{"url_path":"/sec/rc-pe/10-q/2026/item-7","section_key":"item-7","section_title":"Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1527590/0001628280-26-032982-index.html","accession_number":"0001628280-26-032982","cik":"0001527590","ticker":"RC","issuer_name":"Ready Capital Corp","edgar_url":"https://www.sec.gov/Archives/edgar/data/1527590/0001628280-26-032982-index.html","primary_entity_key":"0001527590","primary_entity_name":"Ready Capital Corp"},"word_count":11570,"has_tables":true,"body_markdown":"Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual\n\nReport on Form 10-K for the fiscal year ended December 31, 2025 (our “Form 10-K”).\n\nIntroduction\n\nManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to\n\nprovide a reader of our interim consolidated financial statements with a narrative from the perspective of our\n\nmanagement on our financial condition, results of operations, liquidity and certain other factors that may affect our\n\nfuture results. Our MD&A is presented in five main sections:\n\n•Overview\n\n•Results of Operations\n\n•Liquidity and Capital Resources\n\n•Contractual Obligations and Off-Balance Sheet Arrangements\n\n•Critical Accounting Estimates\n\nThe following discussion should be read in conjunction with our unaudited interim consolidated financial statements and\n\naccompanying Notes included in Part I, Item 1, “Financial Statements,” of this Form 10-Q and with Items 6, 7, 8, and 9A\n\nof our Form 10-K. Refer to “Forward-Looking Statements” in this Form 10-Q and in our Form 10-K and “Critical\n\nAccounting Estimates” in our Form 10-K for certain other factors that may cause actual results to differ, materially, from\n\nthose anticipated in the forward-looking statements included in this Form 10-Q.\n\nOverview\n\nOur Business\n\nWe are a multi-strategy real estate finance company that originates, acquires, finances, and services LMM loans, SBA\n\nloans, construction loans and, to a lesser extent, MBS collateralized primarily by LMM loans, or other real estate-related\n\ninvestments. Our loans generally range in original principal amounts up to $40 million and are used by businesses to\n\npurchase real estate used in their operations or by investors seeking to acquire multi-family, office, retail, mixed use or\n\nwarehouse properties. Our objective is to provide attractive risk-adjusted returns to our stockholders. In order to achieve\n\nthis objective, we intend to grow our investment portfolio and believe that the breadth of our full-service real estate\n\nfinance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the\n\nmost attractive risk-adjusted returns.\n\nWe completed the disposition of our Residential Mortgage Banking segment effective on June 30, 2025. In connection\n\nwith this sale, we classified our Residential Mortgage Banking segment as a discontinued operation. For all periods\n\npresented, the operating results for these operations have been removed from continuing operations. Our MD&A has\n\nbeen adjusted to exclude discontinued operations unless otherwise noted. We report our activities in the following two\n\noperating segments:\n\n66\n\n•LMM Commercial Real Estate. We originate LMM loans across the full life-cycle of an LMM property\n\nincluding construction, bridge, stabilized and agency loan origination channels through our subsidiary,\n\nReadyCap Commercial, LLC. These originated loans are generally held-for-investment or placed into\n\nsecuritization structures. As part of this segment, we service Freddie Mac multi-family loan products. We\n\nprovide construction and permanent financing for the preservation and construction of affordable housing,\n\nprimarily utilizing tax-exempt bonds through Ready Capital Affordable, a subsidiary. In addition, we\n\nacquire LMM loans as part of our business strategy. We hold performing LMM loans to term and seek to\n\nmaximize the value of the non-performing LMM loans acquired by us through borrower-based resolution\n\nstrategies. We typically acquire non-performing loans at a discount to their unpaid principal balance\n\n(“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns.\n\n•Small Business Lending. We acquire, originate and service owner-occupied loans guaranteed by the SBA\n\nunder the SBA Section 7(a) Program through our subsidiary, ReadyCap Lending, LLC. We hold an SBA\n\nlicense as one of only 16 non-bank Small Business Lending Companies and have been granted preferred\n\nlender status by the SBA. These originated loans are either held-for-investment, placed into securitization\n\nstructures, or sold. In addition, we originate and service small business loans through our subsidiary\n\niBusiness Funding LLC and we service USDA loans through our subsidiary, ReadyCap Commercial.\n\nWe are organized and conduct our operations to qualify as a REIT under the Internal Revenue Code of 1986, as\n\namended. To qualify as a REIT, we are required to annually distribute substantially all of our net taxable income,\n\nexcluding capital gain, to stockholders. To the extent that we do not distribute all of our net capital gain, or distribute at\n\nleast 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay U.S. federal\n\ncorporate income tax on the undistributed income. We are organized in a traditional umbrella partnership REIT\n\n(UpREIT) format pursuant to which we serve as the general partner of, and conduct substantially all of our business\n\nthrough, Sutherland Partners, LP (our “operating partnership”). We also intend to operate our business in a manner that\n\nwill permit us to be excluded from registration as an investment company under the 1940 Act.