# Ready Capital Corp (RC) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from Ready Capital Corp's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1527590/000155837022002392/rc-20211231x10k.htm Accession: 0001558370-22-002392 Filing date: 2022-02-28 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/RC/ All MD&A years: /company/RC/mda/ Next year: /company/RC/mda/fy2022/ (FY 2022) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ Introduction Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections: ​ [[GREPCENT_TABLE]] [["","\u25cf","Overview"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Results of Operations"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Liquidity and Capital Resources"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Contractual Obligations and Off- Balance Sheet Arrangements"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Critical Accounting Estimates"]] [[/GREPCENT_TABLE]] ​ The following discussion should be read in conjunction with our consolidated financial statements and accompanying Notes included in Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part, 1. Item 1A, “Risk Factors” in this annual report on Form 10-K. ​ Overview ​ Our Business We are a multi-strategy real estate finance company that originates, acquires, finances, and services SBC loans, SBA loans, residential mortgage loans, and to a lesser extent, MBS collateralized primarily by SBC loans, or other real estate-related investments. Our loans generally range in original principal amounts up to $40 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or warehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends as well as through capital appreciation. In order to achieve this objective, we continue to grow our investment portfolio and believe that the breadth of our full service real estate finance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns. We report our activities in the following three operating segments: ​ [[GREPCENT_TABLE]] [["","\u25cf","SBC Lending and Acquisitions. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial. These originated loans are generally held-for-investment or placed into securitization structures. As part of this segment, we originate and service multi-family loans under the Freddie Mac program. These originated loans are held for sale, then sold to Freddie Mac. We provide construction and permanent financing for the preservation and construction of affordable housing, primarily utilizing tax-exempt bonds through Red Stone, a wholly owned subsidiary. In addition, we acquire small balance commercial loans as part of our business strategy. We hold performing SBC loans to term and seek to maximize the value of the non-performing SBC loans acquired by us through borrower-based resolution strategies. We typically acquire non-performing loans at a discount to their unpaid principal balance when we believe that resolution of the loans will provide attractive risk-adjusted returns."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","Small Business Lending. We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through our wholly-owned subsidiary, ReadyCap Lending. We hold an SBA license as one of only 14 non-bank SBLCs and have been granted preferred lender status by the SBA. These originated loans are either held-for-investment, placed into securitization structures, or sold. We also acquire purchased future receivables through Knight Capital, which is a technology-driven platform that provides working capital to small and medium sized businesses across the U.S."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","Residential Mortgage Banking. We operate our residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS. GMFS originates residential mortgage loans eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, USDA and VA through retail, correspondent and broker channels. These originated loans are then sold to third parties, primarily agency lending programs."]] [[/GREPCENT_TABLE]] 75 Table of Contents Prior to the fourth quarter of 2021, we reported our activities in the following four business segments: Acquisitions, SBC Originations, Small Business Lending and Residential Mortgage Banking. Our Chief Executive Officer, as our CODM, realigned our business segments to incorporate results from our Acquisitions segment in our SBC Lending and Acquisitions segment. We believe this to be more closely aligned with the activities for and projections of our business models. We have recast prior period amounts and segment information to conform to this presentation. ​ We are organized and conduct our operations to qualify as a REIT under the Code. So long as we qualify as a REIT, we are generally not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute substantially all of our net taxable income to stockholders. We are organized in a traditional UpREIT format pursuant to which we serve as the general partner of and conduct substantially all of our business through our operating partnership. We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the 1940 Act. ​ Acquisitions ​ Anworth Mortgage Asset Corporation. On March 19, 2021, we completed the acquisition of Anworth, through a merger of Anworth with and into a wholly-owned subsidiary of ours, in exchange for approximately 16.8 million shares of our common stock (“Anworth Merger”). In accordance with the Agreement and Plan of Merger, dated as of December 6, 2020 (“the Merger Agreement”), by and among us, RC Merger Subsidiary, LLC and Anworth, the number of shares of our common stock issued was based on an exchange ratio of 0.1688 per share plus $0.61 in cash. The total purchase price for the merger of $417.9 million consists of our common stock issued in exchange for shares of Anworth common stock and cash paid in lieu of fractional shares of our common stock, which was based on a price of $14.28 of our common stock on the acquisition date and $0.61 in cash per share. ​ In addition, we issued 1,919,378 shares of newly designated 8.625% Series B Cumulative Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), 779,743 shares of newly designated 6.25% Series C Cumulative Convertible Preferred Stock, par value $0.0001 per share (the "Series C Preferred Stock") and 2,010,278 shares of newly designated 7.625% Series D Cumulative Redeemable Preferred Stock, par value $0.0001 per share (the "Series D Preferred Stock"), in exchange for all shares of Anworth’s 8.625% Series A Cumulative Preferred Stock, 6.25% Series B Cumulative Convertible Preferred Stock and 7.625% Series C Cumulative Redeemable preferred stock outstanding prior to the effective time of the Anworth Merger. On July 15, 2021, the Company redeemed all of the outstanding Series B and Series D Preferred Stock, in each case at a redemption price equal to $25.00 per share, plus accrued and unpaid dividends up to, but excluding, the redemption date. ​ Upon the closing of the transaction and after giving effect to the issuance of shares of common stock as consideration in the merger, our historical stockholders owned approximately 77% of our outstanding common stock, while historical Anworth stockholders owned approximately 23% of our outstanding common stock. ​ The acquisition of Anworth increased our equity capitalization, supported continued growth of our platform and execution of our strategy, and provided us with improved scale, liquidity and capital alternatives, including additional borrowing capacity. Also, the stockholder base resulting from the acquisition of Anworth enhanced the trading volume and liquidity for our stockholders. In addition, part of our strategy in acquiring Anworth was to manage the liquidation and runoff of certain assets within the Anworth portfolio and repay certain indebtedness on the Anworth portfolio following the completion of the Anworth Merger, and to redeploy the capital into opportunities in our core SBC strategies and other assets we expect will generate attractive risk-adjusted returns and long-term earnings accretion. Consistent with this strategy, as of December 31, 2021, we have liquidated approximately $2.0 billion of assets within the Anworth portfolio, primarily consisting of Agency RMBS, and repaid approximately $1.7 billion of indebtedness on the portfolio. ​ In addition, concurrently with entering into the Merger Agreement, we, our operating partnership and the Manager entered into the First Amendment to the Amended and Restated Management Agreement (the “Amendment”), pursuant to which, upon the closing of the Anworth Merger, the Manager’s base management fee was reduced by $1,000,000 per quarter for each of the first full four quarters following the effective time of the Anworth Merger (the “Temporary Fee Reduction”). Other than the Temporary Fee Reduction set forth in the Amendment, the terms of the Management Agreement remain the same. ​ ​ 76 Table of Contents Red Stone. On July 31, 2021, the Company acquired Red Stone, a privately owned real estate finance and investment company that provides innovative financial products and services to multifamily affordable housing, in exchange for an initial purchase price of approximately $63 million paid in cash, retention payments to key executives aggregating $7 million in cash and 128,533 shares of common stock of the Company issued to Red Stone executives under the 2012 Plan. Additional purchase price payments may be made over the next three years if the Red Stone business achieves certain hurdles. The acquisition of Red Stone supported a significant growth opportunity for the Company by expanding presence in a sector with otherwise low correlation to our assets. Part of the Company’s strategy in acquiring Red Stone includes the value of the anticipated synergies arising from the acquisition and the value of the acquired assembled workforce, neither of which qualify for recognition as an intangible asset. ​ Mosaic. On November 3, 2021, we entered into a definitive merger agreement pursuant to which we have agreed to acquire, through the Mosaic Mergers, the Mosaic Funds managed by MREC Management, LLC. Following the Mosaic Mergers, we are expected to have a pro forma equity capital base in excess of $1.8 billion. The acquisition is expected to further expand our investment portfolio to include a diverse portfolio of construction assets with attractive portfolio yields resulting in a reduced leverage profile. ​ The combined company will continue to operate under the name “Ready Capital Corporation” and its shares are expected to continue trading on the NYSE under the existing ticker symbol “RC.” Waterfall will continue to manage the combined company. ​ The Mosaic Mergers are expected to close during the first quarter of 2022, subject to the required approvals by our stockholders and the holders of interests in each of the Mosaic Funds and other customary closing conditions. There can be no assurances that the Mosaic Mergers will close. ​ For additional information on our business, refer to Part I, Item 1, “Business” in this Annual Report on Form 10-K. ​ With robust investments of $3.3 billion in the fourth quarter, and a company record $10.2 billion for the full year, we produced very impressive results in 2021. Our diversified business model continues to effectively scale through our expanded internal capabilities, supplemented with accretive acquisitions, allowing Ready Capital to emerge as a leader in the industry. With a larger platform, a committed team and a market that continues to have strong demand, we are confident that our differentiated strategy will drive outperformance and generate value for our shareholders as we continue to execute. ​ [[GREPCENT_TABLE]] [["","\u25cf","We added significant growth to our market capitalization and diversified production channels through the Anworth merger and Red Stone acquisition."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","Investment achievements include bridge lending which closed in excess of $3.7 billion, SBA(7a) loans which surpassed $1 billion in originations and Red Stone which closed on approximately $550 million of financings since being acquired in late July."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","We issued $115.0 million of 6.50% Series E Cumulative Redeemable Preferred Stock and issued $60.0 million of common equity through our Equity ATM Program."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","We closed an underwritten public offering of $110.0 million of 5.50% senior unsecured notes due 2028 (the 5.50% 2028 Notes\u201d) and a private placement of $350.0 million of 4.50% senior secured notes due 2026 as well as fully redeemed all of the outstanding 7.50% senior secured notes due 2022."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","Since inception, we securitized $8.8 billion of assets across 31 transactions, including a record $2.4 billion in 2021."]] [[/GREPCENT_TABLE]] ​ [[GREPCENT_TABLE]] [["","\u25cf","Our total shareholder return of 39.0% placed 5th amongst a peer group of over 20 companies; 34.3% higher than the peer group average weighted by market capitalization."]] [[/GREPCENT_TABLE]] ​ ​ 77 Table of Contents Factors Impacting Operating Results We expect that our results of operations will be affected by a number of factors and will primarily depend on the level of the interest income from our assets, the market value of our assets and the supply of, and demand for, SBC loans, SBA loans, residential loans, MBS and other assets we may acquire in the future and the financing and other costs associated with our business. Our net investment income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates, the rate at which our distressed assets are liquidated and the prepayment speed of our performing assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by our available borrowing capacity, conditions in the financial markets, credit losses in excess of initial estimates or unanticipated credit events experienced by borrowers whose loans are held directly by us or are included in our MBS. Difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, such as the outbreak of COVID-19 and the emergence and severity of variants, unemployment and the availability and cost of credit are factors which could also impact our operating results. ​ Changes in Market Interest Rates. We own and expect to acquire or originate fixed rate mortgages (“FRMs”), and ARMs, with maturities ranging from five to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon payments due in five to 10 years. ARM loans generally have a fixed interest rate for a period of five, seven or 10 years and then an adjustable interest rate equal to the sum of an index rate, such as LIBOR plus a margin, while FRM loans bear interest that is fixed for the term of the loan. As of December 31, 2021, approximately 74% of the loans in our portfolio were ARMs, and 26% were FRMs, based on UPB. We utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with our FRMs. As of December 31, 2021, 49% of fixed rate loans are match funded in securitization. ​ With respect to our business operations, increases in interest rates may generally over time cause the interest expense associated with our variable-rate borrowings to increase, the value of fixed-rate loans, MBS and other real estate-related assets to decline, coupons on variable-rate loans and MBS to reset to higher interest rates and prepayments on loans and MBS to slow down. Conversely, decreases in interest rates generally tend to have the opposite effect. ​ Non-performing loans are not as interest rate sensitive as performing loans, as earnings on non-performing loans are often generated from restructuring the assets through loss mitigation strategies and opportunistically disposing of them. Because non-performing loans are short-term assets, the discount rates used for valuation are based on short-term market interest rates, which may not move in tandem with long-term market interest rates. A rising rate environment often means an improving economy, which might have a positive impact on commercial property values, resulting in increased gains on the disposition of these assets. While rising rates could make it more costly to refinance these assets, we expect that the impact