RC - Earnings call transcript Q2 2019 | Ready Capital Corporation

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Ready Capital Corporation second-quarter 2019 earnings conference call. [Operator instructions] And the conference is being recorded.

I would now like to turn the conference over to Andrew Ahlborn, Chief Financial Officer. sir. ahead, go Please

Andrew Ahlborn

and the And this call operator, of morning. to you on for good you, thanks morning. those Thank joining us

the to to numerous Some forward-looking and uncertainties securities today comments cause risks from Such meaning actual what could within expect. results laws. subject of federal materially of are will statements that the differ our statements be we

of you a in should and relying and discussion refer exercise more We for filings caution results interpreting risks impact to you could SEC Therefore them. our operating that our the detailed on future condition. financial

we discuss should for with results prepared company's call, operating the or be measures, GAAP. During the be our financial measures These isolation will substitute not which can we a accordance believe performance. evaluating in considered non-GAAP in useful in our as

earnings to reconciliation our supplemental A available By release should of is most these the second-quarter section Both and the our release access turn will to of website. GAAP everyone I CEO. information. directly Capasse, measure comparable found Capital it measures our Investors second-quarter now earnings and now XXXX be in have our information. XXXX to the Ready Tom in the supplemental over can

Tom Capasse

our joining earnings Good thank you morning, and for call. second-quarter

and margin. net to significant During Owens steady power activity added origination progress, the merger. combined from the with increasing contribution interest We quarter, of made began benefits see acquisition and the we earnings the incremental purchasing had record

Additionally, in of our stated XX% goal ROE. steady the the operating to growth closer core step company in levered yields a brought the a segments

the producing basis to billion. points, of portfolio competitive to debt sacrificing loans of a million large stabilized transitional was metrics credit increasing were commercial respectively, $XXX estate growth balance small service XXX of margin achieved Acquisition activity Unlike without commercial from included yields by portfolio debt fixed balance coverage and highly loan XX% In and totaled quality. $X.X the secured debt quarter, spreads of interest acquisitions legacy values opportunistically XX%. loans bank. products those loan or in XXX net XX%, spreads originations a credit real of million, ratios our average and included our and purchased $XXX or stabilized and loans by market, Average X.Xx properties

of part net As legacy quarter of interest and performing team were of our ROE. acquired segments, $XXX mid-teens higher from to million These loan trading million. the low our capital than with -- highest in the for margin strategy securitized total quarter, $XXX loans Small to legacy, increase from addition million of record a our to the allocate a the bank originated in a the quarter's stable Commercial, average acquisitions to primarily collapsing majority MBS, $XX Balance yielding low- total providing product. loan-to-value, slightly banks, purchases fixed for weighted our The legacy coupon purchase loans

net As margin, performed a also revenue businesses gain sale on to stabilize supplement our from well. interest

and SBA XX% million points basis sales $XX our loan revenue made of loans Owens was average asset Mac leverage on $XX and of XX.X%. to XXX rose to provided The the X(a) portfolio. XX% million, Freddie Significant million turning combination increased premium million. and X(a) Loan increased over portfolio the runoff $XXX investable headway Owens proceeds. in $X multi-family originations SBA generated sales on to originations

expenses million, revenue Operating while balance experienced increases. marginal of the quarter, the commercial $X.X keeping resulted points resulting XX% a to leverage in our growth remain average, business. consolidated equity were XXX basis companywide in allocated point the the on Owens in the increased operating costs operating below a focused segments resulted point ratios. In scale in fixed basis small only in in ROE. drag XXX basis on rightsized Returns We for reduction segment XXX expense

remain While effectively. fixed will and fluctuate to implementing to the in volume. consistent upcoming variable loan We particularly in the to we with efficiently underwriting the costs, processes, cost business remain expect committed cost materially quarters, strategies run

increased expect the with including loan, a quarter, the loan rate These higher prepayment but of a quarters. a we in transitional new loan, passive balanced a in contribute loan, volume, slightly introduced rates SBA new peri on products, represent quarterly with As three products larger margin flexibility. to fraction X(a) upcoming and small the commercial we first fixed discussed fixed small rate them