\n\nFor additional information on our business, refer to Part I, Item 1, “Business” in our Form 10-K.\n\nAcquisitions\n\nUnited Development Funding IV. On March 13, 2025, pursuant to the terms of the Agreement and Plan of Merger,\n\ndated as of November 29, 2024, by and among the Company, UDF IV, and RC Merger Sub IV, LLC, a wholly owned\n\nsubsidiary of the Company (“RC Merger Sub IV”), the Company acquired UDF IV, a real estate investment trust\n\nproviding capital solutions to residential real estate developers and regional homebuilders, (the “UDF IV Merger”). At\n\nthe effective time of the UDF IV Merger (the “Effective Time”), each outstanding common share of beneficial interest,\n\npar value $0.01 per share, of UDF IV (“UDF IV Common Shares”), excluding any UDF IV Common Shares held by\n\nUDF IV, the Company, RC Merger Sub IV or their subsidiaries, was automatically cancelled and retired and converted\n\ninto the right to receive (i) 0.416 shares of Company common stock, (ii) 0.416 contingent value rights (“CVRs”)\n\nrepresenting the potential right to receive additional shares of Company common stock after the end of each of (1) the\n\nperiod beginning on October 1, 2024, and ending on December 31, 2025 and (2) the three subsequent calendar years,\n\nbased, in part, upon cash proceeds received by the Company and its subsidiaries in respect of a portfolio of five UDF IV\n\nloans and (iii) cash consideration in lieu of any fractional shares of Company common stock. Refer to Notes 1 and 5,\n\nincluded in Part I, Item 1, “Financial Statements,” of this Form 10-Q, for more information about the UDF IV Merger\n\nand the assets acquired and liabilities assumed as a result of the UDF IV Merger.\n\nFactors Impacting Operating Results\n\nWe expect that our results of operations will be affected by a number of factors and will primarily depend on the level of\n\ninterest income from our assets, the market and fair value of our assets and the supply of, and demand for, LMM loans,\n\nSBA loans, construction loans, MBS and other assets we may acquire in the future, demand for housing, population\n\ntrends, construction costs, the availability of alternative real estate financing from other lenders, changes in credit\n\nspreads, and the financing and other costs associated with our business. These factors may have an impact on our ability\n\nto originate new loans or the performance of our existing loan portfolio. Our net investment income, which includes the\n\namortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market\n\ninterest rates, the rate at which our distressed assets are liquidated and the prepayment speed of our performing assets.\n\nInterest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets,\n\ncompetition and other factors, none of which can be predicted with any certainty. Our operating results may also be\n\n67\n\nimpacted by changes in our provision for loan losses. Increases in the provision for loan loss are primarily driven by a\n\ndeterioration in the contractual performance of a loan. Macroeconomic factors including interest rates and inflation, as\n\nwell as supply absorption and cap rate movements, may contribute to a deterioration in a loan’s contractual performance.\n\nIn certain circumstances, the Company may choose to modify a loan which had experienced financial difficulty due to\n\nthe factors previously described. Our operating results may also be impacted by our available borrowing capacity,\n\nconditions in the financial markets, credit losses in excess of initial estimates or unanticipated credit events experienced\n\nby borrowers whose loans are held directly by us or are included in our MBS. Difficult market conditions as well as\n\ninflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, unemployment and\n\nthe availability and cost of credit are factors which could also impact our operating results.\n\nFor additional information about certain risks we face, including market risk, credit risk, interest rate risk, liquidity risk,\n\noff-balance sheet risk and prepayment risk, refer to Note 23, included in Part I, Item 1, “Financial Statements,” and Part\n\nI, Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-Q, as well as Part I, Item 1A,\n\n“Risk Factors” in our Form 10-K.\n\nChanges in Market Interest Rates. We own and expect to acquire or originate fixed rate and floating rate loans with\n\nmaturities ranging from two to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon\n\npayments due in two to 10 years. Fixed rate loans bear interest that is fixed for the term of the loan and we typically\n\nutilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with such fixed\n\nrate loans. As of March 31, 2026, all fixed rate loans are match funded in securitization. Floating rate loans generally\n\nhave an adjustable interest rate equal to the sum of a fixed spread plus an index rate, such as the Secured Overnight\n\nFinancing Rate (“SOFR”), which typically resets monthly. As of March 31, 2026, approximately 80% of the loans in our\n\nportfolio were floating rate loans, and 20% were fixed rate loans, based on carrying value.