of this would be mitigated by higher property values. Moreover, small business owners are generally less interest rate sensitive than large commercial property owners, and interest cost is a relatively small component of their operating expenses. An improving economy will likely spur increased property values and sales, thereby increasing the need for loan financing. ​ Changes in Fair Value of Our Assets. Certain originated loans, mortgage backed securities, and servicing rights are carried at fair value, while future assets may also be carried at fair value. Accordingly, changes in the fair value of our assets may impact the results of our operations in the period such changes occur. The expectation of changes in real estate prices is a key determinant for the value of loans and ABS. This factor is beyond our control. ​ Prepayment Speeds. Prepayment speeds on loans vary according to interest rates, the type of investment, conditions in the financial markets, competition, foreclosures and other factors that cannot be predicted with any certainty. In general, when interest rates rise, it is relatively less attractive for borrowers to refinance their mortgage loans and, as a result, prepayment speeds tend to decrease. This can extend the period over which we earn interest income. When interest rates fall, prepayment speeds increase on loans, and therefore, ABS and servicing rights tend to increase, thereby decreasing the period over which we earn interest income or servicing fee income. Additionally, other factors such as the credit rating of the borrower, the rate of property value appreciation or depreciation, financial market conditions, foreclosures and lender competition, none of which can be predicted with any certainty, may affect prepayment speeds on loans. ​ 78 Table of Contents Credit Spreads. Our investment portfolio may be subject to changes in credit spreads. Credit spreads measure the yield demanded on loans and securities by the market based on their credit relative to a specific benchmark and is a measure of the perceived risk of the investment. Fixed rate loans and securities are valued based on a market credit spread over the rate payable on fixed rate swaps or fixed rate U.S. Treasuries of similar maturity. Floating rate securities are typically valued based on a market credit spread over LIBOR (or another floating rate index) and are affected similarly by changes in LIBOR spreads. Excessive supply of these loans and securities, or reduced demand, may cause the market to require a higher yield on these securities, resulting in the use of a higher, or “wider,” spread over the benchmark rate to value such assets. Under such conditions, the value of our portfolios would tend to decline. Conversely, if the spread used to value such assets were to decrease, or “tighten,” the value of our loans and securities would tend to increase. Such changes in the market value of these assets may affect our net equity, net income or cash flow directly through their impact on unrealized gains or losses. ​ The spread between the yield on our assets and our funding costs is an important factor in the performance of this aspect of our business. Wider spreads imply greater income on new asset purchases but may have a negative impact on our stated book value. Wider spreads generally negatively impact asset prices. In an environment where spreads are widening, counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets. Conversely, tighter spreads imply lower income on new asset purchases but may have a positive impact on our stated book value. Tighter spreads generally have a positive impact on asset prices. In this case, we may be able to reduce the amount of collateral required to secure borrowings. ​ Loan and ABS Extension Risk. The Company estimates the projected weighted-average life of our investments based on assumptions regarding the rate at which the borrowers will prepay the underlying mortgages and/or the speed at which we are able to liquidate an asset. If the timeline to resolve non-performing assets extends, this could have a negative impact on our results of operations, as carrying costs may therefore be higher than initially anticipated. This situation may also cause the fair market value of our investment to decline if real estate values decline over the extended period. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses. ​ Credit Risk. We are subject to credit risk in connection with our investments in loans and ABS and other target assets we may acquire in the future. Increases in defaults and delinquencies will adversely impact our operating results, while declines in rates of default and delinquencies will improve our operating results from this aspect of our business. Default rates are influenced by a wide variety of factors, including, property performance, property management, supply and demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the United States economy and other factors beyond our control. All loans are subject to the possibility of default. We seek to mitigate this inherent risk by seeking to acquire assets at appropriate prices given anticipated and unanticipated losses and by deploying a value-driven approach to underwriting and diligence, consistent with our historical investment strategy, with a focus on projected cash flows and potential risks to cash flow. We further mitigate our risk of potential losses while managing and servicing our loans by performing various workout and loss mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit losses could occur which could adversely impact operating results. ​ Current market conditions. The COVID-19 pandemic around the globe continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. Although more normalized activities have resumed, the full impact of COVID-19 on the commercial real estate market, the small business lending market and the credit markets generally, and consequently on the Company’s financial condition and results of operations, is uncertain and cannot be predicted as it depends on several factors beyond the control of the Company including, but not limited to, (i) the uncertainty around the severity and duration of the pandemic, including the emergence and severity of COVID-19 variants (ii) the effectiveness of the United States public health response, including the administration and effectiveness of COVID-19 vaccines throughout the United States, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of governmental responses to the pandemic, and (v) the timing and speed of economic recovery. ​ ​ 79 Table of Contents Results of Operations ​ Key Financial Measures and Indicators As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared per share, distributable earnings, and net book value per share. As further described below, distributable earnings is a measure that is not prepared in accordance with GAAP. We use distributable earnings to evaluate our performance and determine dividends, excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations. See “—Non-GAAP Financial Measures” below for a reconciliation of net income to distributable earnings. ​ The table below sets forth certain information on our operating results. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Three Months Ended December 31,","\u200b","Year Ended December 31,"],["($ in thousands, except share data)","2021","\u200b","2021","\u200b","2020","\u200b","2019"],["Net Income","$","53,588","\u200b","$","159,974","\u200b","$","46,069","\u200b","$","75,056","\u200b"],["Earnings per common share - basic","$","0.69","\u200b","$","2.17","\u200b","$","0.81","\u200b","$","1.72","\u200b"],["Earnings per common share - diluted","$","0.68","\u200b","$","2.17","\u200b","$","0.81","\u200b","$","1.72","\u200b"],["Distributable earnings","$","52,535","\u200b","$","168,036","\u200b","$","101,379","\u200b","$","67,261","\u200b"],["Distributable earnings per common share - basic and diluted","$","0.67","\u200b","$","2.29","\u200b","$","1.82","\u200b","$","1.54","\u200b"],["Dividends declared per common share","$","0.42","\u200b","$","1.66","\u200b","$","1.30","\u200b","$","1.60","\u200b"],["Dividend yield","\u200b","10.7","%","\u200b","11.2","%","\u200b","10.4","%","\u200b","10.9","%"],["Book value per common share","$","15.36","\u200b","$","15.36","\u200b","$","15.00","\u200b","$","16.14","\u200b"],["Adjusted net book value per common share","$","15.35","\u200b","$","15.35","\u200b","$","14.98","\u200b","$","16.12","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]] [[/GREPCENT_TABLE]] In the table above, [[GREPCENT_TABLE]] [["","\u25cf","Dividend yield is based on the respective period end closing share price."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Adjusted net book value per common share excludes the equity component of our 2017 convertible note issuance."]] [[/GREPCENT_TABLE]] ​ Our Loan Pipeline We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our investment process. We refer to assets as being part of our acquisition or origination pipeline if an asset or portfolio opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our investment strategy and exhibit the appropriate risk/reward characteristics. In the case of acquired loans, we have executed a non-disclosure agreement (“NDA”) or an exclusivity agreement and commenced the due diligence process or we have executed more definitive documentation, such as a letter of intent (“LOI”), and in the case of originated loans, we have issued an LOI, and the borrower has paid a deposit. ​ We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire the potential investments in the pipeline. The consummation of any of the potential loans in the pipeline depends upon, among other things, one or more of the following: available capital and liquidity, our Manager’s allocation policy, satisfactory completion of our due diligence investigation and investment process, approval of our Manager’s Investment Committee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the execution and delivery of satisfactory transaction documentation. Historically, we have acquired less than a majority of the assets in our Manager’s pipeline at any one time and there can be no assurance the assets currently in its pipeline will be acquired or originated by our Manager in the future. ​ The table below presents information on our investment portfolio originations and acquisitions, based on fully committed amounts. [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","Three Months Ended","\u200b","\u200b","Year Ended December 31,"],["(in thousands)","\u200b","\u200b","December 31, 2021","\u200b","\u200b","2021","\u200b","2020","\u200b","2019"],["Loan originations:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC loans","\u200b","$","2,240,440","\u200b","\u200b","$","5,271,916","\u200b","$","1,160,294","\u200b","$","1,702,685"],["SBA loans","\u200b","\u200b","135,715","\u200b","\u200b","\u200b","480,760","\u200b","\u200b","216,556","\u200b","\u200b","216,263"],["Residential agency mortgage loans","\u200b","\u200b","876,309","\u200b","\u200b","\u200b","4,208,582","\u200b","\u200b","4,246,367","\u200b","\u200b","2,105,635"],["Total loan originations","\u200b","$","3,252,464","\u200b","\u200b","$","9,961,258","\u200b","$","5,623,217","\u200b","$","4,024,583"],["Total loan acquisitions","\u200b","$","29,012","\u200b","\u200b","$","196,992","\u200b","$","212,644","\u200b","$","722,465"],["Total loan investment activity","\u200b","$","3,281,476","\u200b","\u200b","$","10,158,250","\u200b","$","5,835,861","\u200b","$","4,747,048"]] [[/GREPCENT_TABLE]] ​ 80 Table of Contents The table below presents information on our acquisition and origination pipeline opportunities, based on fully committed amounts. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b"],["(in millions)","\u200b","\u200b","Current Pipeline"],["Originations:","\u200b","\u200b","\u200b"],["SBC loans","\u200b","$","2,201.6"],["SBA loans","\u200b","\u200b","195.8"],["Residential agency loans","\u200b","\u200b","632.4"],["SBC Acquisitions","\u200b","\u200b","54.9"],["Total pipeline(1)","\u200b","$","3,084.7"]] [[/GREPCENT_TABLE]] (1) Includes 2022 fundings. ​ Balance Sheet Analysis and Metrics [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","\u200b","December 31, 2021","\u200b","December 31, 2020","\u200b","\u200b","$ Change","\u200b","% Change"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Cash and cash equivalents","\u200b","$","229,531","\u200b","$","138,975","\u200b","\u200b","$","90,556","\u200b","65.2","%"],["Restricted cash","\u200b","","51,569","\u200b","","47,697","\u200b","\u200b","\u200b","3,872","\u200b","8.1","\u200b"],["Loans, net (including $10,766 and $13,795 held at fair value)","\u200b","","2,915,446","\u200b","","1,550,624","\u200b","\u200b","\u200b","1,364,822","\u200b","88.0","\u200b"],["Loans, held for sale, at fair value","\u200b","","552,935","\u200b","","340,288","\u200b","\u200b","\u200b","212,647","\u200b","62.5","\u200b"],["Paycheck Protection Program loans (including $3,243 and $74,931 held at fair value)","\u200b","","870,352","\u200b","","74,931","\u200b","\u200b","\u200b","795,421","\u200b","1,061.5","\u200b"],["Mortgage backed securities, at fair value","\u200b","","99,496","\u200b","\u200b","88,011","\u200b","\u200b","\u200b","11,485","\u200b","13.0","\u200b"],["Loans eligible for repurchase from Ginnie Mae","\u200b","\u200b","94,111","\u200b","\u200b","250,132","\u200b","\u200b","\u200b","(156,021)","\u200b","(62.4)","\u200b"],["Investment in unconsolidated joint ventures (including $8,894 held at fair value)","\u200b","\u200b","141,148","\u200b","\u200b","79,509","\u200b","\u200b","\u200b","61,639","\u200b","77.5","\u200b"],["Purchased future receivables, net","\u200b","\u200b","7,872","\u200b","\u200b","17,308","\u200b","\u200b","\u200b","(9,436)","\u200b","(54.5)","\u200b"],["Derivative instruments","\u200b","\u200b","7,022","\u200b","\u200b","16,363","\u200b","\u200b","\u200b","(9,341)","\u200b","(57.1)","\u200b"],["Servicing rights (including $120,142 and $76,840 held at fair value)","\u200b","\u200b","204,599","\u200b","\u200b","114,663","\u200b","\u200b","\u200b","89,936","\u200b","78.4","\u200b"],["Real estate owned, held for sale","\u200b","\u200b","42,288","\u200b","\u200b","45,348","\u200b","\u200b","\u200b","(3,060)","\u200b","(6.7)","\u200b"],["Other assets","\u200b","\u200b","172,098","\u200b","\u200b","89,503","\u200b","\u200b","\u200b","82,595","\u200b","92.3","\u200b"],["Assets of consolidated VIEs","\u200b","\u200b","4,145,564","\u200b","\u200b","2,518,743","\u200b","\u200b","\u200b","1,626,821","\u200b","64.6","\u200b"],["Total Assets","\u200b","$","9,534,031","\u200b","$","5,372,095","\u200b","\u200b","$","4,161,936","\u200b","77.5","%"],["Liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Secured borrowings","\u200b","\u200b","2,517,600","\u200b","\u200b","1,294,243","\u200b","\u200b","\u200b","1,223,357","\u200b","94.5","\u200b"],["Paycheck Protection Program Liquidity Facility (PPPLF) borrowings","\u200b","\u200b","941,505","\u200b","\u200b","76,276","\u200b","\u200b","\u200b","865,229","\u200b","1,134.3","\u200b"],["Securitized debt obligations of consolidated VIEs, net","\u200b","\u200b","3,214,303","\u200b","\u200b","1,905,749","\u200b","\u200b","\u200b","1,308,554","\u200b","68.7","\u200b"],["Convertible notes, net","\u200b","\u200b","113,247","\u200b","\u200b","112,129","\u200b","\u200b","\u200b","1,118","\u200b","1.0","\u200b"],["Senior secured notes, net","\u200b","\u200b","342,035","\u200b","\u200b","179,659","\u200b","\u200b","\u200b","162,376","\u200b","90.4","\u200b"],["Corporate debt, net","\u200b","\u200b","441,817","\u200b","\u200b","150,989","\u200b","\u200b","\u200b","290,828","\u200b","192.6","\u200b"],["Guaranteed loan financing","\u200b","\u200b","345,217","\u200b","\u200b","401,705","\u200b","\u200b","\u200b","(56,488)","\u200b","(14.1)","\u200b"],["Contingent consideration","\u200b","\u200b","16,400","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","16,400","\u200b","100.0","\u200b"],["Liabilities for loans eligible for repurchase from Ginnie Mae","\u200b","\u200b","94,111","\u200b","\u200b","250,132","\u200b","\u200b","\u200b","(156,021)","\u200b","(62.4)","\u200b"],["Derivative