to beyond Additionally, our existing continue evaluate expansion platform. we

agency of owning growth actively directly other our pursuing or we're products, diversified loan balance joint On into either the through side, portfolio licenses a small by license beyond Freddie ventures. Mac

expand expect businesses our and to Europe. We origination in acquisition also both

in We more share the have upcoming concrete will will be quarters. -- to news we

Now in of the funding business. terms

execution strong. markets' capital Our remains

our we a transitional XXX. loan cost collateralized First, completed weighted million -- at third obligation, loan deal pricing of $XXX average plus LIBOR a

a the rate fixed legacy million completing securitized bonds, we senior Second, with $XXX X.X%. $XXX of loan million pool, a at pricing deal

warehouse X%. lastly, unsecured $XX.X pricing public terms reducing our we In to continue facilities. at X.X%, in quarter increasing to we And end, facilities, basis best rates we on renegotiated advance to markets million XX execution note quarter, certain our and Third, improve date. seven-year points the subsequent on pricing the a priced

to ratings' reduced corporate BBB, On and from to upgrade heels issuances. term we pricing able the extend of previous a were

the money-up $XXX pipelines second floating completing half year. expected anticipate $X fund we origination our In pipeline to future segments, approaching the CLO year. lending of into rate and second Headed half the of fixed our equals close transitional year, Depending million. portfolio the for SBC acquisition rate billion. in remain remainder strong, the the in additional securitizations volume, SBA on are of Proceeds the pipeline and

pipeline the on gain our million. closed sales equals in $XXX In total money-up segments,

$XXX million. acquisition pipeline healthy at the remains Additionally,

few comments a Now the market. on

the competitive XX-year improve small renders Mac ABS, SBL commercial First, rate banks. the as the while in volume on small balance the rate commercial treasury fixed program balance competitiveness reducing less small recent unexpected the the rally of Freddie versus the likely AAA-rated floor commercial, banks, will balanced with

volatility. product rate absorb Capital's of ability to diversity the underscores This Ready

quarter paradox is feet. square impact Second, of cannot in is hitting cycle the Net poll, for to -- workers commercial to first commercial business open XX labor to small businesses tight as reported NFIB March economic balance markets XX,XXX positions. small flat in demand a on XX% labor hire Small under the of no higher extremely In absorption balanced expand space a expand. looking quarter, qualified low small businesses was to a to few hire small balance this that fill

volume. healthy rents This $XXX of the a SBC year-over-year sixth the in originations with marking plus quarter. growth year XXXX SBC contributed in to strong first also consecutive remained X.X% property billion

building X% demand yield tight the along market, fixed X-month less purchase from rendering loans, rate bank prime-based this Now year loans with flattening labor with over the for reduced on reduced competitive year volume SBA the ending flip June. SBA SBA curve, side, business

However, period. Ready is Cap's the over SBA volume same up X%

off to results. financial to Andrew I'll our discuss hand now

Andrew Ahlborn

Thanks, Tom.

value share, quarter per a were of share $X.XX On the through items per servicing talking quarter earnings some supplemental the financial GAAP rights a for biggest deck, for on highlights the the per portfolio. in included the slides mortgage $X.XX decline information share. were our residential to of fair the the few this like statement Before I'd in basis, Core being quarter. difference a discuss earnings of $X.XX

investments. down a progress average growth contribution income in from X.X%, of loan equity paid earnings on return the Currently, venture portfolio, represents and about Keep points portfolio core Tom mind, in long-term to a headwinds out, expect in residential in basis XX% a the grew we XX% over XX% increase ROE, $XXX to and continued the months. million portfolio a is stabilized marking growth mortgage joint with has XXX loan to our Return net the of XX generating sequentially million quarter. attributable margin, continued banking pointed wind The remaining Owens to assets XX% stockholders' as $X.X ROE. XX interest points on toward the XX down levered in original next basis those

Additionally, are of value $XX we REO sell sold the million contract million have in acquired. original or to $XX