\n\nCurrent market conditions. During the first quarter, macroeconomic concerns persisted including global market\n\nvolatility, uncertainty about trade policies, geopolitical tensions, inflationary pressures and interest rates. The U.S.\n\nFederal Reserve did not decrease interest rates in the quarter and there is uncertainty regarding if and when decreases\n\nwill occur. Although the full impact of these changes remains uncertain and difficult to predict, concerns and\n\nuncertainties about the economic outlook may adversely impact our financial condition, results of operations and cash\n\nflows.\n\nResults of Operations\n\nKey Financial Measures and Indicators\n\nAs a real estate finance company, we believe the key financial measures and indicators for our business are earnings per\n\nshare, dividends declared per share, distributable earnings, return on equity, and net book value per share. As further\n\ndescribed below, distributable earnings is a measure that is not prepared in accordance with GAAP. We use distributable\n\nearnings to evaluate our performance and determine dividends, excluding the effects of certain transactions and GAAP\n\nadjustments that we believe are not necessarily indicative of our current loan activity and operations. Refer to “—Non-\n\nGAAP Financial Measures” below for a reconciliation of net income to distributable earnings.\n\n68\n\nThe table below sets forth certain information on our operating results.\n\nThree Months Ended March 31,\n\n($ in thousands, except share data)\n\n2026\n\n2025\n\nNet Income (loss) from continuing operations\n\n$(200,087)\n\n$82,410\n\nEarnings per common share from continuing operations - basic\n\n$(1.25)\n\n$0.47\n\nEarnings per common share from continuing operations - diluted\n\n$(1.25)\n\n$0.46\n\nDistributable earnings before realized losses\n\n$(49,208)\n\n$4,140\n\nDistributable earnings before realized losses per common share - basic\n\n$(0.33)\n\n$0.00\n\nDistributable earnings before realized losses per common share - diluted\n\n$(0.33)\n\n$0.00\n\nDistributable earnings\n\n$(159,834)\n\n$(11,384)\n\nDistributable earnings per common share - basic\n\n$(1.00)\n\n$(0.09)\n\nDistributable earnings per common share - diluted\n\n$(1.00)\n\n$(0.09)\n\nDividends declared per common share\n\n$0.01\n\n$0.125\n\nDividend yield (1)\n\n2.5%\n\n9.8%\n\nReturn on equity from continuing operations\n\n(59.0)%\n\n18.4%\n\nDistributable return on equity before realized losses\n\n(15.0)%\n\n(0.9)%\n\nDistributable return on equity\n\n(47.3)%\n\n(3.1)%\n\nBook value per common share\n\n$7.43\n\n$10.61\n\n(1)Dividend yield is based on the respective period end closing share price.\n\nOur Loan Pipeline\n\nWe have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of our\n\ninvestment process. We refer to assets as being part of our acquisition or origination pipeline if (i) an asset or portfolio\n\nopportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our\n\ninvestment strategy and exhibit the appropriate risk/reward characteristics (ii) in the case of acquired loans, we have\n\nexecuted a non-disclosure agreement or an exclusivity agreement and commenced the due diligence process or we have\n\nexecuted more definitive documentation, such as a letter of intent (“LOI”); and (iii) in the case of originated loans, we\n\nhave issued an LOI, and the borrower has paid a deposit.\n\nWe operate in a competitive market for investment opportunities and competition may limit our ability to originate or\n\nacquire the potential investments in the pipeline. The consummation of any of the potential loans in the pipeline depends\n\nupon, among other things, one or more of the following: available capital and liquidity, our Manager’s allocation policy,\n\nsatisfactory completion of our due diligence investigation and investment process, approval of our Manager’s Investment\n\nCommittee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the\n\nexecution and delivery of satisfactory transaction documentation. Historically, we have acquired less than a majority of\n\nthe assets in our pipeline at any one time and there can be no assurance the assets currently in our pipeline will be\n\nacquired or originated by us in the future.\n\nThe table below presents information on our investment portfolio originations (based on fully committed amounts).\n\nThree Months Ended March 31,\n\n(in thousands)\n\n2026\n\n2025\n\nLoan originations:\n\nLMM loans\n\n$287,581\n\n$78,657\n\nSBL loans\n\n176,749\n\n387,388\n\nTotal loan investment activity\n\n$464,330\n\n$466,045\n\n69\n\nBalance Sheet Analysis and Metrics\n\n(in thousands)\n\nMarch 31, 2026\n\nDecember 31, 2025\n\n$ Change\n\n% Change\n\nAssets\n\nCash and cash equivalents\n\n$200,430\n\n$207,841\n\n$(7,411)\n\n(3.6)%\n\nRestricted cash\n\n38,906\n\n39,746\n\n(840)\n\n(2.1)\n\nLoans, net (including $462 and $737 held at fair value)\n\n3,350,560\n\n3,500,298\n\n(149,738)\n\n(4.3)\n\nLoans, held for sale (including $87,198 and $73,094 held at fair value\n\nand net of valuation allowance of $74,315 and $67,612)\n\n360,228\n\n585,820\n\n(225,592)\n\n(38.5)\n\nMortgage-backed securities\n\n31,649\n\n34,501\n\n(2,852)\n\n(8.3)\n\nInvestment in unconsolidated joint ventures (including $5,517 and\n\n$5,737 held at fair value)\n\n167,251\n\n161,424\n\n5,827\n\n3.6\n\nDerivative instruments\n\n4,104\n\n6,740\n\n(2,636)\n\n(39.1)\n\nServicing