instruments","\u200b","\u200b","410","\u200b","\u200b","11,604","\u200b","\u200b","\u200b","(11,194)","\u200b","(96.5)","\u200b"],["Dividends payable","\u200b","\u200b","34,348","\u200b","\u200b","19,746","\u200b","\u200b","\u200b","14,602","\u200b","73.9","\u200b"],["Accounts payable and other accrued liabilities","\u200b","\u200b","184,079","\u200b","\u200b","135,655","\u200b","\u200b","\u200b","48,424","\u200b","35.7","\u200b"],["Total Liabilities","\u200b","$","8,245,072","\u200b","$","4,537,887","\u200b","\u200b","$","3,707,185","\u200b","81.7","%"],["Preferred stock Series C, liquidation preference $25.00 per share","\u200b","\u200b","8,361","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","8,361","\u200b","100.0","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commitments & contingencies","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stockholders\u2019 Equity","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Preferred stock Series E liquidation preference $25.00 per share","\u200b","\u200b","111,378","\u200b","\u200b","\u2014","\u200b","\u200b","\u200b","111,378","\u200b","100.0","\u200b"],["Common stock, $0.0001 par value, 500,000,000 shares authorized, 75,838,050 and 54,368,999 shares issued and outstanding, respectively","\u200b","\u200b","8","\u200b","","5","\u200b","\u200b","\u200b","3","\u200b","60.0","\u200b"],["Additional paid-in capital","\u200b","\u200b","1,161,853","\u200b","\u200b","849,541","\u200b","\u200b","\u200b","312,312","\u200b","36.8","\u200b"],["Retained earnings (deficit)","\u200b","\u200b","8,598","\u200b","\u200b","(24,203)","\u200b","\u200b","\u200b","32,801","\u200b","(135.5)","\u200b"],["Accumulated other comprehensive loss","\u200b","\u200b","(5,733)","\u200b","\u200b","(9,947)","\u200b","\u200b","\u200b","4,214","\u200b","(42.4)","\u200b"],["Total Ready Capital Corporation equity","\u200b","\u200b","1,276,104","\u200b","","815,396","\u200b","\u200b","\u200b","460,708","\u200b","56.5","\u200b"],["Non-controlling interests","\u200b","\u200b","4,494","\u200b","","18,812","\u200b","\u200b","\u200b","(14,318)","\u200b","(76.1)","\u200b"],["Total Stockholders\u2019 Equity","\u200b","$","1,280,598","\u200b","$","834,208","\u200b","\u200b","$","446,390","\u200b","53.5","%"],["Total Liabilities, Redeemable Preferred Stock, and Stockholders\u2019 Equity","\u200b","$","9,534,031","\u200b","$","5,372,095","\u200b","\u200b","$","4,161,936","\u200b","77.5","%"]] [[/GREPCENT_TABLE]] ​ As of December 2021, total assets in our consolidated balance sheet were $9.5 billion, an increase of $4.2 billion from December 2020, primarily reflecting an increase in Assets of consolidated VIEs, Loans, net and PPP loans. Assets of consolidated VIEs increased $1.6 billion primarily due to the closing of four securitizations, SCMT 2021-SBC 10, RCMF 2021-FL5, RCMF 2021-FL6 and RCMF 2021-FL7. Loans, net increased $1.4 billion reflecting increases in loan acquisitions and originations, partially offset by paydowns. PPP loans increased $795 million due to originations, partially offset by principal forgiveness. ​ ​ 81 Table of Contents As of December 2021, total liabilities in our consolidated balance sheet were $8.3 billion, an increase of $3.7 billion from December 2020, primarily reflecting an increase in Secured debt obligations of consolidated VIEs, net, Secured borrowings, PPPLF borrowings and Corporate debt, net. Secured debt obligations of consolidated VIEs, net increased $1.3 billion primarily due to the closing of four securitizations, SCMT 2021-SBC 10, RCMF 2021-FL5, RCMF 2021-FL6 and RCMF 2021-FL7. Secured borrowings increased $1.2 billion reflecting increased borrowings due to originations and acquisitions of loans, partially offset by payments. PPPLF borrowings increased $865 million due to proceeds used to support PPP loan originations. Corporate debt, net increased $291 million primarily reflecting debt raises, partially offset by repayments. ​ As of December 2021, total stockholders’ equity was $1.3 billion, an increase of $446 million from December 2020, primarily due to common equity raised in connection with the Anworth Merger, as well as the issuance of preferred shares and the issuance of common equity through the Equity ATM Program. ​ Selected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data by each of our three business segments, with the remaining amounts reflected in Corporate –Other. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","\u200b","SBC Lending and Acquisitions","\u200b","Small Business Lending","\u200b","Residential Mortgage Banking","\u200b","Total"],["December 31, 2021","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans, net","\u200b","$","6,447,766","\u200b","$","592,339","\u200b","$","2,566","\u200b","$","7,042,671"],["Loans, held for sale, at fair value","\u200b","\u200b","274,249","\u200b","\u200b","42,761","\u200b","\u200b","235,925","\u200b","\u200b","552,935"],["Paycheck Protection Program loans","\u200b","\u200b","\u2014","\u200b","\u200b","870,352","\u200b","\u200b","\u2014","\u200b","\u200b","870,352"],["MBS, at fair value","\u200b","\u200b","99,496","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","99,496"],["Servicing rights","\u200b","\u200b","62,300","\u200b","\u200b","22,157","\u200b","\u200b","120,142","\u200b","\u200b","204,599"],["Investment in unconsolidated joint ventures","\u200b","\u200b","141,148","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","141,148"],["Purchased future receivables, net","\u200b","\u200b","\u2014","\u200b","\u200b","7,872","\u200b","\u200b","\u2014","\u200b","\u200b","7,872"],["Real estate owned, held for sale","\u200b","\u200b","42,151","\u200b","\u200b","137","\u200b","\u200b","\u2014","\u200b","\u200b","42,288"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Secured borrowings","\u200b","$","2,132,334","\u200b","$","109,406","\u200b","$","275,860","\u200b","$","2,517,600"],["Paycheck Protection Program Liquidity Facility (PPPLF) borrowings","\u200b","\u200b","\u2014","\u200b","\u200b","941,505","\u200b","\u200b","\u2014","\u200b","\u200b","941,505"],["Securitized debt obligations of consolidated VIEs","\u200b","\u200b","3,136,035","\u200b","\u200b","78,268","\u200b","\u200b","\u2014","\u200b","\u200b","3,214,303"],["Guaranteed loan financing","\u200b","\u200b","\u2014","\u200b","\u200b","345,217","\u200b","\u200b","\u2014","\u200b","\u200b","345,217"],["Senior secured notes, net","\u200b","\u200b","328,623","\u200b","\u200b","13,412","\u200b","\u200b","\u2014","\u200b","\u200b","342,035"],["Corporate debt, net","\u200b","\u200b","441,817","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","441,817"],["Convertible notes, net","\u200b","\u200b","107,593","\u200b","\u200b","5,654","\u200b","\u200b","\u2014","\u200b","\u200b","113,247"],["\u200b"]] [[/GREPCENT_TABLE]] In the table above, [[GREPCENT_TABLE]] [["","\u25cf","Loans, net includes assets of consolidated VIEs and excludes allowance for loan losses."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","Real estate owned, held for sale includes assets of consolidated VIEs."]] [[/GREPCENT_TABLE]] ​ 82 Table of Contents Income Statement Analysis and Metrics [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Year Ended December 31,","\u200b","$ Change"],["(in thousands)","\u200b","2021","\u200b","2020","\u200b","\u200b","2019","\u200b","2021 vs. 2020","\u200b","2020 vs. 2019"],["Interest income","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","278,455","\u200b","$","211,525","\u200b","$","193,417","\u200b","$","66,930","\u200b","$","18,108"],["Small business lending","\u200b","\u200b","116,741","\u200b","\u200b","39,430","\u200b","\u200b","32,096","\u200b","\u200b","77,311","\u200b","\u200b","7,334"],["Residential mortgage banking","\u200b","\u200b","8,300","\u200b","\u200b","7,681","\u200b","\u200b","4,403","\u200b","\u200b","619","\u200b","\u200b","3,278"],["Total interest income","\u200b","$","403,496","\u200b","$","258,636","\u200b","$","229,916","\u200b","$","144,860","\u200b","$","28,720"],["Interest expense","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","(164,797)","\u200b","$","(138,444)","\u200b","$","(131,179)","\u200b","$","(26,353)","\u200b","$","(7,265)"],["Small business lending","\u200b","\u200b","(36,872)","\u200b","\u200b","(27,472)","\u200b","\u200b","(14,864)","\u200b","\u200b","(9,400)","\u200b","\u200b","(12,608)"],["Residential mortgage banking","\u200b","\u200b","(9,193)","\u200b","\u200b","(8,294)","\u200b","\u200b","(5,837)","\u200b","\u200b","(899)","\u200b","\u200b","(2,457)"],["Corporate - other","\u200b","\u200b","(2,699)","\u200b","\u200b","(1,271)","\u200b","\u200b","-","\u200b","\u200b","(1,428)","\u200b","\u200b","(1,271)"],["Total interest expense","\u200b","$","(213,561)","\u200b","$","(175,481)","\u200b","$","(151,880)","\u200b","$","(38,080)","\u200b","$","(23,601)"],["Net interest income before provision for loan losses","\u200b","$","189,935","\u200b","$","83,155","\u200b","$","78,036","\u200b","$","106,780","\u200b","$","5,119"],["Provision for loan losses","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","(7,387)","\u200b","$","(26,932)","\u200b","$","(1,127)","\u200b","$","19,545","\u200b","$","(25,805)"],["Small business lending","\u200b","\u200b","(662)","\u200b","\u200b","(7,794)","\u200b","\u200b","(2,557)","\u200b","\u200b","7,132","\u200b","\u200b","(5,237)"],["Total Provision for loan losses","\u200b","$","(8,049)","\u200b","$","(34,726)","\u200b","$","(3,684)","\u200b","$","26,677","\u200b","$","(31,042)"],["Net interest income after provision for loan losses","\u200b","$","181,886","\u200b","$","48,429","\u200b","$","74,352","\u200b","$","133,457","\u200b","$","(25,923)"],["Non-interest income","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","67,301","\u200b","$","16,455","\u200b","$","29,698","\u200b","$","50,846","\u200b","$","(13,243)"],["Small business lending","\u200b","\u200b","65,603","\u200b","\u200b","77,235","\u200b","\u200b","26,433","\u200b","\u200b","(11,632)","\u200b","\u200b","50,802"],["Residential mortgage banking","\u200b","\u200b","186,763","\u200b","\u200b","240,878","\u200b","\u200b","87,858","\u200b","\u200b","(54,115)","\u200b","\u200b","153,020"],["Corporate - other","\u200b","\u200b","85","\u200b","\u200b","189","\u200b","\u200b","30,639","\u200b","\u200b","(104)","\u200b","\u200b","(30,450)"],["Total non-interest income","\u200b","$","319,752","\u200b","$","334,757","\u200b","$","174,628","\u200b","$","(15,005)","\u200b","$","160,129"],["Non-interest expense","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","(63,526)","\u200b","$","(50,266)","\u200b","$","(34,214)","\u200b","$","(13,260)","\u200b","$","(16,052)"],["Small business lending","\u200b","\u200b","(64,054)","\u200b","\u200b","(55,047)","\u200b","\u200b","(27,715)","\u200b","\u200b","(9,007)","\u200b","\u200b","(27,332)"],["Residential mortgage banking","\u200b","\u200b","(128,972)","\u200b","\u200b","(186,146)","\u200b","\u200b","(90,685)","\u200b","\u200b","57,174","\u200b","\u200b","(95,461)"],["Corporate - other","\u200b","\u200b","(56,029)","\u200b","\u200b","(37,274)","\u200b","\u200b","(31,862)","\u200b","\u200b","(18,755)","\u200b","\u200b","(5,412)"],["Total non-interest expense","\u200b","$","(312,581)","\u200b","$","(328,733)","\u200b","$","(184,476)","\u200b","$","16,152","\u200b","$","(144,257)"],["Net income (loss) before provision for income taxes","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["SBC lending and acquisitions","\u200b","$","110,046","\u200b","$","12,338","\u200b","$","56,595","\u200b","$","97,708","\u200b","$","(44,257)"],["Small business lending","\u200b","\u200b","80,756","\u200b","\u200b","26,352","\u200b","\u200b","13,393","\u200b","\u200b","54,404","\u200b","\u200b","12,959"],["Residential mortgage banking","\u200b","\u200b","56,898","\u200b","\u200b","54,119","\u200b","\u200b","(4,261)","\u200b","\u200b","2,779","\u200b","\u200b","58,380"],["Corporate - other","\u200b","\u200b","(58,643)","\u200b","\u200b","(38,356)","\u200b","\u200b","(1,223)","\u200b","\u200b","(20,287)","\u200b","\u200b","(37,133)"],["Total net income before provision for income taxes","\u200b","$","189,057","\u200b","$","54,453","\u200b","$","64,504","\u200b","$","134,604","\u200b","$","(10,051)"]] [[/GREPCENT_TABLE]] ​ Results of Operations – Supplemental Information. Realized and unrealized gains (losses) on financial instruments are recorded in the consolidated statements of income and classified based on the nature of the underlying asset or liability. ​ The table below presents the components of realized and unrealized gains (losses) on financial instruments: ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","Year Ended December 31,","\u200b","$ Change"],["(in thousands)","\u200b","","2021","","2020","","2019","\u200b","2021 vs. 2020","\u200b","2020 vs. 2019"],["Realized gain (loss) on financial instruments","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Realized gain on loans - Freddie Mac","\u200b","\u200b","$","8,307","\u200b","$","6,887","\u200b","$","5,404","\u200b","$","1,420","\u200b","$","1,483"],["Creation of MSRs - Freddie Mac","\u200b","\u200b","\u200b","11,419","\u200b","\u200b","8,850","\u200b","\u200b","5,195","\u200b","\u200b","2,569","\u200b","\u200b","3,655"],["Realized gain on loans - SBA","\u200b","\u200b","\u200b","35,469","\u200b","\u200b","14,330","\u200b","\u200b","11,542","\u200b","\u200b","21,139","\u200b","\u200b","2,788"],["Creation of MSRs - SBA","\u200b","\u200b","\u200b","8,572","\u200b","\u200b","4,153","\u200b","\u200b","3,519","\u200b","\u200b","4,419","\u200b","\u200b","634"],["Creation of MSRs - Red Stone","\u200b","\u200b","\u200b","6,728","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","6,728","\u200b","\u200b","\u2014"],["Realized gain (loss) on derivatives, at fair value","\u200b","\u200b","\u200b","(8,551)","\u200b","\u200b","(4,998)","\u200b","\u200b","629","\u200b","\u200b","(3,553)","\u200b","\u200b","(5,627)"],["Realized gain (loss) on MBS, at fair value","\u200b","\u200b","\u200b","8,905","\u200b","\u200b","2,536","\u200b","\u200b","3,507","\u200b","\u200b","6,369","\u200b","\u200b","(971)"],["Net realized gain (loss) - all other","\u200b","\u200b","\u200b","(1,968)","\u200b","\u200b","155","\u200b","\u200b","(838)","\u200b","\u200b","(2,123)","\u200b","\u200b","993"],["Net realized gain (loss) on financial instruments","\u200b","\u200b","$","68,881","\u200b","$","31,913","\u200b","$","28,958","\u200b","$","36,968","\u200b","$","2,955"],["Unrealized gain (loss) on financial instruments","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unrealized gain (loss) on loans - Freddie Mac","\u200b","\u200b","$","334","\u200b","$","578","\u200b","$","(87)","\u200b","$","(244)","\u200b","$","665"],["Unrealized gain (loss) on loans - SBA","\u200b","\u200b","\u200b","2,999","\u200b","\u200b","(1,084)","\u200b","\u200b","392","\u200b","\u200b","4,083","\u200b","\u200b","(1,476)"],["Unrealized gain (loss) on residential MSRs, at fair value","\u200b","\u200b","","16,920","\u200b","","(37,258)","\u200b","","(18,567)","\u200b","","54,178","\u200b","","(18,691)"],["Unrealized gain (loss) on derivatives, at fair value","\u200b","\u200b","\u200b","15,947","\u200b","\u200b","(3,937)","\u200b","\u200b","(2,016)","\u200b","\u200b","19,884","\u200b","\u200b","(1,921)"],["Unrealized gain (loss) on MBS, at fair value","\u200b","\u200b","\u200b","7,262","\u200b","\u200b","(9,421)","\u200b","\u200b","1,023","\u200b","\u200b","16,683","\u200b","\u200b","(10,444)"],["Net unrealized gain (loss) - all other","\u200b","\u200b","\u200b","(4,085)","\u200b","\u200b","3,021","\u200b","\u200b","465","\u200b","\u200b","(7,106)","\u200b","\u200b","2,556"],["Net unrealized gain (loss) on financial instruments","\u200b","\u200b","$","39,377","\u200b","$","(48,101)","\u200b","$","(18,790)","\u200b","$","87,478","\u200b","$","(29,311)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]] [[/GREPCENT_TABLE]] ​ ​ 83 Table of Contents SBC Lending and Acquisitions Segment Results. ​ 2021 versus 2020. Interest income of $278.5 million for 2021 represented an increase of $66.9 million from the prior year, primarily due to SBC loan originations, resulting in higher average loan balances. Interest expense of $164.8 million for 2021 represented