As of XX, legacy of June net remain the balance the sheet, million representing Owens $XXX outstanding XX% assets of equity. on

stabilized include significant, in acquisitions activity Tom to As of $XXX with loans, opportunities joint of sheet venture the million $X.X are new in million, and program. quarterly SBC Other XX% mortgage-backed key over billion. securities produce purchase was from items securitization flow $XXX of interest grew balance a portfolio and quarter originations to investments the net investment loans the those expected highlighted, of launched margin, recently

$XXX,XXX into comprehensive duration The a general interest relates growth relates The due a expense The reserves accumulated contribution attributable million SBC amortized in well due the to portfolio portfolio portfolio increase loan closed $X.X loan interest losses properties loan from margin was increase rate Amounts for portfolio. the payoffs. quarter-over-quarter to fixed over increases securitized higher two in $X.X net reserve will million increase the income $X.X hedges in interest in to to and Owens debt. in million the our to allocation. change from paired marginally as losses loans, of on specific other of as to provision a hedging

income an residential sources volume quarter. volume was experienced to in addition revenue income due growth revenue increase also additional the Other due Other million to REO a net the of the up increased to from over significant operating origination correlated growth portfolio. quarter banking Owens fees in Net quarter. XX% $XXX and in

deck. earnings to the Turning

company's an investment activity. Of metrics point sets the Slide X volume the benefits were of of The diversified and X equity and having shows XX for Slide increase core composition quarter. ROE basis note in forth contributions origination X.X%. the are each and key acquisition is in the from to a strength significant evident on as continued platform channel. return items

segment reduction opportunities. As over capital operating QX, is point quarter to more ROE, XXX indicated into acquisition XX% increased point in deployed expenses. basis allocation include accretive increase equity XX% in from levered core acquisition as and XXX we basis to a quarter in Improvements the

have the legacy -- of current be activity XXX activity investment includes basis on provided X portfolio Owens As the further the each quarters, with headwinds SBC to activity. five on Slide points. our over details previous acquisition we estimated quarter are Slide quarter's which summarizes said, from X,

line totaled robust, experienced total a optimistic closed growth Each origination million loans. and sequential the increase portfolio XX%, and summarizes money growth, our another SBC and million July through up. delinquencies. activity XX Portfolio remain is QX in with million investment pipeline Slide leverage segments. The we $XXX of low $XXX with product growth $XXX and stabilized XX% by yields quarterly X

the stable increase from gains variable sale our in This to yields and leverage our driven due were optimizing to Increases XXX on leverage segment. SBA in a the sales covers summary information portfolio. provide for basis by venture double-digit supported portfolio levered joint X continues gross segment point by further of loan shows on loan returns Slide the Slide acquired premiums. activities X increased yields, investments.

In rate purchased a we our the of Slide loans, attractive were before over rebalancing declines the notes. in highlights rate an end. in business. increase quarter. mortgage floating growth quarter an the million residential Mortgage supported XX activities significant of average over majority favoring by of banking maturity the Slight with quarter, experienced weighted weighted $XXX coupon activities, securitizing and accompanied quarter average environment, portfolio

XX% points increased XX XX in speeds volume A decline MSR, and our approximately third-party increased XX-year margins the XX basis and and prepayment Quarterly the increased points. model in million respectively. writedown in basis by a XX $X.X of basis channels, resulted point as retail

of with $XXX each considerable our the in monthly securitizations XX breaking lines. in performance July, our of closed QX summarizes previous expect product volume credit Slide across highs. We million

originated few structure in previous of all the reflect similar delinquencies. capital strong those our and various diversity products the presented to Performance of composition and our with across sources. liquidity pools, are quarters next remain The slides loan minimal

before over for thoughts it final Tom to turn questions. I'll we some Now take

Tom Capasse

opportunities to be five Thanks, markets. ready our quarterly secondary well results capital's Andrew. products across in believe as We source the as investment lending deploy ability capital to the reflective of

company of operating into have equity. momentum remain The year on the a the of scale half long-term along to into positive returns closer company's second the heading optimistic remaining substantial business, the pipeline, XX% return increased the We segments. Owens bring target, our about other redeploying and will with levered the equity with consistent

its time for your remain and We with for open we'll investors continued and approach it you risk-adjusted Operator, ability differentiated for to provide now Thank up a model. confident in Ready support. questions. business competitive Capital's return our