rights\n\n123,687\n\n126,279\n\n(2,592)\n\n(2.1)\n\nReal estate owned\n\n610,215\n\n620,225\n\n(10,010)\n\n(1.6)\n\nOther assets\n\n466,383\n\n508,238\n\n(41,855)\n\n(8.2)\n\nAssets of consolidated VIEs\n\n960,875\n\n1,978,684\n\n(1,017,809)\n\n(51.4)\n\nTotal Assets\n\n$6,314,288\n\n$7,769,796\n\n$(1,455,508)\n\n(18.7)%\n\nLiabilities\n\nSecured borrowings\n\n2,321,443\n\n2,788,926\n\n(467,483)\n\n(16.8)\n\nSecuritized debt obligations of consolidated VIEs, net\n\n526,535\n\n1,174,785\n\n(648,250)\n\n(55.2)\n\nSenior secured notes, net\n\n723,707\n\n722,729\n\n978\n\n0.1\n\nCorporate debt, net\n\n536,972\n\n652,487\n\n(115,515)\n\n(17.7)\n\nGuaranteed loan financing\n\n501,736\n\n524,091\n\n(22,355)\n\n(4.3)\n\nContingent consideration\n\n20,441\n\n18,698\n\n1,743\n\n9.3\n\nDerivative instruments\n\n948\n\n1,432\n\n(484)\n\n(33.8)\n\nDividends payable\n\n3,685\n\n3,633\n\n52\n\n1.4\n\nLoan participations sold\n\n56,616\n\n56,616\n\n—\n\n—\n\nDue to third parties\n\n12,304\n\n3,135\n\n9,169\n\n292.5\n\nAccounts payable and other accrued liabilities\n\n161,201\n\n171,636\n\n(10,435)\n\n(6.1)\n\nTotal Liabilities\n\n$4,865,588\n\n$6,118,168\n\n$(1,252,580)\n\n(20.5)%\n\nPreferred stock Series C, liquidation preference $25.00 per share\n\n8,361\n\n8,361\n\n—\n\n—\n\nCommitments & contingencies\n\nStockholders’ Equity\n\nPreferred stock Series E, liquidation preference $25.00 per share\n\n111,378\n\n111,378\n\n—\n\n—\n\nCommon stock, $0.0001 par value, 500,000,000 shares authorized,\n\n165,255,559 and 163,010,012 shares issued and outstanding,\n\nrespectively\n\n17\n\n17\n\n—\n\n—\n\nAdditional paid-in capital\n\n2,265,534\n\n2,264,355\n\n1,179\n\n0.1\n\nRetained deficit\n\n(1,012,927)\n\n(807,522)\n\n(205,405)\n\n25.4\n\nAccumulated other comprehensive loss\n\n(24,476)\n\n(24,196)\n\n(280)\n\n1.2\n\nTotal Ready Capital Corporation equity\n\n1,339,526\n\n1,544,032\n\n(204,506)\n\n(13.2)\n\nNon-controlling interests\n\n100,813\n\n99,235\n\n1,578\n\n1.6\n\nTotal Stockholders’ Equity\n\n$1,440,339\n\n$1,643,267\n\n$(202,928)\n\n(12.3)%\n\nTotal Liabilities, Redeemable Preferred Stock, and Stockholders’\n\nEquity\n\n$6,314,288\n\n$7,769,796\n\n$(1,455,508)\n\n(18.7)%\n\nAs of March 31, 2026, total assets in our consolidated balance sheet were $6.3 billion, a decrease of $1.5 billion from\n\nDecember 31, 2025, primarily reflecting a decrease in Assets of consolidated VIEs, Loans, held for sale and Loans, net.\n\nAssets of consolidated VIEs decreased $1.0 billion, primarily due to the collapse of RCMF 2021-FL7, RCMF 2023-\n\nFL11 and RCMF 2023-FL12 and paydowns on securitized loans. Loans, held for sale decreased $0.2 billion, primarily\n\ndue to loans sold, partially offset by loans transferred from Loans, net. Loans, net decreased $0.1 billion, primarily due\n\nto loan sales and loans transferred from Loans, net to Loans, held for sale, partially offset by the collapse of RCMF\n\n2021-FL7, RCMF 2023-FL11 and RCMF 2023-FL12.\n\nAs of March 31, 2026, total liabilities in our consolidated balance sheet were $4.9 billion, a decrease of $1.3 billion from\n\nDecember 31, 2025, primarily reflecting a decrease in Securitized debt obligations of consolidated VIEs, net and \n\nSecured borrowings. Securitized debt obligations of consolidated VIEs, net decreased $0.6 billion due to the collapse of\n\n70\n\nRCMF 2021-FL7, RCMF 2023-FL11 and RCMF 2023-FL12. Secured borrowings decreased $0.5 billion due to payoffs,\n\npartially offset by the collapse of RCMF 2021-FL7, RCMF 2023-FL11 and RCMF 2023-FL12.\n\nAs of March 31, 2026, total stockholders’ equity was $1.4 billion, a decrease of $0.2 billion from December 31, 2025,\n\nprimarily due to net losses.\n\nSelected Balance Sheet Information by Business Segment. The table below presents certain selected balance sheet data\n\nby business segments, with the remaining amounts reflected in Unallocated –Corporate.\n\n(in thousands)\n\nLMM Commercial\n\nReal Estate\n\nSmall Business\n\nLending\n\nTotal\n\nMarch 31, 2026\n\nAssets\n\nLoans, net\n\n$3,111,107\n\n$1,056,768\n\n$4,167,875\n\nLoans, held for sale\n\n281,520\n\n78,708\n\n360,228\n\nMBS\n\n31,649\n\n—\n\n31,649\n\nInvestment in unconsolidated joint ventures\n\n166,950\n\n301\n\n167,251\n\nServicing rights\n\n60,008\n\n63,679\n\n123,687\n\nReal estate owned\n\n624,960\n\n543\n\n625,503\n\nLiabilities\n\nSecured borrowings\n\n2,001,132\n\n320,311\n\n2,321,443\n\nSecuritized debt obligations of consolidated VIEs\n\n460,971\n\n65,564\n\n526,535\n\nSenior secured notes, net\n\n716,054\n\n7,653\n\n723,707\n\nCorporate debt, net\n\n536,972\n\n—\n\n536,972\n\nGuaranteed loan financing\n\n—\n\n501,736\n\n501,736\n\nLoan participations sold\n\n56,616\n\n—\n\n56,616\n\nIn the table above,\n\n•Loans, net includes assets of consolidated VIEs.\n\n•Loans, held for sale includes assets of consolidated VIEs, net of valuation allowance.\n\n•Real estate owned includes assets of consolidated VIEs.