an increase of $26.4 million from the prior year, primarily due to an increase in borrowing needs required to finance new originations. Provision for loan losses of $7.4 million for 2021 represented a decrease of $19.5 million from the prior year, due to loan payoffs and stabilizing economic assumptions. Non-interest income of $67.3 million for 2021 represented an increase of $50.8 million from the prior year, primarily due to net realized and unrealized gains on financial instruments. Non-interest expense of $63.5 million for 2021 represented an increase of $13.3 million from the prior year, primarily due to an increase in compensation and operating expenses, driven by an increase in SBC loan originations. ​ 2020 versus 2019. Interest income of $211.5 million for 2020 represented an increase of $18.1 million from the prior year, primarily due to SBC loan originations, resulting in higher average loan balances. Interest expense of $138.4 million for 2020 represented an increase of $7.3 million from the prior year, primarily due to an increase in borrowing needs required to finance new originations. Provision for loan losses of $26.9 million for 2020 represented an increase of $25.8 million from the prior year, due to the implementation of CECL. Non-interest income of $16.5 million for 2020 represented a decrease of $13.2 million from the prior year, due to net unrealized losses on financial instruments and net losses on unconsolidated joint ventures. Non-interest expense of $50.3 million for 2020 represented an increase of $16.1 million from the prior year, primarily due to an increase in compensation expense. ​ Small Business Lending Segment Results. ​ 2021 versus 2020. Interest income of $116.7 million for 2021 represented an increase of $77.3 million from the prior year, due to increased loan balances, including PPP loans. Interest expense of $36.9 million for 2021 represented an increase of $9.4 million from the prior year, due to an increase in costs associated with borrowings to support PPP loan activities. Provision for loan losses of $0.7 million for 2021 represented a decrease of $7.1 million from the prior year, primarily due to higher CECL reserves taken during 2020, driven by the outlook towards COVID-19’s impact on small businesses. Non-interest income of $65.6 million for 2021 represented a decrease of $11.6 million from the prior year, primarily due to revenue from originated PPP loans. Non-interest expense of $64.1 million for 2021 represented an increase of $9.0 million from the prior year, due to an increase in expenses related to originated PPP loans. ​ 2020 versus 2019. Interest income of $39.4 million for 2020 represented an increase of $7.3 million from the prior year, primarily due to an increase in guaranteed loan financing from guaranteed portions of loans sold tied to securitization activity. Interest expense of $27.5 million for 2020 represented an increase of $12.6 million from the prior year, primarily due to an increase in guaranteed loan financing from guaranteed portions of loans sold tied to securitization activity. Provision for loan losses of $7.8 million for 2020 represented an increase of $5.2 million from the prior year, due to the implementation of CECL. Non-interest income of $77.2 million for 2020 represented an increase of $50.8 million from the prior year, due to revenue from originated PPP loans. Non-interest expense of $55.0 million for 2020 represented an increase of $27.3 million from the prior year, primarily due to an increase in expenses related to originated PPP loans. ​ Residential Mortgage Banking Segment Results. ​ 2021 versus 2020. Interest income of $8.3 million for 2021 represented an increase of $0.6 million from the prior year, due a slight increase in the holding periods of loans held for sale at fair value. Interest expense of $9.2 million for 2021 represented an increase of $0.9 million from the prior year, due to a slight increase in the holding periods of loans held for sale at fair value. Non-interest income of $186.8 million for 2021 represented a decrease of $54.1 million from the prior year, primarily due to a decrease in revenue generated on residential mortgage banking activities. Non-interest expense of $129.0 million for 2021 represented a decrease of $57.2 million from the prior year, primarily due to a decrease in variable expenses on residential mortgage banking activities due to decreased loan origination volumes. ​ 2020 versus 2019. Interest income of $7.7 million for 2020 represented an increase of $3.3 million from the prior year, primarily due to an increase in overall loan originations. Interest expense of $8.3 million for 2020 represented an increase of $2.5 million from the prior year, primarily due to an increase in borrowing needs required to finance new originations. Non-interest income of $240.9 million for 2020 represented an increase of $153.0 million from the prior year, primarily due to an increase in revenue generated on residential mortgage banking activities. Non-interest expense of $186.1 million 84 Table of Contents for 2020 represented an increase of $95.5 million from the prior year, primarily due to an increase in variable expenses on residential mortgage banking activities due to increased loan origination volumes. ​ Corporate – Other. ​ 2021 versus 2020. Non-interest income of $0.1 million for 2021 was essentially unchanged from the prior year. Interest expense of $2.7 million for 2021 represented an increase of $1.4 million from the prior year, due to repo borrowings for general business purposes. All interest expense from corporate debt offerings were deployed to the business segments. Non-interest expense of $56.0 million for 2021 represented an increase of $18.8 million from the prior year, primarily due to one-time transaction expenses and allocated employee compensation, partially offset by other professional fees, management fees and incentive fees. ​ 2020 versus 2019. Non-interest income of $0.2 million for 2020 represented a decrease of $30.5 million from the prior year, primarily due to a one-time bargain purchase gain related to the acquisition of ORM in 2019. Interest expense of $1.3 million for 2020 represented an increase of $1.3 million from the prior year, due to repo borrowings for general business purposes. All interest expense from corporate debt offerings were deployed to the business segments. Non-interest expense of $37.3 million for 2020 represented an increase of $5.4 million from the prior year, primarily due to an increase in management and incentive fees and professional fees, partially offset by one-time transaction expenses in 2019. ​ Non-GAAP financial measures We believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors greater transparency into the information used by management in our financial and operational decision-making, including the determination of dividends. Distributable earnings is a non-U.S. GAAP financial measure and because distributable earnings is an incomplete measure of our financial performance and involves differences from net income computed in accordance with U.S. GAAP, it should be considered along with, but not as an alternative to, our net income as a measure of our financial performance. In addition, because not all companies use identical calculations, our presentation of distributable earnings may not be comparable to other similarly-titled measures of other companies. ​ We calculate distributable earnings as GAAP net income (loss) excluding the following: ​ [[GREPCENT_TABLE]] [["","i)","any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","ii)","any realized gains or losses on sales of certain MBS"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","iii)","any unrealized gains or losses on Residential MSRs"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","iv)","any unrealized current non-cash provision for credit losses on accrual loans"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","v)","any unrealized gains or losses on de-designated cash flow hedges"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","vi)","one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses"]] [[/GREPCENT_TABLE]] ​ In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and losses on MBS acquired by us in the secondary market, but is not adjusted to exclude unrealized gains and losses on MBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS securitization and retain an interest in the securitization. In calculating distributable earnings, we do not adjust net income (in accordance with GAAP) to take into account unrealized gains and losses on MBS retained by us as part of our loan origination businesses because we consider the unrealized gains and losses that are generated in the loan origination and securitization process to be a fundamental part of this business and an indicator of the ongoing performance and credit quality of our historical loan originations. In calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of reasons which may include collateral type, duration, and size. In 2016, we liquidated the majority of our MBS portfolio excluded from distributable earnings to fund our recurring operating segments.   ​ In addition, in calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains or losses on residential MSRs, held at fair value. We treat our commercial MSRs and residential MSRs as two separate classes based on the nature of the underlying mortgages and our treatment of these assets as two separate pools for risk management purposes. Servicing rights relating to our small business commercial business are accounted for under ASC 860, Transfer and Servicing, while our residential MSRs are accounted for under the fair value option under ASC 825, Financial Instruments.  In calculating distributable earnings, we do not exclude realized gains or losses on either 85 Table of Contents commercial MSRs or residential MSRs, held at fair value, as servicing income is a fundamental part of our business and as an indicator of the ongoing performance. ​ To qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain. There are certain items, including net income generated from the creation of MSRs, that are included in distributable earnings but are not included in the calculation of 2021 taxable income. These differences may result in certain items that are recognized in the current period’s calculation of distributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution requirement, until future years. ​ The table below presents an annual reconciliation of net income to distributable earnings. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,","\u200b","Change"],["(in thousands)","2021","\u200b","2020","\u200b","2019","\u200b","2021 vs. 2020","2020 vs. 2019"],["Net Income","$","159,974","\u200b","$","46,069","\u200b","$","75,056","\u200b","$","113,905","$","(28,987)"],["Reconciling items:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unrealized (gain) loss on mortgage servicing rights","\u200b","(16,923)","\u200b","\u200b","37,258","\u200b","\u200b","18,567","\u200b","\u200b","(54,181)","\u200b","18,691"],["Impact of ASU 2016-13 on accrual loans","\u200b","3,522","\u200b","\u200b","19,527","\u200b","\u200b","\u2014","\u200b","\u200b","(16,005)","\u200b","19,527"],["Non-recurring REO impairment (recovery)","\u200b","(941)","\u200b","\u200b","3,406","\u200b","\u200b","\u2014","\u200b","\u200b","(4,347)","\u200b","3,406"],["Merger transaction costs and other non-recurring expenses","\u200b","20,755","\u200b","\u200b","4,543","\u200b","\u200b","8,852","\u200b","\u200b","16,212","\u200b","(4,309)"],["Bargain purchase gain","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(30,728)","\u200b","\u200b","\u2014","\u200b","30,728"],["Unrealized loss on mortgage-backed securities","\u200b","\u2014","\u200b","\u200b","185","\u200b","\u200b","234","\u200b","\u200b","(185)","\u200b","(49)"],["Unrealized loss on de-designated cash flow hedges","\u200b","\u2014","\u200b","\u200b","2,118","\u200b","\u200b","\u2014","\u200b","\u200b","(2,118)","\u200b","2,118"],["Total reconciling items","$","6,413","\u200b","$","67,037","\u200b","$","(3,075)","\u200b","$","(60,624)","$","70,112"],["Income tax adjustments","\u200b","1,649","\u200b","\u200b","(11,727)","\u200b","\u200b","(4,720)","\u200b","\u200b","13,376","\u200b","(7,007)"],["Distributable earnings","$","168,036","\u200b","$","101,379","\u200b","$","67,261","\u200b","$","66,657","$","34,118"],["Less: Distributable earnings attributable to non-controlling interests","2,324","\u200b","\u200b","2,351","\u200b","\u200b","1,871","\u200b","\u200b","(27)","\u200b","480"],["Less: Income attributable to participating shares","\u200b","9,093","\u200b","\u200b","1,392","\u200b","\u200b","653","\u200b","\u200b","7,701","\u200b","739"],["Distributable earnings attributable to common stockholders","$","156,619","\u200b","$","97,636","\u200b","$","64,737","\u200b","$","58,983","$","32,899"],["Distributable earnings per common share - basic and diluted","$","2.29","\u200b","$","1.82","\u200b","$","1.54","\u200b","$","0.47","$","0.28"]] [[/GREPCENT_TABLE]] ​ 2021 versus 2020. Consolidated net income of $160.0 million for 2021 represented an increase of $113.9 million from the prior year, primarily due to an increase in net interest income after provision for loan losses driven by higher loan volumes and interest income recognized from PPP. Consolidated distributable earnings of $168.0 million for 2021 represented an increase of $66.7 million from the prior year, primarily due to unrealized gains on residential MSRs and the impact of the adoption of ASU 2016-13 on accrual loans, partially offset by merger transaction costs. ​ 2020 versus 2019. Consolidated net income of $46.1 million for 2020 represented a decrease of $29.0 million from the prior year, primarily due to an increase of reserves on loans due to the uncertainty of loan performance and recovery related to COVID-19 as well as an increase in unrealized losses on residential MSRs, partially offset by net income on PPP activities. Consolidated distributable earnings of $101.4 million for 2020 represented an increase of $34.1 million from the prior year, primarily due to PPP related income and residential mortgage banking activities as well as an increase in distributable earnings reconciling items including unrealized losses on residential MSRs and the impact of the adoption of ASU 2016-13 on accrual loans. ​ The table below presents a quarterly reconciliation of net income to distributable earnings. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Three Months Ended December 31,","\u200b","\u200b","\u200b"],["(in thousands)","2021","\u200b","2020","\u200b","Change"],["Net Income","$","53,588","\u200b","$","27,559","\u200b","$","26,029"],["Reconciling items:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unrealized (gain) loss on mortgage servicing rights","\u200b","(6,119)","\u200b","\u200b","4,087","\u200b","\u200b","(10,206)"],["Impact of ASU 2016-13 on accrual loans","\u200b","845","\u200b","\u200b","(3,587)","\u200b","\u200b","4,432"],["Non-recurring REO impairment (recovery)","\u200b","(1,441)","\u200b","\u200b","445","\u200b","\u200b","(1,886)"],["Merger transaction costs and other non-recurring expenses","\u200b","5,036","\u200b","\u200b","1,323","\u200b","\u200b","3,713"],["Total reconciling items","$","(1,679)","\u200b","$","2,268","\u200b","$","(3,947)"],["Income tax adjustments","\u200b","626","\u200b","\u200b","(1,023)","\u200b","\u200b","1,649"],["Distributable earnings","$","52,535","\u200b","$","28,804","\u200b","$","23,731"],["Less: Distributable earnings attributable to non-controlling interests","\u200b","364","\u200b","\u200b","677","\u200b","\u200b","(313)"],["Less: Income attributable to participating shares","\u200b","2,376","\u200b","\u200b","305","\u200b","\u200b","2,071"],["Distributable earnings attributable to common stockholders","$","49,795","\u200b","$","27,822","\u200b","$","21,973"],["Distributable earnings per common share - basic and diluted","$","0.67","\u200b","$","0.51","\u200b","$","0.16"]] [[/GREPCENT_TABLE]] ​ ​ 86 Table of Contents QTD 2021 versus QTD 2020. Consolidated net income of $53.6 million for the three months ended December 31, 2021 represented an increase of $26.0 million from the prior year respective period, primarily due to an increase in interest income from commercial and small business loans. Consolidated distributable earnings of $52.5 million for the three months ended December 31, 2021 represented an increase of $23.7 million from the prior year respective period. The decrease in the distributable earnings reconciling items is primarily due to unrealized gains on MSRs, partially offset by increased CECL reserves and merger transaction costs and other non-recurring expenses.   ​ COVID-19 Impact on Operating Results There has been a wide-ranging response of international, federal, state and local public health and governmental authorities to the COVID-19 pandemic in regions across the United States and the world. The full magnitude and duration of the COVID-19 pandemic and the extent to which it impacts our financial condition, results of operations and cash flows will depend on future developments, which continue to be uncertain, including new information that may emerge concerning the severity of COVID-19 variants, the administration and effectiveness of vaccines, the impact of COVID-19 on economic activity and on our borrowers' businesses and their ability to meet their financial obligations to us. We will continue to monitor for any material or adverse effects on our business resulting from the COVID-19 pandemic. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. ​ Incentive distribution payable to our Manager Under the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our operating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not less than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) distributable earnings (as described below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the current quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating partnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number of shares of common stock outstanding (including any restricted shares of common stock and any other shares of common stock underlying awards granted under our 2012 equity incentive plan) and OP units (without double counting) in such quarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three quarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any calendar quarter unless cumulative distributable earnings is greater than zero for the most recently completed 12 calendar quarters. ​ The incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall promptly be delivered to our Company. We are obligated to pay the incentive distribution 50% in cash and 50% in either common stock or OP units, as determined in our discretion, within five business days after delivery to our Company of the written statement from the holder of the Class A special unit setting forth the computation of the incentive distribution for such quarter. Subject to certain exceptions, our Manager may not sell or otherwise dispose of any portion of the incentive distribution issued to it in common stock or OP units until after the three year anniversary of the date that such shares of common stock or OP units were issued to our Manager. The price of shares of our common stock for purposes of determining the number of shares payable as part of the incentive distribution is the closing price of such shares on the last trading day prior to the approval by our board of the incentive distribution. ​ For purposes of determining the incentive distribution payable to our Manager, distributable earnings (which is referred to as core earnings in the partnership agreement of our operating partnership)  is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of distributable earnings described above under "Non-GAAP Financial Measures" but with the following additional adjustments which (i) further exclude: (a) the incentive distribution, (b) non-cash equity compensation expense, if any, (c) unrealized gains or losses on SBC loans (not just MBS and MSRs), (d) depreciation and amortization (to the extent we foreclose on any property), and (e) one-time events pursuant to changes in U.S. GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of the independent directors and (ii) add back any realized gains or losses on the sales of MBS and on discontinued operations which were excluded from the definition of distributable earnings described above under "Non-GAAP Financial Measures". ​ ​ 87 Table of Contents Liquidity and Capital Resources ​ Liquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements. We use significant cash to purchase SBC loans and other target assets, originate new SBC loans, pay dividends, repay principal and interest on our borrowings, fund our operations and meet other general business needs. Our primary sources of liquidity will include our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and revolving facilities), the net proceeds of offerings of equity and debt securities, including our senior secured notes, corporate debt, and convertible notes, and net cash provided by operating activities. ​ We are continuing to monitor the COVID-19 pandemic and its impact on us, the borrowers underlying our real estate-related assets, the tenants in the properties we own, our financing sources, and the economy as a whole. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences remain uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict. Further discussion of the potential impacts on us from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part II, Item 1A of this Annual Report on Form 10-K. ​ Cash flow Year Ended December 31, 2021. Cash and cash equivalents increased by $122.8 million to $323.3 million at the end of 2021, primarily due to net cash provided by financing activities, partially offset by net cash used for investing and operating activities. The net cash provided by financing activities primarily reflected net proceeds from issuances of securitized debt and net proceeds from PPPLF borrowings due to timing of funds designated for PPP originations, partially offset by paydowns of secured borrowings. The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns. The net cash used for operating activities primarily reflected an increase in operating assets, partially offset by an increase in operating liabilities. ​ Year Ended December 31, 2020. Cash and cash equivalents increased by $72.5 million to $200.5 million at the end of 2020, primarily due to net cash provided by operating and financing activities, partially offset by net cash used for investing activities. The net cash provided by operating activities primarily reflected net realized gains on financial instruments and net proceeds on the origination and sale of loans, held for sale, at fair value. The net cash provided by financing activities primarily reflected proceeds from issuances of securitized debt and net proceeds from secured borrowings as a result of an increase in our origination and acquisition activities, partially offset by paydowns of secured debt and dividend payments. The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns. ​ Year Ended December 31, 2019. Cash and cash equivalents increased by $33.0 million to $128.0 million at the end of 2019, primarily due to net cash provided by financings activities, partially offset by net cash used for investing and operating activities. The net cash provided by financing activities primarily reflected proceeds from issuances of securitized debt, partially offset by repayments and net proceeds from secured borrowings as a result of an increase in our origination and acquisition activities. The net cash used for investing activities primarily reflected loan originations and purchases, partially offset by paydowns. The net cash used for operating activities primarily reflected net realized gains on financial instruments. ​ Collateralized borrowings under repurchase agreements The table below presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end of each quarter, the average amount of collateralized borrowings outstanding under repurchase agreements during the quarter and the highest balance of any month end during the quarter. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","\u200b","Quarter End Balance","\u200b","Average Balance in Quarter","\u200b","Highest Month End Balance in Quarter"],["Q1 2019","\u200b","\u200b","597,963","\u200b","\u200b","604,107","\u200b","\u200b","635,233"],["Q2 2019","\u200b","\u200b","612,383","\u200b","\u200b","605,173","\u200b","\u200b","612,383"],["Q3 2019","\u200b","\u200b","876,163","\u200b","\u200b","744,273","\u200b","\u200b","876,163"],["Q4 2019","\u200b","\u200b","809,189","\u200b","\u200b","842,676","\u200b","\u200b","876,163"],["Q1 2020","\u200b","\u200b","1,159,357","\u200b","\u200b","984,273","\u200b","\u200b","1,159,357"],["Q2 2020","\u200b","\u200b","714,162","\u200b","\u200b","936,760","\u200b","\u200b","1,057,522"],["Q3 2020","\u200b","\u200b","624,549","\u200b","\u200b","669,356","\u200b","\u200b","831,200"],["Q4 2020","\u200b","\u200b","827,569","\u200b","\u200b","726,059","\u200b","\u200b","827,569"],["Q1 2021","\u200b","\u200b","1,320,644","\u200b","\u200b","1,785,656","\u200b","\u200b","2,481,436"],["Q2 2021","\u200b","\u200b","1,223,527","\u200b","\u200b","1,145,354","\u200b","\u200b","1,223,527"],["Q3 2021","\u200b","\u200b","1,552,135","\u200b","\u200b","1,497,324","\u200b","\u200b","1,552,135"],["Q4 2021","\u200b","\u200b","2,045,717","\u200b","\u200b","1,824,260","\u200b","\u200b","2,045,717"]] [[/GREPCENT_TABLE]] ​ 88 Table of Contents Year Ended December 31, 2021. The net increase in the outstanding balances during 2021 was primarily due to increased borrowings to fund SBC originations and acquisitions volumes. ​ Year Ended December 31, 2020. The net increase in the outstanding balances during 2020 was primarily due to increased borrowings during the first quarter of 2020 for liquidity needs, followed by a securitization of our acquired and originated loan assets in the second quarter of 2020. ​ Year Ended December 31, 2019. The net increase in the outstanding balances during 2019 was primarily due to the increased loan origination and acquisition activity, resulting in a greater need to finance these assets through borrowings under repurchase agreements. These balances were partially paid down during the fourth quarter of 2019 using proceeds received from our securitization activities and equity issuances. ​ Financing facilities We maintain various forms of short-term and long-term financing arrangements. Borrowings underlying these arrangements are primarily secured by loans and investments. ​ Deutsche Bank loan repurchase facility. Our subsidiaries, ReadyCap Commercial, LLC (“ReadyCap Commercial”), Sutherland Asset I, LLC (“Sutherland Asset I”), Ready Capital Subsidiary REIT I, LLC (“Ready Capital Sub-REIT”) and Sutherland Warehouse Trust II, LLC (“Sutherland Warehouse Trust II”) renewed their master repurchase agreement in February 2020, pursuant to which ReadyCap Commercial, Sutherland Asset I, Ready Capital Sub REIT and Sutherland Warehouse Trust II may be advanced an aggregate principal amount of up to $350 million on originated mortgage loans (the “DB Loan Repurchase Facility”). The DB Loan Repurchase Facility is used to finance SBC loans, and the interest rate is SOFR plus a spread, which varies depending on the type and age of the loan. The DB Loan Repurchase Facility has been extended through November 2023 and our subsidiaries have an option to extend the DB Loan Repurchase Facility for an additional year, subject to certain conditions. ReadyCap Commercial’s, Sutherland Asset I’s, Ready Capital Sub REIT’s and Sutherland Warehouse Trust II’s obligations are fully guaranteed by us. As of December 31, 2021, we had $236.1 million outstanding under the DB Loan Repurchase Facility. ​ The eligible assets for the DB Loan Repurchase Facility are loans secured by a first mortgage lien on commercial properties subject to certain eligibility criteria, such as property type, geographical location, LTV ratios, debt yield and debt service coverage ratios. The principal amount paid by the bank for each mortgage loan is based on a percentage of the lesser of the mortgaged property value or the principal balance of such mortgage loan. ReadyCap Commercial, Sutherland Asset I, Ready Capital Sub-REIT and Sutherland Warehouse Trust II paid the bank an up-front fee and are also required to pay the bank availability fees, and a minimum utilization fee for the DB Loan Repurchase Facility, as well as certain other administrative costs and expenses. The DB Loan Repurchase Facility also includes financial maintenance covenants applicable to our operating partnership, which include (i) an adjusted tangible net worth that does not decline by more than 25% in any calendar quarter, 35% in any calendar year or 50% from the highest adjusted tangible net worth set forth in recent audited financial statements, (ii) a minimum liquidity amount of the greater of (a) $5 million and (b) 3% of the sum of any outstanding recourse indebtedness plus the aggregate repurchase price of the mortgage loans on the Repurchase Agreement; provided however, that no less than two-thirds of the liquidity maintained by the Guarantor to satisfy the covenant shall be cash liquidity, (iii) a ratio of recourse indebtedness to adjusted net worth shall not exceed 4:1. 89 Table of Contents JPMorgan loan repurchase facility. Our subsidiaries, ReadyCap Warehouse Financing, LLC (“ReadyCap Warehouse Financing”) and Sutherland Warehouse Trust, LLC (“Sutherland Warehouse Trust”) entered into a master repurchase agreement in December 2015, pursuant to which ReadyCap Warehouse Financing and Sutherland Warehouse Trust, may sell, and later repurchase, mortgage loans in an aggregate principal amount of up to $400 million. As of October 2019, Ready Capital Mortgage Depositor II, LLC (“Ready Capital Mortgage Depositor II”) was added to the agreement. Our subsidiaries renewed their master repurchase agreement with JPMorgan in November 2020 (the “JPM Loan Repurchase Facility”). In January 2021 the facility was amended for an upsize to $650 million from an effective date of January 14, 2021, through but excluding April 30, 2021, and thereafter downsized to $400 million. In June 2021, the facility was amended for an upsize to $600 million. In September 2021, the facility was amended for an upsize to $700 million. In October 2021, the facility was amended for an upsize to $850 million. In November 2021, the facility was amended for an upsize to $1.0 billion. The JPM Loan Repurchase Facility is used to finance commercial transitional loans, conventional commercial loans and commercial mezzanine loans and securities and the interest rate is LIBOR plus a spread, which is determined by the lender on an asset-by-asset basis. The JPM Loan Repurchase Facility is committed through November 2022, and up to 25% of the then current unpaid obligations of ReadyCap Warehouse Financing, Sutherland Warehouse Trust and Ready Capital Mortgage Depositor II, LLC are guaranteed by us. As of December 31, 2021, we had $825.3 million outstanding under the JPM Loan Repurchase Facility. ​ The eligible assets for the JPM Loan Repurchase Facility are loans secured by first and junior mortgage liens on commercial properties and subject to approval by JPM as the Buyer. The principal amount paid by the bank for each mortgage loan is based on the principal balance of such mortgage loan. ReadyCap Warehouse Financing and Sutherland Warehouse Trust paid the bank a structuring fee and are also required to pay the bank unused fees for the JPM Loan Repurchase Facility, as well as certain other administrative costs and expenses. The JPM Loan Repurchase Facility also includes financial maintenance covenants, which include (i) total stockholders’ equity must not be permitted to be less than the sum of (a) 65% of total stockholders’ equity as of the most recent renewal date of the facility plus (b) 65% of the net proceeds of any equity issuance after the most recent renewal date (ii) maximum leverage of 3:1, excluding non-recourse indebtedness and (iii) liquidity equal to at least the lesser of (a) 5% of the sum of (without duplication) (1) any outstanding indebtedness plus (2) amounts