Company's~~Company’s loans bear a fixed rate and the Company does not have any interest-rate sensitive instruments obligations outstanding, the nature of the Company’s business exposes it to business risk arising from changes in interest rates. 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 control of the Company. An increase or decrease in interest rates would not impact the interest charged on the Company’s then existing loan portfolio, as the Company’s loans bear fixed rates of interest. However, a rapid significant increase in interest rates may reduce the demand for residential mortgage loans due to the higher cost of borrowing, potentially resulting in a reduced demand for real estate, declining real estate values and higher default rates. Alternatively, a significant rapid decline in interest rates may negatively affect the amount of interest that the Company may charge on new loans, including those that are made with capital received as outstanding loans mature. Additionally, declining interest rates may also result in prepayments of the Company’s existing loans, which may also result in the redeployment of capital in new loans bearing lower interest rates.

Credit Risk

The Company’s loans are subject to credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply and demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, epidemics and public health emergencies and other factors beyond the Company’s control. All loans are subject to the possibility of default. The Company seeks to mitigate credit risk by originating loans which are secured by first ~~position~~deed of trust liens on real estate with a maximum loan-to-value ratio of 65%. The Company also undertakes extensive due diligence of the property that will be mortgaged to secure the loans, including review of third-party appraisals on the property. Additionally, the Company requires credit support for each loan, including personal guarantees on a recourse basis by the principals of the borrowers.

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Risks Related to Real Estate

Residential and commercial property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, events such as natural disasters, including hurricanes and earthquakes, ~~and~~ pandemics, acts of war and terrorism, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, construction cost, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such as energy costs). In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the loans, which could also cause Company to suffer losses. These factors could adversely affect the Company’s business, financial condition, results of operations and ability to ~~make distributions~~pay dividends to its ~~members.~~stockholders.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~March 31,~~September 30, 2020, the Company’s controls and procedures were not effective for the reasons described below.

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Material Weakness in Internal Control over Financial Reporting

We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As previously disclosed in the Company’s Form S-4 related to the Business Combination, the Predecessor Company Group reported certain material weaknesses in internal control over financial reporting identified in connection with the audit of the members of the Predecessor Company Groups’ financial statements at December 31, 2018. The Company reported in its Form 10-K for the year ended December 31, 2019 that the material weakness previously identified remained as of December 31, 2019.

The material weaknesses identified include (i) lack of formalized internal control policies and procedures as it relates to financial reporting and (ii) insufficient resources to provide appropriate segregation of duties related to the preparation and review of information used in financial reporting, as well as review controls over the financial statement reporting process.

The control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis and therefore we concluded that the deficiencies represent material weaknesses in the Company’s internal control over financial reporting and our internal control over financial reporting was not effective as of December 31, 2019. At this time, we do not believe such material weaknesses have been fully remediated.

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Management’s Remediation Plan

The Company plans and has begun to execute the following steps to remediate the aforementioned material weaknesses in internal control over financial reporting:

●

Continue to enhance internal control policies and procedures developed and implemented during 2019 and 2020 to ensure that a robust and effective internal control environment exists and persists across the organization; including ensuring effective risk assessments are performed to identify and assess necessary changes in the application of GAAP, financial reporting processes and the design and effective operation of internal controls.

●

Seek to attract, train and retain individuals that have the appropriate skills and experience related to complex accounting matters and financial reporting;

●

Implement enhanced accounting and financial reporting software; and

●

Continue to report regularly to the Company’s audit committee on the progress and results of the remediation plan, including the identification, status and resolution of internal control deficiencies.

There is no assurance that the material weaknesses will be fully remediated during 2020 particularly given the disruption of COVID-19 on the Company’s business and operations.

Changes in Internal Control Over Financial Reporting

During the quarter ended ~~March 31,~~September 30, 2020, we ~~augmented our finance~~successfully implemented a new general ledger accounting system commonly used by public companies to enhance their internal controls and ~~accounting staff by hiring a Director of Financial Planning and Analysis and we implemented new~~ financial reporting capabilities. In addition, we hired four new qualified accounting and ~~compliance software.~~finance professionals during the three months ended September 30, 2020 in addition to the hiring in June 2020 of our Chief Accountant who has extensive experience in accounting operations, SEC reporting and implementing internal controls. Presently our finance and accounting staff are working remotely as a result of COVID-19, which is requiring some adjustments to our procedures and may impact our plans to remediate the material weaknesses in internal control over financial reporting. Except as set forth above, there were no changes in the Company’s internal control over financial reporting (as such

~~Table of Contents~~

terms are defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

~~Broadmark Realty~~The Company is involved in legal proceedings which arise in the ordinary course of business. It believes that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on its business, financial condition or results of operations.