\n\n71\n\nStatement of Operations Analysis and Metrics\n\nThree Months Ended March 31,\n\n(in thousands)\n\n2026\n\n2025\n\n$ Change\n\nInterest income\n\nLMM commercial real estate\n\n$58,893\n\n$124,973\n\n$(66,080)\n\nSmall business lending\n\n22,837\n\n29,994\n\n(7,157)\n\nTotal interest income\n\n$81,730\n\n$154,967\n\n$(73,237)\n\nInterest expense\n\nLMM commercial real estate\n\n(80,672)\n\n(120,354)\n\n39,682\n\nSmall business lending\n\n(16,162)\n\n(20,112)\n\n3,950\n\nTotal interest expense\n\n$(96,834)\n\n$(140,466)\n\n$43,632\n\nNet interest income before (provision for) recovery of loan losses\n\n$(15,104)\n\n$14,501\n\n$(29,605)\n\n(Provision for) recovery of loan losses\n\nLMM commercial real estate\n\n(66,523)\n\n117,941\n\n(184,464)\n\nSmall business lending\n\n(4,384)\n\n(8,373)\n\n3,989\n\nTotal (provision for) recovery of loan losses\n\n$(70,907)\n\n$109,568\n\n$(180,475)\n\nNet interest income (loss) after (provision for) recovery of loan losses\n\n$(86,011)\n\n$124,069\n\n$(210,080)\n\nNon-interest income (loss)\n\nLMM commercial real estate\n\n(68,004)\n\n(114,475)\n\n46,471\n\nSmall business lending\n\n19,053\n\n36,449\n\n(17,396)\n\nUnallocated corporate income\n\n934\n\n103,762\n\n(102,828)\n\nTotal non-interest income (loss)\n\n$(48,017)\n\n$25,736\n\n$(73,753)\n\nNon-interest expense\n\nLMM commercial real estate\n\n(40,939)\n\n(27,763)\n\n(13,176)\n\nSmall business lending\n\n(29,212)\n\n(30,060)\n\n848\n\nUnallocated corporate expenses\n\n(12,582)\n\n(14,779)\n\n2,197\n\nTotal non-interest expense\n\n$(82,733)\n\n$(72,602)\n\n$(10,131)\n\nNet income (loss) before provision for income taxes\n\nLMM commercial real estate\n\n(197,245)\n\n(19,678)\n\n(177,567)\n\nSmall business lending\n\n(7,868)\n\n7,898\n\n(15,766)\n\nUnallocated corporate expenses\n\n(11,648)\n\n88,983\n\n(100,631)\n\nTotal net income (loss) before provision for income taxes\n\n$(216,761)\n\n$77,203\n\n$(293,964)\n\n72\n\nResults of Operations – Supplemental Information. Realized and unrealized gains (losses) on financial instruments are\n\nrecorded in the consolidated statements of operations and classified based on the nature of the underlying asset or\n\nliability.\n\nThe table below presents the components of realized and unrealized gains (losses) on financial instruments.\n\nThree Months Ended March 31,\n\n(in thousands)\n\n2026\n\n2025\n\n$ Change\n\nRealized gain (loss) on financial instruments\n\nCreation of mortgage servicing rights\n\nSBA - 7(a)\n\n$1,412\n\n$4,859\n\n$(3,447)\n\nMulti-family\n\n1,673\n\n515\n\n1,158\n\nUSDA\n\n470\n\n750\n\n(280)\n\nSmall business loans\n\n440\n\n544\n\n(104)\n\nTotal Creation of mortgage servicing rights\n\n$3,995\n\n$6,668\n\n$(2,673)\n\nLoans\n\nSBA - 7(a)\n\n5,164\n\n18,937\n\n(13,773)\n\nMulti-family\n\n164\n\n413\n\n(249)\n\nUSDA\n\n671\n\n179\n\n492\n\nTotal loans\n\n$5,999\n\n$19,529\n\n$(13,530)\n\nGain on sale business\n\nSBA - 7(a)\n\n6,576\n\n23,796\n\n(17,220)\n\nMulti-family\n\n1,837\n\n928\n\n909\n\nUSDA\n\n1,141\n\n929\n\n212\n\nSmall business loans\n\n440\n\n544\n\n(104)\n\nTotal gain on sale business\n\n$9,994\n\n$26,197\n\n$(16,203)\n\nLoans, held for sale\n\nBridge\n\n(23,131)\n\n(16,885)\n\n(6,246)\n\nConstruction\n\n—\n\n(19)\n\n19\n\nOther\n\n(3,481)\n\n—\n\n(3,481)\n\nTotal loans, held for sale\n\n$(26,612)\n\n$(16,904)\n\n$(9,708)\n\nLoans, net\n\nBridge\n\n(47,730)\n\n(393)\n\n(47,337)\n\nFixed rate\n\n135\n\n(13)\n\n148\n\nConstruction\n\n(1,074)\n\n(145)\n\n(929)\n\nOther\n\n(3)\n\n(70)\n\n67\n\nTotal loans, net\n\n$(48,672)\n\n$(621)\n\n$(48,051)\n\nNet realized gain (loss) on derivatives, at fair value\n\n$(82)\n\n$1,946\n\n$(2,028)\n\nNet realized gain (loss) - all other\n\n$5,287\n\n$51\n\n$5,236\n\nNet realized gain (loss) on financial instruments\n\n$(60,085)\n\n$10,669\n\n$(70,754)\n\nUnrealized gain (loss) on financial instruments\n\nLoans, held for sale\n\nFixed rate\n\n—\n\n10\n\n(10)\n\nFreddie Mac\n\n(54)\n\n(309)\n\n255\n\nSBA - 7(a)\n\n1,360\n\n(1,169)\n\n2,529\n\nOther\n\n405\n\n—\n\n405\n\nTotal Loans, held for sale\n\n$1,711\n\n$(1,468)\n\n$3,179\n\nNet unrealized gain (loss) on preferred equity, at fair value\n\n$(7,236)\n\n$—\n\n$(7,236)\n\nNet unrealized gain (loss) on derivatives, at fair value\n\n$1,520\n\n$(515)\n\n$2,035\n\nNet unrealized gain (loss) - all other\n\n$(2,915)\n\n$233\n\n$(3,148)\n\nNet unrealized gain (loss) on financial instruments\n\n$(6,920)\n\n$(1,750)\n\n$(5,170)\n\nLMM Commercial Real Estate Segment Results.\n\nQ1 2026 versus Q1 2025. Interest income of $58.9 million represented a decrease of $66.1 million, primarily due to \n\ndecreased loan balances primarily driven by loan sales and an increased balance of loans on non-accrual status driven by\n\na higher probability that principal and interest will not be collected under the original contractual terms. Interest expense\n\nof $80.7 million represented a decrease of $39.7 million, driven by decreased loan balances and interest rates. Provision\n\nfor loan losses of $66.5 million represented an increase of $184.5 million, due to changes in the forecasted\n\nmacroeconomic inputs for reserve modeling and an increase in asset specific reserves, partially offset by loans\n\ntransferred from Loans, net to Loans, held for sale. Non-interest loss of $68.0 million represented a decrease of $46.5\n\nmillion, primarily due to a decrease in the transfer of Loans, net to Loans, held for sale and the recovery of the valuation\n\nallowance from loans sold, partially offset by net realized losses on financial instruments and real estate owned driven by\n\n73\n\nloan sales. Non-interest expense of $40.9 million represented an increase of $13.2 million, due to an increase in other\n\noperating expenses primarily driven by hotel expenses.\n\nSmall Business Lending Segment Results.