Operator

instructions] [Operator

Jade Rahmani question Please ahead. comes first KBW. from with Our go

JadeRahmani

months? time are strong Thanks pipelines Is of The being legacy to across very over XX like that? extremely all what stabilized It XX much. businesses. you the on it expect your sounds contingent XX% Owens do upon -- portfolio, achieve over sold next to ROE, the frame assets

Andrew Ahlborn

Through it. actively of sell to we were sort is one component think XX% QX, We're to this of contract Yes, REO Andrew. XX%. that's portfolio. XX% marketing the Jay, in the of had I other liquidated or roughly

be into segments. move mentioned through XXX our So point to other to as able we we returns that, operating that back that capital similar to levered we'll drive decline. will that continue deploy basis And

investment volumes other end ended. May The the the quarter. I'll of really lot ramped a the the happened The end large activity thing acquisition back point in and origination the quarter of out of was in toward up is

interest So should we investments. margin additional see from net flowing those

absent So items closer have not than we're onetime we quicker any to aware say ROE, may would getting otherwise I that that other XX% of, expected. we're

those guess, that. my I So are thoughts on

Jade Rahmani

the of in trajectory of for the rest terms dividend anticipate do the earnings in the half? year, earnings And this back exceeding you

Andrew Ahlborn

third quarter. and think covering I focused we're the dividend over fourth on the

Jade Rahmani

performance quarter series values the give One, And comment small not impact I with. think, Can because, you that space lower historical rates, items? color this the credit some space, in many other collateral on how affect the that in would business? recovery perhaps secondly, balance from it's familiar -- on folks the also just and two are in

Andrew Ahlborn

the performance contract be specific regional business, and note start with one rate had in We minimal in it portfolio then specific SBC I'll at our fixed to quarter, turn Sure. loans go credit a few in Tom. That mall in to sold in a in off two Oklahoma. is since losses. Maybe our liquid

borrower vacated is their an repurpose expiration the working an Greenwich, a is multi-family building. the currently apartment property That the office main in into of to other lease. Connecticut, The or even upon building building tenant where

So with already on reserve. have Expected that. the we're losses through working him through that property run

in remained quarter. business credit over we've Absent the to We the recovery. those also quarter acquired experienced acquisition, we've CIT a performance and where written loans that, handful closed, loans of expected SBA stable down seen

Tom Capasse

Yes.

this that, backdrop $X housing. with to the terms correlated than of average and remember look more that credit kind at Just in large, million feet, define to much we where the appraised asset are market million loans market is it the in on property for small square cycle, $X commercial XX,XXX of, with Jade, of value balance we less it, class, as

small In balance fact, to the correlation the of -- mean index box commercial X.X. is would Case-Shiller the

we're credit So years to cycle. terms the balance of the behind three large about four market in

last respect Case balance around currently XXX some peak, Moody's is rate And the and about for XX% the coming, attained on more small other to -- and price XXX the is change, and out larger bounce to like the two look which aspect in following I'll it's One XXXX are SBC, throw class -- XX% metrics. at index seven asset X% cap index you basis which peak. depends index And large some is is about is 'XX a just quarters over balance properties increased the few X.XX. -- the it's housing Shiller, With the about points higher.

-- Freddie deposits, to hide if superior because rates. type going definitely loans. of GSE from flooding our and of credit balance the where be the last treasury in in perspective, to to makes when question business positive it had balance multi-family a The to it going a is impact comes. good standpoint, that X-to much off -- makes small you the commercial execution the X-year that's The Small place rally from banks is is fashion So recession we see. XX-year

-- floored senior ABS a the there conventional at, fixed is where kind it because it, because call X.X%. program, you rate side, rate market. And program have flip that's dynamic debt of The the funded the affect in will fixed that or

make it less would that attractive. So

we you hedged, of like reasons the see if our one rate will, it's the some So because market. against platform, our of movements well, we volatile that's in treasury

Jade Rahmani

LIBOR quantified XX to you in basis what have a impact by? XXX And decline point earnings would

Tom Capasse

remain our volume flat. see transitional Absent rate in cost in Yes. we're or products period. our business, warehouse to margins going Spreads our fixed declining in

So a rates. we correlated decline think with positively in we're

affect lines As and to volumes Tom it's different product different going differently. said,

Jade Rahmani

Okay.