ITEM 1A. RISK FACTORS

This section supplements and updates certain of the information found under the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 16, 2020 based on information currently known to us and recent developments since the date of our 2019 Form 10-K filing. The matters discussed below should be read in conjunction with the risk factors set forth in the 2019 Form 10-K. However, the risks and uncertainties that we face are not limited to those described below and those set forth in the 2019 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business and the trading price of our securities, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.

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The impact of the COVID-19 pandemic and the measures implemented to contain the spread of the virus have had, and are expected to continue to have, a material adverse impact on our business and results of operations.

The ~~emergence of the~~ COVID-19 pandemic and ~~the~~ resulting containment measures have caused economic and financial disruptions that have materially adversely affected, and are expected to continue to materially adversely affect, our business and results of operations. The extent to which the pandemic will continue to materially adversely affect our business and results of operations will depend on numerous evolving factors and future developments that we are not able to predict, including the duration, spread and severity of the pandemic; the nature, extent and effectiveness of containment measures; the extent and duration of the effect on the economy, unemployment, construction and housing prices; and how quickly and to what extent normal economic and operating conditions can resume.

The COVID-19 pandemic and containment measures have contributed to, among other things:

●

Significant and rapid economic contraction and a record rise in unemployment.

●

~~Adverse impacts on~~A significant increase in loans in default and slowdown in the ~~progress~~rate of ~~construction on our borrowers’ projects and their ability to complete projects in accordance with the terms~~new loan originations, primarily as a result of the ~~loan.~~

Adverse impacts on the demand for and the value of commercial and residential real estate that our borrowers have developed that make it less likely that a borrower can sell or lease the property they are developing in an amount sufficient to repay the borrower’s loan, or that a developer, who would be our borrower, will elect to go forward with a new project

~~Adverse~~adverse impacts on the creditworthiness of our borrowers and other counterparties and their ability to pay amounts owed to us and our ability to collect such amounts.

●

Adverse impacts on the progress of construction on our borrowers’ projects and their ability to complete projects in accordance with the terms of their loans.

●

Adverse impacts on the demand for and the value of some types of commercial and residential real estate, which may delay or otherwise adversely impact our borrowers’ ability to sell or lease properties they are developing in an amount sufficient to repay their loans.

●

Adverse impacts on capital and credit market conditions, which may limit our access to and the cost of capital.

●

An increased risk to the value of our investment in mortgage notes receivable, which has the potential to result in impairment charges.

●

~~An increased risk of potential delays~~Delays in foreclosure proceedings, including moratoriums in some jurisdictions, and the enforcement of our rights with respect to loans in default.

●

An increased risk of an information or cyber-security incident, fraud, or a failure to maintain the uninterrupted operation of our information systems, among other things, as a result of an increase in remote work.

~~Table~~To the extent these impacts continue or intensify, or return to the extent they have diminished, we expect our business and results of ~~Contents~~

operations to be adversely affected.

~~The above impacts of the COVID-19 pandemic and containment measures are likely to continue and, in some cases, may worsen.~~

As discussed in our Results of Operations, we saw ~~an increase~~a decrease in the amount of loans in contractual default ~~and for~~during the three months ended ~~March 31,~~September 30, 2020 and we recognized a loan loss benefit of $0.7 million compared to a loan loss provision expense of $2.7 million during the three months ended September 30, 2019. During the nine months ended September 30, 2020 and 2019, we recognized a loan loss provision expense of ~~$3.6~~$3.3 and $2.8 million, ~~compared~~respectively. The implementation of moratoriums on foreclosure proceedings in additional jurisdictions, or the extension of existing foreclosure moratoriums, can be expected to ~~negligible amounts~~delay our ability to realize the value of our collateral in ~~prior periods.~~ the applicable jurisdictions, and thereby reduce the capital available to us for new originations.

The COVID-19 pandemic and containment measures have caused us to modify our strategic plans and business practices, including the amount of capital deployed and the property types that we lend on and may adversely affect our plans to remediate the material weaknesses in our internal control over financial reporting.