\n\nQ1 2026 versus Q1 2025. Interest income of $22.8 million represented a decrease of $7.2 million, primarily due to\n\ndecreased loan balances and interest rates. Interest expense of $16.2 million represented a decrease of $4.0 million,\n\ndriven by decreased loan balances and interest rates. Provision for loan losses of $4.4 million represented a decrease of\n\n$4.0 million, due to changes in the forecasted macroeconomic inputs for reserve modeling, partially offset by an increase\n\nin specific loan reserves. Non-interest income of $19.1 million represented a decrease of $17.4 million, primarily due to\n\na decrease in net realized gains on financial instruments. Non-interest expense of $29.2 million was essentially\n\nunchanged from the prior year period.\n\nUnallocated - Corporate.\n\nQ1 2026 versus Q1 2025. Non-interest income of $0.9 million represented a decrease of $102.8 million due to a gain on\n\nbargain purchase recognized from the UDF IV Merger in the prior year period, primarily driven by a discount in UDF\n\nIV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a change in our stock price\n\nbetween the date of the agreement and the closing date of the UDF IV Merger. Non-interest expense of $12.6 million\n\nrepresented a decrease of $2.2 million, primarily due to decreased transaction related expenses.\n\nNon-GAAP financial measures\n\nWe believe that providing investors with distributable earnings, formerly referred to as core earnings, gives investors\n\ngreater transparency into the information used by management in our financial and operational decision-making,\n\nincluding the determination of dividends.\n\nWe calculate distributable earnings as GAAP net income (loss) excluding the following:\n\ni)any unrealized gains or losses on certain MBS not retained by us as part of our loan origination businesses\n\nii)any realized gains or losses on sales of certain MBS\n\niii)any unrealized gains or losses on Residential MSRs from discontinued operations\n\niv)any unrealized change in current expected credit loss reserve and valuation allowances\n\nv)any unrealized gains or losses on de-designated cash flow hedges\n\nvi)any unrealized gains or losses on foreign exchange hedges\n\nvii)any unrealized gains or losses on certain unconsolidated joint ventures\n\nviii)any non-cash compensation expense related to stock-based incentive plan\n\nix)any unrealized gains or losses on preferred equity, at fair value\n\nx)any unrealized gain or losses or other non-cash items related to real estate owned\n\nxi)one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain\n\npurchase gains, or merger related expenses\n\nIn calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude unrealized gains and\n\nlosses on MBS acquired by us in the secondary market but is not adjusted to exclude unrealized gains and losses on\n\nMBS retained by us as part of our loan origination businesses, where we transfer originated loans into an MBS\n\nsecuritization and retain an interest in the securitization. In calculating distributable earnings, we do not adjust net\n\nincome (in accordance with GAAP) to take into account unrealized gains and losses on MBS retained by us as part of\n\nour loan origination businesses because we consider the unrealized gains and losses that are generated in the loan\n\norigination and securitization process to be a fundamental part of this business and an indicator of the ongoing\n\nperformance and credit quality of our historical loan originations. In calculating distributable earnings, net income (in\n\naccordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities due to a variety of\n\nreasons which may include collateral type, duration, and size.\n\nIn addition, in calculating distributable earnings, net income (in accordance with GAAP) is adjusted to exclude\n\nunrealized gains or losses on residential MSRs, held at fair value from discontinued operations. Servicing rights relating\n\n74\n\nto our small business commercial business are accounted for under ASC 860, Transfer and Servicing. In calculating\n\ndistributable earnings, we do not exclude realized gains or losses on commercial MSRs, as servicing income is a\n\nfundamental part of our business and an indicator of the ongoing performance.\n\nFurthermore, we believe it is useful to present distributable earnings before realized losses on certain investments, such\n\nas charge-offs and losses realized on sales of real estate owned assets and LMM loans, to reflect our direct operating\n\nresults. We utilize distributable earnings before realized losses as an additional performance metric to consider when\n\nassessing our ability to declare and pay dividends. Distributable earnings and distributable earnings before realized\n\nlosses are non-U.S. GAAP financial measures and because these non-U.S. GAAP measures are incomplete measures of\n\nour financial performance and involve differences from net income computed in accordance with U.S. GAAP, they\n\nshould be considered along with, but not as alternatives to, our net income as measures of our financial performance. In\n\naddition, because not all companies use identical calculations, our presentations of distributable earnings and\n\ndistributable earnings before realized losses may not be comparable to other similarly-titled measures of other\n\ncompanies.