NIM think, to to manageable. X% Thanks XX for XX-Q so volumes in -- about for basis last decline is billion the one I up questions. $X.X rates, which for or point and in It's your XXX showed, think of I million about $X.X possibly that. about quite checked I could make earnings taking a decline

Operator

with Our Please next FBR. question is go from Tim Riley ahead. B. Hayes

TimHayes

Hey. Good a morning, guys. Thanks quarter. this for questions. portfolio first in taking concentration My York the New my amount SBC question, by your good increased

amount or legislation advantage cap are in of take of you multi-family, types recent assets and rate wondering if that? of the to light regulation rent loans is there anticipate all some maybe were Just impacted what the being of at able that widening by backing

Tom Capasse

-- in it's -- I obviously focused the a we're units. think maximum XX multi-family Tim, basically, balance on Yes, small of

ours So housing. some not with experts utilize our speaking, was balanced York the affect up significant in as in But properties rent rent these in stabilization properties decline issue a are on the saying whole as are valuation, generally and some basically a that that stabilization rely don't New of workforce to at be it of all by affect the market may large don't does factor which law NOI small passed, the because that XX% generation. --

I total what the think, ... Andrew, was

Andrew Ahlborn

are if our those and on the think balance the rent LTVs. to is the subject very minimal. so There's $XX low to portfolio million. exposure are law Yes, of loan properties sheet look Tim, properties stabilization, effect we We that pretty two

about $XX Freddie exposure million have bonds. of also our We in

de portfolio, the on minimis. total the overall, really it's So

Tim Hayes

update appreciate volumes the Okay. banking in resi remarks. prepared Appreciate the update there. your mortgage also, And you on gave then the

the to relative gain how so in quarter? sales tracking have wondering on second the QX far Just been

Tom Capasse

Yes.

or Sorry, other? resi Tim, business specific to the

Tim Hayes

Yes. Resi. Specific to

Tom Capasse

Yes.

in going see increases we're the think to I quarter.

about to are up July margins, June. XX in believe, Our compared I

terms volume, margin, be in that. to we QX given of increases So in expect strong increases in

of were terms products, to our down other in just and sales QX timing and origination. of Freddie due due but timing not to In actually volume, sales of

of QX was products So that Freddie And QX than expect SBA we our volume well. as than QX. sales would in it be is tracking stronger higher

expect I that to overall, quarter So over from increase sales would on gain quarter. revenue

Tim Hayes

Okay. Glad basis. for, JV, income been I quarterly a bargaining lighter tracking then Got from it's little on than the so that. more asked appreciate a I than And bit color on that. a maybe average little was

any there repayment activity there's of I know that's that But term? if the near in could a it earnings rates can volatile. drive curious be if to just and interest lighter reflection sensitivity

Tom Capasse

investment JV portfolio by really The loans. is a Yes. nonperforming supported of

So the volatility of outs those performance interest more take is affected by there rather to due loans rates. than

So are really or liquidated the driver we'll gains. as loans paid there. see off, incremental That's

Tim Hayes

of trying or just balance more I'm how Okay. if of looks mentioned to just you term? programs your near that talked small or license anticipate whether -- to Got any update Freddie I there then your initiative curious strategic you and/or but JVs in conversations headwinds give for I pricing the one in and Fannie team, it. are and initiatives, being can acquiring expand how just on? exposure any competition kind past one Fanny curious the you've if it's going currently an know And And me. between agency know a that you there, then about that and

Tom Capasse

Yes.