If the impact from the pandemic is prolonged, it could increase the negative impacts to our business and may also heighten many of the other risks described in the “Risk Factors” section of our 2019 Form 10-K. We do not yet know the full extent of how the COVID-19 pandemic and the containment measures will affect our business and results of operations, however, the continuing effects are expected to have an adverse impact on our business and results of operations.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

~~None.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~None.~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


10.1		~~Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to Broadmark Realty’s Form 8-K (File No. 001-39134), filed with the SEC on February 7, 2020).~~

~~10.2~~		~~First Amendment to~~ Employment Agreement, dated ~~March 13,~~September 5, 2020 by and between Broadmark Realty Capital Inc. and ~~Joanne Van Sickle. (incorporated by reference to Exhibit 10.1 to Broadmark Realty’s Form 8-K (File No. 001-39134), filed with the SEC on February 7, 2020)~~Nevin Boparai*

~~10.3~~10.2		~~Separation and Release Agreement, dated March 16,~~ 2020 ~~by and between Broadmark Realty Capital Inc. and Adam Fountain (incorporated by reference to Exhibit 10.1 to Broadmark Realty’s Form 8-K (File No. 001-39134), filed~~Annual Cash Bonus Program* [Certain portions of this document that constitute confidential information have been redacted in accordance with ~~the SEC on March 17, 2020~~Regulation S-K, Item 601(b)(10)].

~~10.4~~		Independent Contractor Agreement, dated March 16, 2020, by and between Broadmark Realty Capital Inc. and Adam Fountain (incorporated by reference to Exhibit 10.2 to Broadmark Realty’s Form 8-K (File No. 001-39134), filed with the SEC on March 17, 2020

~~10.5~~		Consulting Agreement, dated August 9, 2019, by and between Broadmark Realty Capital Inc. and Joseph L. Schocken (incorporated by reference to Exhibit 10.5 to Broadmark Realty’s Form S-4 (File No. 001-39134), filed with the SEC on August 12, 2019

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31.1		Rule13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Broadmark Realty Capital Inc.*

31.2		Rule13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Broadmark Realty Capital Inc.*

32.1		Section 1350 Certification of the Chief Executive Officer of Broadmark Realty Capital Inc.*

32.2		Section 1350 Certification of the Chief Financial Officer of Broadmark Realty Capital Inc.*

~~101~~101:		~~Financial Statements from~~
101.INS		XBRL Instance Document - the ~~Quarterly Report on Form 10-Q of Broadmark Realty Capital Inc. for~~instance document does not appear in the ~~period ended March 31, 2020, formatted~~Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Taxonomy Extension Schema
101.CAL		Taxonomy Extension Calculation Linkbase
101.LAB		Taxonomy Extension Label Linkbase
101.PRE		Taxonomy Extension Presentation Linkbase
101.DEF		Taxonomy Extension Definition Document

104		Cover Page Interactive Data File––the cover page interactive data file does not appear in ~~Extensible Business Reporting Language (XBRL)~~the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*Exhibits that are filed herewith.

4047

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~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BROADMARK REALTY CAPITAL INC.

Date: November 9, 2020	By:	/s/ Jeffrey B. Pyatt
	Name:	Jeffrey B. Pyatt
	Title:	President and Chief Executive Officer (Principal Executive Officer)
Date: November 9, 2020	By:	/s/ David Schneider
	Name:	David Schneider
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

~~Date: May 11, 2020~~

4148


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended ~~3/31/~~September 30, 2020

	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Maryland	84-2620891
State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.

1420 Fifth Avenue, Suite 2000 Seattle, WA	98101
Address of Principal Executive Offices	Zip Code


Title of each class	Trading Symbol(s)
~~Title of each class~~	~~Trading Symbol(s)~~	Name of each exchange on which registered
Common Stock, par value $0.001 per share	BRMK	New York Stock Exchange
Warrants, each exercisable for one fourth (1/4th) share of Common Stock at an exercise price of $2.875 per one fourth (1/4th) share	BRMK WS	NYSE American LLC


Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
~~Large accelerated filer~~ ☐	~~Accelerated filer ☒~~	~~Non-accelerated filer~~ ☐	~~Smaller reporting company~~ ☐
			Emerging growth company ☒