due under the repurchase agreement and (b) $15.0 million. ​ Performance Trust repurchase agreement. Our subsidiaries, ReadyCap Commercial, LLC and Sutherland Asset I, LLC entered a master repurchase agreement in March 2021, pursuant to which ReadyCap Commercial, LLC and Sutherland Asset I, LLC may be advanced an aggregate principal amount of up to $113 million on performing and non-performing acquired legacy small balance commercial loans (the “Performance Trust Loan Repurchase Facility”). In June 2021 the facility was amended for an upsize to $123 million. In July 2021 the facility was amended for an upsize to $143 million. In August 2021 the facility was amended for an upsize to $169 million. In September 2021 the facility was amended for an upsize to $174 million. In October 2021, the facility was amended for an upsize to $204 million. In November 2021, the facility was amended for an upsize to $239 million. The Performance Trust Loan Repurchase Facility is committed until March 2024, and up to 25% of the then current unpaid obligations of ReadyCap Commercial, LLC and Sutherland Asset I, LLC are guaranteed by us. As of December 31, 2021, we had $124.1 million outstanding under the Performance Trust Loan Repurchase Facility. ​ Citibank loan repurchase agreement. Our subsidiaries, Waterfall Commercial Depositor, LLC, Sutherland Asset I, LLC, ReadyCap Commercial, LLC and Ready Capital Subsidiary REIT I, LLC renewed a master repurchase agreement in October 2020 with Citibank, N.A., pursuant to where these subsidiaries may sell, and later repurchase, a trust certificate (the “Trust Certificate”), representing interests in mortgage loans in an aggregate principal amount of up to $500 million. The Citi Loan Repurchase Facility is used to finance SBC loans, and the interest rate is one month LIBOR plus a spread, depending on asset characteristics. The Citi Loan Repurchase Facility is committed for a period of 364 days, and up to 25% of the then current unpaid obligations of Waterfall Commercial Depositor, Sutherland Asset I, Ready Capital Sub REIT and ReadyCap Commercial, LLC are guaranteed by us. As of December 31, 2021, we had $128.9 million outstanding under the Citi Loan Repurchase Facility. ​ The eligible assets for the Citi Loan Repurchase Facility are loans secured by a first mortgage lien on commercial properties, which, amongst other things, generally have a UPB of less than $10 million. The principal amount paid by the bank for the Trust Certificate is based on a percentage of the lesser of the market value or the UPB of such mortgage loans backing the Trust Certificate. Waterfall Commercial Depositor, Sutherland Asset I, ReadyCap Commercial, LLC and Ready Capital Sub REIT are required to pay the bank a commitment fee for the Citi Loan Repurchase Facility, as well as certain other administrative costs and expenses. The Citi Loan Repurchase Facility includes financial maintenance covenants, which include (i) our operating partnership’s net asset value not (A) declining more than 15% in any calendar 90 Table of Contents month, (B) declining more than 25% in any calendar quarter, (C) declining more than 35% in any calendar year, or (D) declining more than 50% from our operating partnership’s highest net asset value set forth in any audited financial statement provided to the bank; (ii) our operating partnership maintaining liquidity in an amount equal to at least 1% of our outstanding indebtedness (excluding non-recourse liabilities in connection with any securitization transaction) of which no more than 20% could be Marketable Securities; and (iii) the ratio of our operating partnership’s total indebtedness (excluding non-recourse liabilities in connection with any securitization transaction) to our net asset value not exceeding 4:1 at any time. ​ Credit Suisse repurchase agreement. Our subsidiaries, ReadyCap Warehouse Financing II, LLC and Sutherland Asset I-CS, LLC entered a master repurchase agreement in May 2021, pursuant to which Ready Cap Warehouse Financing II, LLC and Sutherland Asset I-CS, LLC may be advanced an aggregate principal amount of up to $500 million on newly originated and acquired commercial products (excluding SBA and Freddie Small Balance Loans) (the “Credit Suisse Loan Repurchase Facility”). The Credit Suisse Loan Repurchase Facility is committed until May 2022, and obligations of ReadyCap Warehouse Financing II, LLC and Sutherland Asset I-CS, LLC are guaranteed by us. As of December 31, 2021, we had $403.6 million outstanding under the Credit Suisse Loan Repurchase Facility. ​ Securities repurchase agreements. As of December 31, 2021, we had $300.8 million of secured borrowings related to ABS with various counterparties. ​ General statements regarding loan and securities repurchase facilities. As of December 31, 2021, we had $2.3 billion in carrying value of loans pledged against our borrowings under the loan repurchase facilities and $432.5 million in carrying value of ABS pledged against our securities repurchase agreement borrowings. ​ Under the loan repurchase facilities and securities repurchase agreements, we may be required to pledge additional assets to our counterparties in the event that the estimated fair value of the existing pledged collateral under such agreements declines and such lenders demand additional collateral, which may take the form of additional assets or cash. Generally, the loan repurchase facilities and securities repurchase agreements contain a LIBOR-based financing rate, term and haircuts depending on the types of collateral and the counterparties involved. ​ If the estimated fair values of the assets increase due to changes in market interest rates or other market factors, lenders may release collateral back to us. Margin calls may result from a decline in the value of the investments securing the loan repurchase facilities and securities repurchase agreements, prepayments on the loans securing such investments and from changes in the estimated fair value of such investments generally due to principal reduction of such investments from scheduled amortization and resulting from changes in market interest rates and other market factors. Counterparties also may choose to increase haircuts based on credit evaluations of our Company and/or the performance of the assets in question. Historically, disruptions in the financial and credit markets have resulted in increased volatility in these levels, and this volatility could persist as market conditions continue to change. Should prepayment speeds on the mortgages underlying our investments or market interest rates suddenly increase, margin calls on the loan repurchase facilities and securities repurchase agreements could result, causing an adverse change in our liquidity position. To date, we have satisfied all of our margin calls and have never sold assets in response to any margin call under these borrowings. ​ Our borrowings under repurchase agreements are renewable at the discretion of our lenders and, as such, our ability to roll-over such borrowings are not guaranteed. The terms of the repurchase transaction borrowings under our repurchase agreements generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association, as to repayment, margin requirements and the segregation of all assets we have initially sold under the repurchase transaction. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts and purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction, and cross default and setoff provisions. ​ 91 Table of Contents JPMorgan credit facility. We amended our credit facility with JPMorgan in June 2021 providing for a total borrowing capacity of up to $200 million. Under this facility, ReadyCap Lending (“RCL”) and Sutherland 2016-1 JPM Grantor Trust pledge loans guaranteed by the SBA under the SBA Section 7(a) Loan Program, SBA 504 loans and other loans. We act as a guarantor under this facility. The agreement contains financial maintenance covenants, which include (i) total stockholders’ equity must not be permitted to be less than the sum of (a) 60% of total stockholders’ equity as of the most recent renewal date of the facility plus (b) 50% of the net proceeds of any equity issuance after the most recent renewal date (ii) maximum leverage of 3:1, excluding non-recourse indebtedness and (iii) liquidity equal to at least the lesser of (a) 4% of the sum of (without duplication) (1) any outstanding recourse indebtedness plus (2) the aggregate amount of indebtedness outstanding under the agreement. The amended terms have an interest rate based on loan type ranging from one month LIBOR (reset daily), plus a spread. As of December 31, 2021, we had $54.2 million outstanding under this credit facility. ​ ​ We maintain certain assets, which, from time to time, may include cash, unpledged SBC loans, SBC ABS and short-term investments (which may be subject to various haircuts if pledged as collateral to meet margin requirements) and collateral in excess of margin requirements held by our counterparties, or collectively, the “Cushion”, to meet routine margin calls and protect against unforeseen reductions in our borrowing capabilities. Our ability to meet future margin calls will be impacted by the Cushion, which varies based on the fair value of our investments, our cash position and margin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs. ​ East West Bank credit facility. RCL renewed a senior secured revolving credit facility with East West Bank in October 2020, which provides financing of up to $50.0 million. In May 2021 the facility was amended for an upsize to $75 million. The agreement extends for two years, with an additional one-year extension at the Company’s request and pays interest equal to the Prime Rate minus 0.821% on SBA 7(a) guaranteed loans and the Prime Rate plus 0.000% on non-guaranteed loans. As of December 31, 2021, we had $58.6 million outstanding under this credit facility. ​ Other credit facilities. GMFS funds its origination platform through warehouse lines of credit with six counterparties with total borrowings outstanding of $275.9 million as of December 31, 2021. GMFS utilizes committed warehouse lines of credit agreements ranging from $50 million to $150 million, with expiration dates between January 2022 and September 2023. The lines of credit are collateralized by the underlying mortgages, related documents, and instruments, and contain a LIBOR-based financing rate and term, haircut and collateral posting provisions which depend on the types of collateral and the counterparties involved. These agreements contain covenants that include certain financial requirements, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth ratio and current ratio and limitations on capital expenditures, indebtedness, distributions, transactions with affiliates and maintenance of positive net income, as defined in the agreements. In addition, in connection with the acquisition of Anworth, we assumed approximately $1.78 billion of secured borrowings, of which approximately $1.75 billion has been repaid as of December 31, 2021.   ​ PPP borrowing facilities On March 27, 2020, the U.S. Congress approved, and President Trump signed into law the CARES Act. The CARES Act provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and loan forgiveness and/or forbearance. The primary catalyst of small business stimulus in the CARES Act is the PPP, an SBA loan that temporarily supports businesses in order to retain their workforce during the COVID-19 pandemic. In January 2021, PPP was reopened to provide funding to new borrowers and certain existing borrowers. We have elected to participate again in PPP in 2021 as both a direct lender and a service provider. We used the following two facilities in order to participate in funding PPP loans. PPP Participant Bank financing agreements. In late January 2021 RCL entered into two agreements with a certain PPP participant bank, as follows: ​ [[GREPCENT_TABLE]] [["","1)","Master PPP Loan Participation Purchase Agreement: RCL sold to such PPP participant bank 100% undivided, beneficial ownership interests in certain PPP originated loans with RCL retaining the record legal title to each participated PPP loan. RCL continued to service such loans. The purchase price was 99.825% for the first one-billion dollars of PPP loans originated and 99.55% for all subsequent PPP loans originated by RCL; and provided"]] [[/GREPCENT_TABLE]] 92 Table of Contents [[GREPCENT_TABLE]] [["","","that if a participation limit increase was in effect, the purchase price for any participation effected under such participation limit increase was 98.75%. The purchase commitment fee paid to such PPP participant bank was $2 million."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","2)","Letter Agreement Repurchase Option: RCL had the option to repurchase any participation that was purchased by such PPP participant bank at a purchase price equal to the outstanding loan amount of the related PPP loan as of the repurchase date plus any accrued interest. RCL could only exercise the repurchase option with respect to a participation during the seven business day period commencing on the business day immediately following the purchase date with respect to such participation. RCL established a bank account at the PPP participant bank, and was to maintain a balance of at least $10 million."]] [[/GREPCENT_TABLE]] ​ The termination date of the agreement was the date as of which all of the PPP loans related to a participation sold have been paid in full and all collections with respect thereto have been paid, or when we no longer hold legal title to any PPP loan related to a participation sold. As such, this financing agreement was fully repaid in June 2021 and therefore, has been terminated. ​ Paycheck Protection Program Facility borrowings. RCL utilizes the ability to receive advances from the Federal Reserve through the Paycheck Protection Program Facility (“PPPLF”). Loans are participated with a PPP participant bank in accordance with the financing agreement described above, repurchased from such PPP participant bank, and then pledged using PPPLF. The program charges an interest rate of 0.35%. As of December 31, 2021, we had $941.5 million outstanding under this credit facility. ​ Public debt offerings ​ Convertible notes. On August 9, 2017, we closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023 (the “Convertible Notes”). The Convertible Notes will mature on August 15, 2023, unless earlier repurchased, redeemed or converted. During certain periods and subject to certain conditions, the Convertible Notes will be convertible by holders into shares of our common stock. As of December 31, 2021, the conversion rate was 1.6253 shares of common stock per $25 principal amount of the Convertible Notes, which equals a conversion price of approximately $15.38 per share of our common stock. Upon conversion, holders will receive, at our discretion, cash, shares of our common stock or a combination thereof. ​ We may redeem all or any portion of the Convertible Notes on or after August 15, 2021, if the last reported sale price of our common stock has been at least 120% of the conversion price in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. Additionally, upon the occurrence of certain corporate transactions, holders may require us to purchase the Convertible Notes for cash at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest. Corporate debt ​ The 2021 Notes. On April 27, 2018, we completed the public offer and sale of $50 million aggregate principal amount of 6.50% Senior Notes due 2021 (the “2021 Notes”). We issued the 2021 Notes under a base indenture, dated August 9, 2017, (the “base indenture”) as supplemented by the second supplemental indenture, dated as of April 27, 2018, between us and U.S. Bank National Association, as trustee. The 2021 Notes accrued interest at a rate of 6.50% per annum, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 2021 Notes matured on April 30, 2021. On March 25, 2021, we redeemed all of the outstanding 2021 Notes, at a redemption price equal to 100% of the principal amount of the 2021 Notes plus accrued and unpaid interest, for cash. ​ The 6.20% 2026 Notes. On July 22, 2019, we completed the public offer and sale of $57.5 million aggregate principal amount of its 6.20% Senior Notes due 2026 (the “6.20% 2026 Notes”), which includes $7.5 million aggregate principal amount of the 6.20% 2026 Notes relating to the full exercise of the underwriters’ over-allotment option.  