counts. two on Just

pricing they caps roughly $XX count are versus GSEs operate the I'll the space. first billion, point terms out small by balance Freddie subject that to the way I in the On think. FHFA, the the in Fanny of

been were think and the the been about to year, they running cap, however, -- are of cap, subject ahead running where XX%. it's not on over large these balance up And I year a they've the subject they've to

some between terms a like bit pricing balance. the share, on volatility market products the there two the small is in So of non-cap of

of the ago, But -- significantly, Fannie rates the kind raised I what month in of quarter, So very, in we've and think, very first then, a quarter, dropped volume. again. the discussed rates whipsawed was as it, -- happened -- first whipsawed the drop-off in what Fanny causing Freddie kind maybe they

pipeline So Freddie that -- volumes. in in triggered our increase turn a an and

forward. So well, of much think you'll continue we see see volatility don't -- going to you'll that

the of of there, a think more secondary -- as a little I we have pricing. with looking in between the two. bit at more as and the far platform, concrete engage rationalization terms think, agency we'll I developments number market then next quarter And there's over or counterparties, expanding two continue the to

Operator

question ahead. Please Our go Scott next Compass from Research. comes with Valentin Point

ScottValentin

for question. my Thanks taking

I'm looking on bit, the Just Page a you're leverage around how climbs looks going for up times. presentation, little total about at thinking upper forward, is, limits are like leverage. wondering a your question what just maybe I'm kind it leverage XX of, leverage? almost four

Tom Capasse

Yes.

we times. on focused at is that number really trying or We're the two the keep recourse So to the below number. business

up toward the million limit. that creeping So $X.X is

we of What expect and by is, transitional to right inventory in acquired securitize that amounts I'll now, say the have we of the year. substantial loans fixed end

keeping we do our ratio The we of more on ratio portfolio, creep up them two. securitized consolidation of we're is But focused that the that as in made So as leverage leverage, decline. should mainly total up that, produce really to any below which recourse given by going year. is

Andrew Ahlborn

thing to sense roughly it's with legacy of like million recent the have portfolio, that which other $XXX,XXX I in is acquisitions billion the loan especially -- pool think, balances that in average is balance the the with $XXX pools, that an to is times, for acquired. under a It's X.X example, securities that, $X very $X million, portfolio some average that the add asset-backed leverage respect granular. range, which more of our of would gross The we is ratio, I

the where and their and a say, multiples are credit transitional given equity. that are XX the $XXX of we where top net $XXX we this the punch the balance metrics let's million line and and the than leverage cycle commercial of REIT loans, gross financing million, large in is product -- that's fact So -- more specifically, terms credit in can from a lot a bear loans the

from perspective. of terms leverage, a the we think gross amount just comment about one broad leverage in of So leverage how

Scott Valentin

housekeeping how then kind a of, you think quarters. forward? On rate I tax of benefits tax, know had just we I about And should helpful. last guess, going some the question. couple That's Okay.

think, were was if I of don't kind forward? a know going using, wondering, X% Just still that's relevant I number we

Tom Capasse

Yes. rights. difference mortgage residential think is the resi I The in tax bank, the the be going decline biggest between to servicing

increase continue rates to lower, expect As would there. to move losses I unrealized

we a going the I losses, provision in where to have extent those year see think positive you're story to So this such of -- the terms tax. that's

Scott Valentin

Thanks. margins the you we on gain Okay. And side, expense of you bank? just for look kind I sale think volumes terms expense about a in banking, on mortgage for ratio healthy is to then and pretty know mentioned there when should are of guys healthy. think about mortgage How variable look the revenue you

Tom Capasse

the we inherent variable extreme. yes, GMFs in there very is costs Well, volatility the mortgage in -- versus experienced of context originations. fixed the ratio is team at The the managing of management --

for they so example, And I think, reduced last I year, think... expenses

Andrew Ahlborn

XX%.

Tom Capasse

XX%. exactly, Yes,

I volatility and that, So manage size the at to -- now... and outsourced And good book, of the out that originations. underwriting servicing beyond is they're closing using point given their which very they

Andrew Ahlborn

Almost $X billion.

Tom Capasse

Yes, They see recent good volatility the with a have from $X it the production, XX-year. MSRs billion. value to the in in the on change as match in you of the between really the gain sale relation

Andrew Ahlborn

to Yes. are of in you can statement the calculate the going I probably would ratios, point consistent. QX out income remain off

where should variable good you think July. expenses pretty expense, and But residential the by I increase a over I in idea looking a the we're mortgage going. think slight at it activities give margins noninterest there's in banking the

Scott Valentin

Okay. That's for helpful. my Thanks taking questions.