		Page


PART I.	FINANCIAL INFORMATION

~~ITEM~~Item 1.	~~FINANCIAL STATEMENTS~~Financial Statements (Unaudited)
	~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~ ~~AS OF MARCH 31, 2020 AND DECEMBER 31, 2019~~Condensed Consolidated Balance Sheets	2 4
	~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2020 (SUCCESSOR) AND THREE MONTHS ENDED MARCH 31, 2019 (PREDECESSOR)~~Condensed Consolidated Statements of Income	3 5
	~~UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2020 (SUCCESSOR) AND THREE MONTHS ENDED MARCH 31, 2019 (PREDECESSOR)~~Condensed Consolidated Statement of Stockholders’ Equity	4 6
	~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~ ~~FOR THE THREE MONTHS ENDED MARCH 31, 2020 (SUCCESSOR) AND THREE MONTHS ENDED MARCH 31, 2019 (PREDECESSOR)~~Condensed Consolidated Statements of Cash Flows	6 8
	~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements	7 9
~~ITEM~~Item 2.	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	28 31
~~ITEM~~Item 3.	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Quantitative and Qualitative Disclosures About Market Risk	35 42
~~ITEM~~Item 4.	~~CONTROLS AND PROCEDURES~~Controls and Procedures	36
		43
~~PART II.~~
PART II.	OTHER INFORMATION

~~ITEM~~Item 1.	~~LEGAL PROCEEDINGS~~Legal Proceedings	38
~~ITEM 1A.~~	~~RISK FACTORS~~	38
~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	39
~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~	39
~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	39
~~ITEM 5~~.	~~OTHER INFORMATION~~	39
~~ITEM 6.~~	~~EXHIBITS~~	39
		44
~~SIGNATURES~~Item 1a.	Risk Factors	41 44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47

SIGNATURES		48


	March 31, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	258,435	$	238,214
Mortgage notes receivable, net		782,752		821,589
Interest and fees receivable		6,459		4,108
Investment in real property, net		3,703		5,837
Intangible assets, net		874		4,970
Goodwill		136,965		131,965
Other Assets		5,880		2,046
Total assets	$	1,195,068	$	1,208,729

Liabilities and Equity
Accounts payable and accrued liabilities	$	3,534	$	8,415
Dividends payable		10,569		15,842
Total liabilities	$	14,103	$	24,257
Commitments and Contingencies
Common stock, $0.001 par value, 500,000,000 shares authorized, 132,111,329 and 132,015,635 shares issued and outstanding at March 31, 2020 and December 31, 2019		132		132
Preferred Stock, $0.001 par value, 100,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2020 and December 31, 2019		—		—
Additional Paid in Capital		1,210,034		1,209,120
Accumulated deficit		(29,201)		(24,780)
Total equity		1,180,965		1,184,472
Total liabilities and equity	$	1,195,068	$	1,208,729


	Successor		Predecessor
	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2020		2019(2)
Revenues
Interest income	$	24,553	$	20,623
Fee income		7,215		9,160
Total Revenue		31,768		29,783
Other Income:
Change in fair value of optional subscription liabilities		4,604		—
Expenses
Impairment:
Loan loss provision (recovery)		3,622		(224)
Operating expenses:
Compensation and employee benefits		3,193		1,928
General and administrative		2,278		3,090
Total Expenses		9,093		4,794
Income before income taxes		27,279		24,989
Income tax provision		—		—
Net income	$	27,279	$	24,989
Earnings per common share: (1)
Basic	$	0.21		—
Diluted	$	0.21		—
Weighted-average shares of common stock outstanding, basic and diluted
Basic		132,111,329		—
Diluted		132,336,315		—


	Preferred			Common stock				Additional		Retained Earnings
	Shares	Amount		Shares		Amount		Paid-in Capital		(Accumulated Deficit)		Total
Balances as of December 31, 2019	—	$	—		132,015,635	$	132	$	1,209,120	$	(24,780)	$	1,184,472
Issuance of shares from vested RSUs	—		—		95,694		—		—		—		—
Net Income	—		—		—		—		—		27,279		27,279
Dividends	—		—		—		—		—		(31,700)		(31,700)
Share based compensation expense	—		—		—		—		914		—		914
Balances as of March 31, 2020	—	$	—		132,111,329	$	132	$	1,210,034	$	(29,201)	$	1,180,965