\n\nTo qualify as a REIT, we must distribute to our stockholders each calendar year dividends equal to at least 90% of our\n\nREIT taxable income (including certain items of non-cash income), determined without regard to the deduction for\n\ndividends paid and excluding net capital gain. There are certain items, including net income generated from the creation\n\nof MSRs, that are included in distributable earnings but are not included in the calculation of the current year’s taxable\n\nincome. These differences may result in certain items that are recognized in the current period’s calculation of\n\ndistributable earnings not being included in taxable income, and thus not subject to the REIT dividend distribution\n\nrequirement, until future years.\n\nThe table below presents a reconciliation of net income to distributable earnings before realized losses and distributable\n\nearnings.\n\nThree Months Ended\n\nMarch 31,\n\n(in thousands)\n\n2026\n\n2025\n\n$ Change\n\nNet income (loss)\n\n$(200,087)\n\n$81,965\n\n$(282,052)\n\nReconciling items:\n\nUnrealized (gain) loss on MSR - discontinued operations\n\n—\n\n8,952\n\n(8,952)\n\nUnrealized (gain) loss on joint ventures\n\n(1,137)\n\n5,639\n\n(6,776)\n\nIncrease (decrease) in CECL reserve\n\n26,673\n\n(112,127)\n\n138,800\n\nIncrease (decrease) in valuation allowance\n\n6,557\n\n99,718\n\n(93,161)\n\nNon-recurring REO impairment\n\n(469)\n\n2,346\n\n(2,815)\n\nDepreciation and amortization on real estate owned\n\n1,576\n\n—\n\n1,576\n\nNon-cash compensation\n\n1,629\n\n1,785\n\n(156)\n\nUnrealized (gain) loss on preferred equity, at fair value\n\n7,236\n\n—\n\n7,236\n\nMerger transaction costs and other non-recurring expenses\n\n654\n\n2,993\n\n(2,339)\n\nBargain purchase (gain) loss\n\n—\n\n(102,471)\n\n102,471\n\nRealized losses on sale of investments\n\n119,520\n\n20,084\n\n99,436\n\nTotal reconciling items\n\n$162,239\n\n$(73,081)\n\n$235,320\n\nIncome tax adjustments\n\n(11,360)\n\n(4,744)\n\n(6,616)\n\nDistributable earnings (loss) before realized losses\n\n$(49,208)\n\n$4,140\n\n$(53,348)\n\nRealized losses on sale of investments, net of tax\n\n(110,626)\n\n(15,524)\n\n(95,102)\n\nDistributable earnings (loss)\n\n$(159,834)\n\n$(11,384)\n\n$(148,450)\n\nLess: Distributable earnings attributable to non-controlling interests\n\n1,725\n\n1,985\n\n(260)\n\nLess: Income attributable to participating shares\n\n2,059\n\n2,228\n\n(169)\n\nDistributable earnings (loss) attributable to common stockholders\n\n$(163,618)\n\n$(15,597)\n\n$(148,021)\n\nDistributable earnings (loss) before realized losses on investments, net of tax per\n\ncommon share - basic\n\n$(0.33)\n\n$0.00\n\n$(0.33)\n\nDistributable earnings (loss) before realized losses on investments, net of tax per\n\ncommon share - diluted\n\n$(0.33)\n\n$0.00\n\n$(0.33)\n\nDistributable earnings (loss) per common share - basic\n\n$(1.00)\n\n$(0.09)\n\n$(0.91)\n\nDistributable earnings (loss) per common share - diluted\n\n$(1.00)\n\n$(0.09)\n\n$(0.91)\n\nQ1 2026 versus Q1 2025. Consolidated net loss of $200.1 million for the three months ended March 31, 2026\n\nrepresented an increase of $282.1 million from the three months ended March 31, 2025, primarily due to provision for\n\n75\n\nloan losses due to changes in the forecasted macroeconomic inputs for reserve modeling and an increase in asset specific\n\nreserves, partially offset by a decrease in the provision for loan losses related to loans transferred from Loans, net to\n\nLoans, held for sale, a gain on bargain purchase recognized from the UDF IV Merger in the prior year period, primarily\n\ndriven by a discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s shares, and a\n\nchange in our stock price between the date of the agreement and the closing date of the UDF IV Merger and net realized\n\nlosses on financial instruments and real estate owned driven by loan sales, partially offset by decrease in the valuation\n\nallowance related to the transfer of Loans, net to Loans, held for sale driven by loan sales. Consolidated distributable\n\nlosses before realized losses of $49.2 million for the three months ended March 31, 2026 represented an increase of\n\n$53.3 million from the three months ended March 31, 2025. The increase in the distributable earnings reconciling items\n\nis primarily due to an increase in the provision for loan losses, a gain on bargain purchase recognized from the UDF IV\n\nMerger in the prior year period and realized losses on sale of investments, partially offset by a decrease in the valuation\n\nallowance related to the transfer of Loans, net to Loans, held for sale. Consolidated distributable losses of $159.8 million\n\nfor the three months ended March 31, 2026 represented an increase of $148.5 million from the three months ended\n\nMarch 31, 2025 due to certain charge-offs and losses realized on sales of real estate owned assets and LMM loans.