Operator

comes with James. question Stephen go from ahead. Our Raymond next Please Laws

StephenLaws

resi morning. see refi down a split, Hi. level. year bit. purchase Good couple much come macro hasn't I'm of frankly, that we A questions over a good Rates on the maybe to banking and can follow-up surprised the of changed start if that have more year.

seen the It's it talk in prices? in from the you refi the about why we've haven't can pickup GMFS that's maybe volume, XX-XX seen footprint Is overall the in about bigger even with why we southeast case? old talk Or home big to that's maybe about from going you lower Can though pickup a a XX-XX. largely volumes.

the quarter it's of 'XX. largest think QX I since

-. So

Tom Capasse

were We and Well, refis I of that, the Yes. realtors, to homebuilders, the lot for of well. to think add that's We it's that market, of to been the suits think also, really surprised -- due years. the increased concentration properties, us, the it's use the GMFs purchase of as would the market. size we the radio consumer their and on direct a strong has they market, one a focus the haven't

treasury with has there in national movements a the Mississippi, XX-year positive that pickup we a because on that -- footprint, somewhat accounts macro that so their in to -- they're housing And gains for So as on starts less a been on Alabama, Louisiana, in basis the the feed average. divergence to again, dependent -- view the generate on sale.

Stephen Laws

the seemed but to my XX-year last to And is the bit, mortgage a rally week next frozen. seen We've have quite leads right rate. which me that Great. question, rates

of, basis seems, So it kind a there. widening

so are of reached not the the and in Or to how just from we that's kind to think XX-year time where had see have haven't But is? glass sudden that rates drop do simply where just lending, shifting people the below continue where floor, mortgage rates react? drop, you here? the going Was given mortgage that? that And it's do XX-year you

Tom Capasse

you sorry, or rates to commercial? to residential I'm referring mortgage are

Stephen Laws

Residential.

rates seem the even drops XX XX week, fixed-rate points in have mortgage for have -- I or last of XX-year the couple to weeks. just been by basis Just last XX-year though -- simple moved not mean,

Tom Capasse

will say, a and credit treasury that, somewhat move. the since XX basis dropped lagged be crisis, basis let's effect that mean, movements be it dynamics XX have the is it into market, first it I then in the next the of XX Yes. the such points, XX-year the reflected for point tends immediately to reflected, immediately

this the where correlation basis treasury absolute So point and relation expect in I are mortgage yields terms the of at the for point point think we basis in don't rates. to

Stephen Laws

letting Great. be seem any, And that you kind QM how occur, months size to doing ahead GSEs done QM maybe about phase of do add about where think under the committed expiration transitioning other about you when to in how some term, some a QM likely it's Calabria's would do being the is your product patch. couple next expiration? and of non if think some the volume of to XXXX, loans weeks ago over longer XX you much, patch to of the that you little news looking for the then the of outs Or given that? that? that of comments private the the market -- think although Are But that, market, instead business a you're offerings QM of he's look you patch

Tom Capasse

it have the date the we X% really it's which of QM meeting our going Yes, our is net and extended that view think already to six for set proposition. quarter, of But it we because a Freddie, this is were impact patch, as recently equity. -- of Fannie transition senior and at at it's our actually that only, be was others, is material really XXXX a beyond XXXX being they -- doesn't as months and view said, executives because -- on GMFS company

Asset experience the of lender. the with they GMFS that, Waterfall credit given we're -- non-agency looking have as that number looking are all-day a on that a rolling well. So plug have they our prior that a with -- manager, Management, so they're And crisis to at we to one we we have caveat, side, -- into out products as non-agency external

non-agency going so do core So in footprint. the forward. have look only will profitable some that long way extremely new it and saying net that's equity do they But they at we of GD-Fannie-Freddie But their is the VA they're of in like FDA differentiated But products, products again, now, X% of right -- a -- firm.

Stephen Laws

for under ahead and realized guys was the investors you Yes. working there's the Thanks mortgage I clarification. are the color managers. Waterfall, certainly there private of to I good it and your there, with but think curve opportunity there for see an XX%,

I'll stuff appreciate now. So but that's later, housekeeping some it questions. taking you I my for save for

Operator

with Christopher from is question Ladenburg ahead. next Please Our go Nolan Thalmann.