The net proceeds from the sale of the 6.20% 2026 Notes were approximately $55.3 million, after deducting underwriters’ discount and estimated offering expenses.  We contributed the net proceeds to our operating partnership in exchange for the issuance by our operating partnership of a senior note with terms that are substantially equivalent to the terms of the 6.20% 2026 Notes.  93 Table of Contents The 6.20% 2026 Notes bear interest at a rate of 6.20% per annum, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 6.20% 2026 Notes will mature on July 30, 2026, unless earlier repurchased or redeemed. We may redeem for cash all or any portion of the 6.20% 2026 Notes, at our option, on or after July 30, 2022 and before July 30, 2025 at a redemption price equal to 101% of the principal amount of the 6.20% 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  On or after July 30, 2025, we may redeem for cash all or any portion of the 6.20% 2026 Notes, at its option, at a redemption price equal to 100% of the principal amount of the 6.20% 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  If we undergo a change of control repurchase event, holders may require us to purchase the 6.20% 2026 Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 6.20% 2026 Notes to be purchased, plus accrued and unpaid interest. ​ The 6.20% 2026 Notes are our senior unsecured obligations and will not be guaranteed by any of its subsidiaries, except to the extent described in the Indenture upon the occurrence of certain events.  The 6.20% 2026 Notes rank equal in right of payment to any of our existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness, other liabilities (including trade payables) and (to the extent not held by us) preferred stock, if any, of its subsidiaries. On December 2, 2019, we completed the public offer and sale of $45 million aggregate principal amount of the 6.20% 2026 Notes. The new notes have the same terms (expect with respect to issue date, issue price and the date from which interest will accrue), are fully fungible with, and are treated as a single series of debt securities, as the 6.20% Senior Notes we issued on July 22, 2019. ​ The 5.75% 2026 Notes. On February 10, 2021, we completed the public offer and sale of $201.3 million aggregate principal amount of 5.75% Senior Notes due 2026 (the “5.75% 2026 Notes”) which includes $26.3 million aggregate principal amount of 5.75% 2026 Notes relating to the full exercise of the underwriters’ over-allotment option. The net proceeds from the sale of the 5.75% 2026 Notes were approximately $195.2 million, after deducting underwriters’ discount and estimated offering expenses. We contributed the net proceeds to our operating partnership in exchange for the issuance by our operating partnership of a senior note with terms that are substantially equivalent to the terms of the 5.75% 2026 Notes.   ​ The 5.75% 2026 Notes bear interest at a rate of 5.75% per annum, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, beginning on April 30, 2021. The 5.75% 2026 Notes will mature on February 15, 2026, unless earlier repurchased or redeemed. ​ Prior to February 15, 2023, the 5.75% 2026 Notes will not be redeemable by us. On or after February 15, 2023, we may redeem for cash all or any portion of the 5.75% 2026 Notes, at our option, at a redemption price equal to 100% of the principal amount of the 5.75% 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If we undergo a change of control repurchase event, holders may require us to purchase the 5.75% 2026 Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 5.75% 2026 Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase, as described in greater detail in the base indenture, as supplemented by the fifth supplemental indenture dated as of February 10, 2021. ​ The 5.75% 2026 Notes are our senior unsecured obligations and will not be guaranteed by any of our subsidiaries, except to the extent described in the Indenture upon the occurrence of certain events. The 5.75% 2026 Notes rank equal in right of payment to any of our existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness, other liabilities (including trade payables) and (to the extent not held by us) preferred stock, if any, of our subsidiaries. ​ The 5.50% 2028 Notes. On December 21, 2021, we completed the public offer and sale of $110.0 million aggregate principal amount of the 5.50% 2028 Notes. The net proceeds from the sale of the 5.50% 2028 Notes were approximately $107.4 million, after deducting underwriters’ discounts, commissions and estimated offering expenses. We contributed the net proceeds to our operating partnership in exchange for the issuance by our operating partnership of a senior unsecured note with terms that are substantially equivalent to the terms of the Notes.   ​ 94 Table of Contents On or after December 30, 2024, we may redeem for cash all or any portion of the notes, at our option, at the redemption prices (expressed as percentages of principal amount) plus accrued and unpaid interest thereon, if any, to, but excluding, the redemption date, if redeemed during the twelve-month period beginning on of the years indicated: 2024 equal to 102.75%; 2025 equal to 101.375%; 2026 equal to 100.6875%; 2027 and thereafter equal to 100.00%.  If we undergo a change of control repurchase event, holders may require us to purchase the 5.50% 2028 Notes for cash at a repurchase price equal to 101% of the aggregate principal amount of the 5.50% 2028 Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. ​ Junior subordinated notes. On March 19, 2021, we completed the Anworth Merger which included the Company inheriting the outstanding junior subordinated notes (“Junior subordinated notes”) issued of Anworth. On March 15, 2005 Anworth issued $37.38 million of junior subordinated notes to a newly formed statutory trust, Anworth Capital Trust I, organized by Anworth under Delaware law. The trust issued $36.25 million in trust preferred securities, of which $15 million were for I-A notes and $21.25 million for I-B notes, to unrelated third-party investors. Both the junior subordinated notes and the trust preferred securities require quarterly payments and bear interest at the prevailing three-month LIBOR rate plus 3.10%, reset quarterly. Both the junior subordinated notes and the trust preferred securities will mature in 2035 and are currently redeemable, at our option, in whole or in part, without penalty. Anworth used the net proceeds of this issuance to invest in Agency MBS. In accordance with ASC 810-10, Anworth Capital Trust I does not meet the requirements for consolidation. ​ The Debt ATM Agreement On May 20, 2021, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”), pursuant to which we may offer and sell, from time to time, up to $100.0 million of the 6.20% 2026 Notes and the 5.75% 2026 Notes. Sales of the 6.20% 2026 Notes and the 5.75% 2026 Notes pursuant to the Sales Agreement, if any, may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) (the “Debt ATM Program”). The Agent is not required to sell any specific number of the notes, but the Agent will make all sales using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between the Agent and us. During the year ended December 31, 2021, we did not sell any amount of the 6.20% 2026 Notes or the 5.75% 2026 Notes through the Debt ATM Program. ​ Other long-term financing ​ ReadyCap Holdings 7.50% senior secured notes due 2022. During 2017, ReadyCap Holdings, a subsidiary of the Company, issued $140.0 million in 7.50% Senior Secured Notes due 2022. On January 30, 2018, ReadyCap Holdings LLC, issued an additional $40.0 million in aggregate principal amount of 7.50% Senior Secured Notes due 2022, which have identical terms (other than issue date, issue price and the date from which interest will accrue) to the notes issued during 2017 (collectively the “2022 Senior Secured Notes”). The additional $40.0 million in 2022 Senior Secured Notes were priced with a yield to par call date of 6.5%. Payments of the amounts due on the 2022 Senior Secured Notes are fully and unconditionally guaranteed by the Company and its subsidiaries: our operating partnership, Sutherland Asset I, LLC, and ReadyCap Commercial. The funds were used to fund new SBC and SBA loan originations and new SBC loan acquisitions. ​ The 2022 Senior Secured Notes bear interest at 7.50% per annum payable semiannually on each February 15 and August 15. The 2022 Senior Secured Notes will mature on February 15, 2022, unless redeemed or repurchased prior to such date. ReadyCap Holdings may redeem the 2022 Senior Secured Notes prior to November 15, 2021, at its option, in whole or in part at any time and from time to time, at a price equal to 100% of the outstanding principal amount thereof, plus the applicable “make-whole” premium as of, and unpaid interest, if any, accrued to, the redemption date. On and after November 15, 2021, ReadyCap Holdings may redeem the 2022 Senior Secured Notes, at its option, in whole or in part at any time and from time to time, at a price equal to 100% of the outstanding principal amount thereof plus unpaid interest, if any, accrued to the redemption date. ​ ReadyCap Holdings’ and the Guarantors’ respective obligations under the 2022 Senior Secured Notes and the Guarantees are secured by a perfected first-priority lien on the capital stock of ReadyCap Holdings and ReadyCap Commercial and certain other assets owned by certain of our Company’s subsidiaries as described in greater detail in our Current Report on Form 8-K filed on June 15, 2017. The 2022 Senior Secured Notes were issued pursuant to an indenture (the "Indenture") and a first supplemental indenture (the "First Supplemental Indenture"), which contains covenants that, among other things: (i) limit the ability of our Company and its subsidiaries (including ReadyCap Holdings and the other Guarantors) 95 Table of Contents to incur additional indebtedness; (ii) require that our Company maintain, on a consolidated basis, quarterly compliance with the applicable consolidated recourse indebtedness to equity ratio of our Company and consolidated indebtedness to equity ratio of our Company and specified ratios of our Company’s stockholders’ equity to aggregate principal amount of the outstanding 2022 Senior Secured Notes and our Company's consolidated unencumbered assets to aggregate principal amount of the outstanding 2022 Senior Secured Notes; (iii) limit the ability of ReadyCap Holdings and ReadyCap Commercial to pay dividends or distributions on, or redeem or repurchase, the capital stock of ReadyCap Holdings or ReadyCap Commercial; (iv) limit (1) ReadyCap Holdings’ ability to create or incur any lien on the collateral and (2) unless the 2022 Senior Secured Notes are equally and ratably secured, (a) ReadyCap Holdings’ ability to create or incur any lien on the capital stock of its wholly-owned subsidiary, ReadyCap Lending and (b) ReadyCap Holdings’ ability to permit ReadyCap Lending to create or incur any lien on its assets to secure indebtedness of its affiliates other than its subsidiaries or any securitization entity; and (v) limit ReadyCap Holdings’ and the Guarantors' ability to consolidate, merge or transfer all or substantially all of ReadyCap Holdings’ and the Guarantors’ respective properties and assets. The First Supplemental Indenture also requires that our Company ensure that the Replaceable Collateral Value (as defined therein) is not less than the aggregate principal amount of the 2022 Senior Secured Notes outstanding as of the last day of each of our Company's fiscal quarters. ​ On October 20, 2021, the Company redeemed all of the outstanding 2022 Senior Secured Notes. ​ ReadyCap Holdings 4.50% senior secured notes due 2026. On October 20, 2021, ReadyCap Holdings, an indirect subsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50% Senior Secured Notes due 2026 (the “Senior Secured Notes”). The net proceeds from the sale of the Senior Secured Notes were approximately $341.8 million, after deducting discounts, commissions and estimated offering expenses. The proceeds of the Senior Secured Notes were used to redeem all of ReadyCap Holdings’ outstanding 7.50% Senior Secured Notes due 2022 and for general corporate purposes. The Senior Secured Notes are fully and unconditionally guaranteed by the Company, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from time to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the Senior Secured Notes (collectively, the “Guarantors”). ​ The Senior Secured Notes bear interest at 4.50% per annum, payable semiannually on each April 20 and October 20, beginning on April 20, 2022. The Senior Secured Notes will mature on October 15, 2026, unless redeemed or repurchased prior to such date. ReadyCap Holdings may redeem the Senior Secured Notes on or after October 15, 2021, at its option, in whole or in part at any time and from time to time, at a price equal to 100% of the outstanding principal amount thereof, plus the applicable “make-whole” premium as of, and unpaid interest, if any, accrued to, the redemption date. ​ ReadyCap Holdings’ and the Guarantors’ respective obligations under the Senior Secured Notes are secured by a perfected first-priority lien on certain capital stock and assets (collectively, the “Collateral”) owned by certain subsidiaries of the Company. The Senior Secured Notes were issued pursuant to a Note Purchase Agreement, dated as of October 20, 2021, by and among ReadyCap Holdings, the Guarantors, and UMB Bank, N.A., as collateral agent (the “Note Purchase Agreement”), which contains covenants that require the Company and its subsidiaries on a consolidated basis to, among other things: (i) maintain a minimum net asset value, as of the close of business on the last day of each fiscal quarter, equal to or greater than $645 million plus the greater of (x) zero dollars and (y) 50% of net equity capital activity; (ii) maintain a ratio of (x) consolidated unencumbered assets as of the close of business on the last day of each fiscal quarter to (y) the aggregate principal amount of the Senior Secured Notes outstanding as of such date, equal to or greater than 1.1 to 1.0; (iii) maintain a net recourse debt to equity ratio on the last day of each fiscal quarter not to exceed 4.0 to 1.0; and (iv) maintain a ratio of (x) Collateral Value (as defined in the Note Purchase Agreement) as of the close of business on the last day of each fiscal quarter to (y) the aggregate principal amount of the Senior Secured Notes as of such date, equal to or greater than 1.0 to 1.0. The Note Purchase Agreement also (i) limits the ability of the Company to pay dividends or make distributions on, or redeem or repurchase, its capital stock, subject to customary baskets and exceptions; (ii) limits ReadyCap Holdings’ and the Guarantors' ability to create or incur any lien on the Collateral; and (iii) includes customary restrictions on the Company’s ability to transfer all or substantially all of its assets or merge/consolidate into any entity. ​ Securitization transactions Our Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled us to complete several securitizations of SBC and SBA loan assets since January 2011. These securitizations allow us to match fund the SBC and SBA loans on a long-term, non-recourse basis. The assets pledged as collateral for these securitizations were contributed from our portfolio of assets. By contributing these SBC and SBA assets to the various securitizations, these transactions created capacity for us to fund other investments. 96 Table of Contents The table below presents information on the securitization structures and related issued tranches of notes to investors. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","Collateral Asset Class","Issuance","Active / Collapsed","\u200b","Bonds Issued"],["Trusts (Firm sponsored)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Waterfall Victoria Mortgage Trust 2011-1 (SBC1)","SBC Acquired loans","February 2011","Collapsed","\u200b","$","40.5"],["Waterfall Victoria Mortgage Trust 2011-3 (SBC3)","SBC Acquired loans","October 2011","Collapsed","\u200b","\u200b","143.4"],["Sutherland Commercial Mortgage Trust 2015-4 (SBC4)","SBC Acquired loans","August 2015","Collapsed","\u200b","\u200b","125.4"],["Sutherland Commercial Mortgage Trust 2018 (SBC7)","SBC Acquired loans","November 2018","Collapsed","\u200b","\u200b","217.0"],["ReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1)","Acquired SBA 7(a) loans","June 2015","Collapsed","\u200b","\u200b","189.5"],["ReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2)","Originated SBA 7(a) loans, Acquired SBA 7(a) loans","December 2019","Active","\u200b","\u200b","131.0"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Real Estate Mortgage Investment Conduits (REMICs)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1)","SBC Originated conventional","September 2014","Active","\u200b","$","181.7"],["ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2)","SBC Originated conventional","November 2015","Active","\u200b","\u200b","218.8"],["ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3)","SBC Originated conventional","November 2016","Active","\u200b","\u200b","162.1"],["ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4)","SBC Originated conventional","March 2018","Active","\u200b","\u200b","165.0"],["Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5)","SBC Originated conventional","January 2019","Active","\u200b","\u200b","355.8"],["Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6)","SBC Originated conventional","November 2019","Active","\u200b","\u200b","430.7"],["Waterfall Victoria Mortgage Trust 2011-2 (SBC2)","SBC Acquired loans","March 2011","Collapsed","\u200b","\u200b","97.6"],["Sutherland Commercial Mortgage Trust 2018 (SBC6)","SBC Acquired loans","August 2017","Active","\u200b","\u200b","154.9"],["Sutherland Commercial Mortgage Trust 2019 (SBC8)","SBC Acquired loans","June 2019","Active","\u200b","\u200b","306.5"],["Sutherland Commercial Mortgage Trust 2020 (SBC9)","SBC Acquired loans","June 2020","Active","\u200b","\u200b","203.6"],["Sutherland Commercial Mortgage Trust 2021 (SBC10)","SBC Acquired loans","May 2021","Active","\u200b","\u200b","232.6"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Collateralized Loan Obligations (CLOs)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Ready Capital Mortgage Financing 2017 \u2013 FL1","SBC Originated transitional","August 2017","Collapsed","\u200b","$","198.8"],["Ready Capital Mortgage Financing 2018 \u2013 FL2","SBC Originated transitional","June 2018","Collapsed","\u200b","\u200b","217.1"],["Ready Capital Mortgage Financing 2019 \u2013 FL3","SBC Originated transitional","April 2019","Active","\u200b","\u200b","320.2"],["Ready Capital Mortgage Financing 2020 \u2013 FL4","SBC Originated transitional","June 2020","Active","\u200b","\u200b","405.3"],["Ready Capital Mortgage Financing 2021 \u2013 FL5","SBC Originated transitional","March 2021","Active","\u200b","\u200b","628.9"],["Ready Capital Mortgage Financing 2021 \u2013 FL6","SBC Originated transitional","August 2021","Active","\u200b","\u200b","652.5"],["Ready Capital Mortgage Financing 2021 \u2013 FL7","SBC Originated transitional","November 2021","Active","\u200b","\u200b","927.2"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Trusts (Non-firm sponsored)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Freddie Mac Small Balance Mortgage Trust 2016-SB11","Originated agency multi-family","January 2016","Active","\u200b","$","110.0"],["Freddie Mac Small Balance Mortgage Trust 2016-SB18","Originated agency multi-family","July 2016","Active","\u200b","\u200b","118.0"],["Freddie Mac Small Balance Mortgage Trust 2017-SB33","Originated agency multi-family","June 2017","Active","\u200b","\u200b","197.9"],["Freddie Mac Small Balance Mortgage Trust 2018-SB45","Originated agency multi-family","January 2018","Active","\u200b","\u200b","362.0"],["Freddie Mac Small Balance Mortgage Trust 2018-SB52","Originated agency multi-family","September 2018","Active","\u200b","\u200b","505.0"],["Freddie Mac Small Balance Mortgage Trust 2018-SB56","Originated agency multi-family","December 2018","Active","\u200b","\u200b","507.3"],["Key Commercial Mortgage Trust 2020-S3(1)","SBC Originated conventional","September 2020","Active","\u200b","\u200b","263.2"],["(1) Contributed portion of assets into trust","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]] [[/GREPCENT_TABLE]] ​ We used the proceeds from the sale of the tranches issued to purchase and originate SBC and SBA loans.  We are the primary beneficiary of all firm sponsored securitizations, therefore they are consolidated in our financial statements. ​ Contractual Obligations and Off-Balance Sheet Arrangements ​ The table below provides a summary of our contractual obligations. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31, 2021"],["(in thousands)","\u200b","Total","\u200b"," 1 year","\u200b","1 to 3 years","\u200b","3 to 5 years","\u200b"," 5 years"],["Borrowings under credit facilities","\u200b","$","471,883","\u200b","$","421,483","\u200b","$","50,400","\u200b","$","\u2014","\u200b","$","\u2014"],["Borrowings under repurchase agreements","\u200b","\u200b","2,045,717","\u200b","\u200b","1,685,587","\u200b","\u200b","360,130","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Guaranteed loan financing","\u200b","\u200b","345,217","\u200b","\u200b","790","\u200b","\u200b","5,368","\u200b","\u200b","6,140","\u200b","\u200b","332,919"],["Senior secured notes","\u200b","\u200b","350,000","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","350,000","\u200b","\u200b","\u2014"],["Convertible notes","\u200b","\u200b","115,000","\u200b","\u200b","\u2014","\u200b","\u200b","115,000","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Corporate debt","\u200b","\u200b","452,880","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","305,500","\u200b","\u200b","147,380"],["Loan funding commitments","\u200b","\u200b","479,269","\u200b","\u200b","238,000","\u200b","\u200b","241,269","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Future operating lease commitments","\u200b","\u200b","5,274","\u200b","\u200b","1,263","\u200b","\u200b","3,861","\u200b","\u200b","150","\u200b","\u200b","\u2014"],["Total","\u200b","$","4,265,240","\u200b","$","2,347,123","\u200b","$","776,028","\u200b","$","661,790","\u200b","$","480,299"]] [[/GREPCENT_TABLE]] ​ The table above does not include amounts due under our management agreement or derivative agreements as those contracts do not have fixed and determinable payments. As of the date of this annual report on Form 10-K, we had no off-balance sheet arrangements. ​ ​ 97 Table of Contents Critical Accounting Estimates ​ Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made, based upon information available to us at that time. The following discussion describes the critical accounting estimates that apply to our operations and require complex management judgment. This summary should be read in conjunction with our accounting policies and use of estimates included in “Notes to Consolidated Financial Statements, Note 3 – Summary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K. ​ Allowance for credit losses The allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators, including probable and historical losses, collateral values, LTV ratio and economic conditions. The allowance for credit losses increases through provisions charged to earnings and reduced by charge-offs, net of recoveries. ​ On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses, and subsequent amendments (“ASU 2016-13”), which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost. The allowance for credit losses required under ASU 2016-13 is deducted from the respective loans’ amortized cost basis on our consolidated balance sheets. The guidance also requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. ​ In connection with the Company’s adoption of ASU 2016-13 on January 1, 2020, the Company implemented new processes including the utilization of loan loss forecasting models, updates to the Company’s reserve policy documentation, changes to internal reporting processes and related internal controls. The Company has implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its loan portfolio. The CECL forecasting methods used by the Company include (i) a probability of default and loss given default method using underlying third-party CMBS/CRE loan database with historical loan losses and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. The Company might use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data. ​ The Company estimates the CECL expected credit losses for its loan portfolio at the individual loan level. Significant inputs to the Company’s forecasting methods include (i) key loan-specific inputs such as LTV, vintage year, loan-term, underlying property type, occupancy, geographic location, and others, and (ii) a macro-economic forecast. These estimates may change in future periods based on available future macro-economic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio. ​ In certain instances, the Company considers relevant loan-specific qualitative factors to certain loans to estimate its CECL expected credit losses. The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans that the Company determines that foreclosure of the collateral is probable, the Company measures the expected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that the Company determines foreclosure is not probable, the Company applies a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan. ​ ​ 98 Table of Contents While we have a formal methodology to determine the adequate and appropriate level of the allowance for credit losses, estimates of inherent loan losses involve judgment and assumptions as to various factors, including current economic conditions. Our determination of adequacy of the allowance for credit losses is based on quarterly evaluations of the above factors. Accordingly, the provision for loan losses will vary from period to period based on management's ongoing assessment of the adequacy of the allowance for credit losses. ​ Significant judgment is required when evaluating loans for impairment; therefore, actual results over time could be materially different. Refer to “Notes to Consolidated Financial Statements, Note 6 – Loans and Allowance for Credit Losses” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for results of our loan impairment evaluation. ​ Accretion of discounts associated with PPP loans, held for investment The Company’s loan originations in the second round of the program are accounted for as loans, held-for-investment under ASC 310. Loan origination fees and related direct loan origination costs are capitalized into the initial recorded investment in the loan and are deferred over the loan term. The net amount between the loan origination fees and direct loan origination costs is recognized as a discount in the carrying value of the loans, and the discount is required to be recognized in income at a constant effective yield over the life of the instrument. ​ The effective yield is determined based on the payment terms required by the loan contract as well as with actual and expected prepayments from loan forgiveness by the federal government. Because prepayments from loan forgiveness often deviate from the estimates, the Company periodically recalculates the effective yield to reflect actual prepayments to date and anticipated future prepayments. Anticipated future prepayments are estimated based on past prepayment patterns, historical, current, and projected interest rate environments, among other factors, to predict future cash flows. ​ Adjustments to anticipated future prepayments are recorded on a retrospective basis, meaning that the net investment or liability is adjusted to the amount that would have existed had the new effective yield been applied since the initial recognition of the instrument. As prepayment speeds change, these accounting requirements can be a source of income volatility. Accelerations of prepayments accelerate the accretion and increase current earnings. Conversely, when prepayments decline, thus lengthening the effective maturity of the instruments and shifting some of the discount accretion to future periods. ​ Significant judgment is required when evaluating the effective yield on PPP loans; therefore, actual results over time could be materially different. Refer to “Notes to Consolidated Financial Statements, Note 20 – Other Income and Operating Expenses” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of PPP loans, held for investment. ​ Valuation of financial assets and liabilities carried at fair value We measure our MBS, derivative assets and liabilities, residential MSRs, and any assets or liabilities where we have elected the fair value option at fair value, including certain loans we have originated that are expected to be sold to third parties or securitized in the near term. ​ We have established valuation processes and procedures designed so that fair value measurements are appropriate and reliable, that they are based on observable inputs where possible, that the valuation approaches are consistently applied, and the assumptions and inputs are reasonable. We also have established processes to provide that the valuation methodologies, techniques and approaches for investments that are categorized within Level 3 of the ASC 820 Fair Value Measurement fair value hierarchy (the “fair value hierarchy”) are fair, consistent and verifiable. Our processes provide a framework that ensures the oversight of our fair value methodologies, techniques, validation procedures, and results. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. Refer to “Notes to Consolidated Financial Statements, Note 7 – Fair Value Measurements” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to fair value measurements. ​ Servicing rights impairment Servicing rights, at amortized cost, are initially recorded at fair value and subsequently carried at amortized cost. We have elected the fair value option on our residential MSRs, which are not subject to impairment.   ​ 99 Table of Contents For purposes of testing our servicing rights, carried at amortized cost, for impairment, we first determine whether facts and circumstances exist that would suggest the carrying value of the servicing asset is not recoverable. If so, we then compare the net present value of servicing cash flow with its carrying value. The estimated net present value of servicing cash flows of the intangibles is determined using discounted cash flow modeling techniques which require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted loan prepayment rates, delinquency rates and anticipated maturity defaults. If the carrying value of the servicing rights exceeds the net present value of servicing cash flows, the servicing rights are considered impaired, and an impairment loss is recognized in earnings for the amount by which carrying value exceeds the net present value of servicing cash flows. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and prepayment experience to modeled estimates. ​ Significant judgment is required when evaluating servicing rights for impairment; therefore, actual results over time could be materially different. Refer to “Notes to Consolidated Financial Statements, Note 9 – Servicing Rights” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a more complete discussion of our critical accounting estimates as they pertain to servicing rights impairment. ​ Refer to “Notes to Consolidated Financial Statements, Note 4– Recently Issued Accounting Pronouncements” included in Item 8, “Financial Statements and Supplementary Data,” in this annual report on Form 10-K for a discussion of recent accounting developments and the expected impact to the Company. ​ Inflation. Virtually all of our assets and liabilities are and will be interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with U.S. GAAP and our activities and balance sheet shall be measured with reference to historical cost and/or fair market value without considering inflation. ​