	Class A Units			Class P Units			Preferred Units			Paid in		Retained Earnings
	Units	Amount		Units	Amount		Units (1)	Amount		Capital		(Accumulated Deficit)		Total
Balances as of December 31, 2018 (Predecessor)	20,950	$	1	50	$	—	6,827,701	$	684,979	$	767	$	(637)	$	685,110
Contributions	850		200	—		—	796,028		79,535		—		—		79,735
Reinvestments	—		—	—		—	71,086		7,094		—		—		7,094
Net Income	—		—	—		—	—		—		—		24,989		24,989
Distributions	—		—	—		—	—		—		—		(24,134)		(24,134)
Redemptions	—		—	—		—	(133,513)		(13,331)		—		—		(13,331)
Compensation expense related to grant of profits interest	(100)		—	100		—	—		—		734		—		734
Grants of restricted units	150		—	—		—	—		—		134		—		134
Balances as of March 31, 2019 (Predecessor)	21,850	$	201	150	$	—	7,561,302	$	758,277	$	1,635	$	218	$	760,331



Consideration paid:	$ (in thousands)		$ (in thousands)
Cash	$	102,245	$	102,245
Common stock		479,619		479,619
Total consideration paid	$	581,864	$	581,864


Assets acquired:
Cash and cash equivalents		88,505		88,505
Investment in real property		8,413		8,413
Mortgage notes receivable		344,837		344,837
Interest and fees receivable		2,743		2,743
Intangible assets		1,000		1,000
Other assets		174		174
Total Assets		445,672		445,672


Liabilities assumed:
Accounts payable and accrued liability		205		205
Other liabilities		568		568
Total Liabilities		773		773
Net assets acquired		444,899		444,899


Goodwill	$	136,965	$	136,965



					Valuation	Unobservable	Range of
(dollars in thousands)		March 31, 2020		December 31, 2019	technique	inputs	inputs
Optional subscription liability (A)	$	888	$	5,492	Valuation Model	See Note 7	0 - 5	%
Real property (B)		3,703		5,837	Market Comparable	Market prices for similar properties adjusted for comparability	0 - 10	%
Current mortgage notes receivable (C)		637,751		792,736	Market Comparable	Market interest rates and collateral value	0 - 10	%
Defaulted and impaired loans, net of allowance for loan losses (D)		145,001		28,853	Market Comparable	Market interest rates and collateral value	0 - 10	%
Total	$	787,343	$	832,918


	Acquired
(dollars in thousands)	Intangibles
Asset Type
Customer relationships	$	1,000
Less Accumulated Amortization		126
	$	874


	As of March 31, 2020		As of December 31, 2019
Expected volatility	56.0	%	13.0	%
Expected dividend yield	12.8	%	7.3	%
Expected life (in years)	0.6		0.9
Risk-free interest rate	0.2	%	1.6	%



	Three Months Ended
(amounts in thousands, except share and per share data):	March 31, 2020
Basic Earnings
Net income and Basic Earnings	$	27,279

Diluted Earnings
Net income and Diluted Earnings	$	27,279
Number of Shares:
Basic weighted-average shares of common stock outstanding		132,111,329
Shares for warrants and restricted stock units		224,986
Diluted weighted-average shares of common stock outstanding (a)		132,336,315
Earnings Per Share Attributable to common stockholders
Basic	$	0.21
Diluted	$	0.21


		Weighted Average
		Grant Date Fair
	Shares	Market Value
Unvested RSUs outstanding at January 1, 2020	334,928		11.08
Granted	91,065	$	12.50
Vested	—	$	—
Forfeited	—		—
Unvested RSUs outstanding at March 31, 2020	425,993	$	11.38



	Three Months Ended				Increase (Decrease)
	March 31,		March 31,
	2020		2019
(dollars in thousands)	(Successor)		(Predecessor)		Amount		%
Revenues
Interest income	$	24,553	$	20,623	$	3,930	19.1	%
Fee income		7,215		9,160		(1,945)	(21.2)	%
Total Revenue		31,768		29,783		1,985	6.7	%
Other Income:
Change in fair value of optional subscription liability		4,604		—		4,604	100.0	%
Expenses
Impairment:
Loss provision (recovery)		3,622		(224)		3,846	> 100	%
Operating expenses:
Compensation and employee benefits		3,193		1,928		1,265	65.7	%
General and administrative		2,278		3,090		(812)	(26.3)	%
Total Expenses		9,093		4,794		4,299	89.7	%
Income before income taxes		27,279		24,989		2,290	9.2	%
Income tax provision		—		—		—	—	%
Net income	$	27,279	$	24,989	$	2,290	9.2	%


			Less than 1						More than
	Total		year		1-3 years		3-5 years		5 years
Operating lease obligations	$	9,915	$	373	$	2,120	$	3,181	$	4,241
Construction holdbacks		272,274		215,443		56,831		—		—
Total	$	282,189	$	215,816	$	58,951	$	3,181	$	4,241