ChristopherNolan

Hey, guys.

is much that How higher is from the of from the reinvesting operating XX% How expenses? is ROE from leverage? target, On how much much ORM? lower

Tom Capasse

Yes.

point what stay quarter liquidate I over expect over majority bought basis remainder, XX to months. flat we then on -- was The next was Owens of back-ended. we to expect said before, in We we to portfolio And expenses from as XX as XXX quarter. decline QX the the drag that the operating relatively

interest So in from acquisition product, I QX would net in the well. products where loan than in interest are, in incrementally net as those particularly our those they would expect QX. that higher And to given I were contribution sequential the and margin purchases from margin expect pipelines transitional growth be

drag. from the the of going point increase is it majority of NIM, probably in come XXX portfolio, basis Owen's So to liquidation the that reducing followed by

Christopher Nolan

the that a on drag and you you leverage, gets Tom, So And above that. point ROE higher bit X.X get that is it, increase core puts to it XX%. basis given Owens little that XXX a if should then

target sort go can So is above it ROE a that? to fair XX% think that floor of is

Tom Capasse

that's we think structure that current have. we -- investment currently capacity our of target that's and pipeline ratios and that, and cost achievable business say based on We leverage the the the the

Operator

Love is Sandler question next go Please with O'Neill. ahead. from Crispin Our

CrispinLove

Hi, guys. Thanks for my questions. taking

income, was focus back about that also net growing at interest why it and income is Or a is for you'd a talked income run businesses Ready's do good second-quarter You've XXXX? like you the And to year? we any should reason which net think the soften get net quarter. NII of during for rate you have as all? target to half point look Do to starting having the a definitely there interest interest evident on growing the

Tom Capasse

Yes.

first margin coming stabilized so of In revenue some our and net servicing combination trying XX%, from the question, maybe terms income, of interest of income. XX% toward migrate to we're

like that's you So the to toward. where repeating question? move your remind we'd really second of part And do mind --

Crispin Love

that think a was a from quarter, net we $XX.X think second in you quarter. it down? income any rate the in forward? there Do before quarter, is I that the definitely -- million good run was you the around provision, at if think going last why is the it you would saw Or look that that NII come big interest reason pickup

Tom Capasse

QX. from rate. Yes, increases payoffs a run Marginal that's think larger good I came in

majority back on activity loans little the payoffs to the those -- growth of as to be a well. expect we of that accrete in get as So quarter, there's we incremental and that volatility But half in originated the of purchased I discount. given the going -- the from the would majority

think I So that run the rate. XX XX is good a --

Crispin Love

Okay. for few was last quarters. quarter seen it the And higher and we've then as on the what the SBA high gain on if sale, during it than pretty seemed

XX.X% Can on around was think during been the also And so. on SBA third then think seeing what comment what I you've on you sales drove it or quarter. that? you gain

Tom Capasse

from to cycle, the that yes, -- much -- XX. as is late quarter fourth The in extent, recently grow it where It they're government-guaranteed securities. some these secondary some and due -- for emerged run points. year of market to around today, this of the higher-than-expected is third and -- loans. XX level nine year, -- SBA typically banks average They of in more the for sorry, competition volatility some last there in So rich as looking from these bank quarter the first prepayments to of the deposit and avenues have market declined to is that become pooling new in

aggressive So of we product. being see some versus the them SBA

the this kind loans, is prepayments again, better SBA of the five in So what three out that's of in that (a) seems to roughly to is -- over it in was X the that last petered reflected XX%, have execution XX.X% quarter. or average But turning on terms at years. and

Operator

over to Capasse remarks. turn Thomas concludes session. now the would any for conference like closing This the to I question-and-answer

Tom Capasse

appreciate talking and everybody's and forward in you, we quarter. support the to again look third Thank

Operator

call. conference today's concludes This

You for your may a and day. line. have you disconnect pleasant participating Thank

Ready Capital (RC) 11 Aug 192019 Q2 Earnings call transcript