\n\nIncentive distribution payable to our Manager\n\nUnder the partnership agreement of our operating partnership, our Manager, the holder of the Class A special unit in our\n\noperating partnership, is entitled to receive an incentive distribution, distributed quarterly in arrears in an amount, not\n\nless than zero, equal to the difference between (i) the product of (A) 15% and (B) the difference between (x) IFCE (as\n\ndescribed below) of our operating partnership, on a rolling four-quarter basis and before the incentive distribution for the\n\ncurrent quarter, and (y) the product of (1) the weighted average of the issue price per share of common stock or operating\n\npartnership unit (“OP unit”) (without double counting) in all of our offerings multiplied by the weighted average number\n\nof shares of common stock outstanding (including any restricted shares of common stock and any other shares of\n\ncommon stock underlying awards granted under our 2013 Equity Incentive Plan, our 2023 Equity Incentive Plan and\n\nBroadmark's 2019 Stock Incentive Plan (the “Broadmark Equity Plan”), and OP units (without double counting) in such\n\nquarter and (2) 8%, and (ii) the sum of any incentive distribution paid to our Manager with respect to the first three\n\nquarters of such previous four quarters; provided, however, that no incentive distribution is payable with respect to any\n\ncalendar quarter unless cumulative IFCE is greater than zero for the most recently completed 12 calendar quarters.\n\nThe incentive distribution shall be calculated within 30 days after the end of each quarter and such calculation shall\n\npromptly be delivered to our Company. We are obligated to pay the incentive distribution 50% in cash and 50% in either\n\ncommon stock or OP units, as determined in our discretion, within five business days after delivery to our Company of\n\nthe written statement from the holder of the Class A special unit setting forth the computation of the incentive\n\ndistribution for such quarter. Subject to certain exceptions, our Manager may not sell or otherwise dispose of any portion\n\nof the incentive distribution issued to it in common stock or OP units until after the three-year anniversary of the date\n\nthat such shares of common stock or OP units were issued to our Manager. The price of shares of our common stock for\n\npurposes of determining the number of shares payable as part of the incentive distribution is the closing price of such\n\nshares on the last trading day prior to the approval by our Board of the incentive distribution.\n\nFor purposes of determining the incentive distribution payable to our Manager, incentive fee core earnings (“IFCE”) is\n\ndefined under the partnership agreement of the operating partnership as GAAP net income (loss) of the operating\n\npartnership excluding non-cash equity compensation expense, the expenses incurred in connection with the operating\n\npartnership's formation or continuation, the incentive distribution, real estate depreciation and amortization (to the extent\n\nthat we forecloses on any properties underlying our assets) and any unrealized gains, losses, or other non-cash items\n\nrecorded in the period, regardless of whether such items are included in other comprehensive income or loss, or in net\n\nincome. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-\n\ncash charges after discussions between our Manager and our independent directors and after approval by a majority of\n\nthe independent directors.\n\nLiquidity and Capital Resources\n\nLiquidity is a measure of our ability to turn non-cash assets into cash and to meet potential cash requirements. We use\n\nsignificant cash to purchase LMM loans and other target assets, originate new LMM loans, pay dividends, repay\n\nprincipal and interest on our borrowings, fund our operations and meet other general business needs. Certain of our loans\n\npay PIK interest rather than cash interest payments and from time to time, we may grant concessions to borrowers\n\nexperiencing significant financial difficulties in the form of modified terms such as interest rate reductions and other\n\n76\n\nterms described elsewhere in this Form 10-Q. These factors may increase our reliance on our primary sources of\n\nliquidity, including our existing cash balances, borrowings, including securitizations, re-securitizations, repurchase\n\nagreements, warehouse facilities, bank credit facilities and other financing agreements (including term loans and\n\nrevolving facilities), the net proceeds of offerings of equity and secured and unsecured debt securities, and net cash\n\nprovided by operating and investing activities.\n\nWe believe that our sources of liquidity will provide sufficient liquidity to fund ongoing obligations and address\n\nupcoming debt maturities, including the approximately $450.0 million of debt maturing in 2026. We had approximately\n\n$200.0 million of unrestricted cash and approximately $700.0 million of unencumbered assets as of March 31, 2026. We\n\nexpect approximately $450 million in net liquidity from portfolio maturities and pending asset resolutions over the next\n\n12 months, and may also sell additional assets. We expect the combination of these items to de-lever the balance sheet,\n\nwhich may impact book value depending on the size, timing and pricing of such actions. We expect to utilize these\n\nresources, together with our access to the capital markets, to meet our liquidity needs.\n\nWe are continuing to monitor the impact of shifts in interest rates, credit spreads and inflation on the Company, the\n\nborrowers underlying our real estate-related assets, the tenants in the properties we own, our financing sources, and the\n\neconomy as a whole. Because the severity, magnitude and duration of these economic events remain uncertain, rapidly\n\nchanging and difficult to predict, the impact on our operations and liquidity also remains uncertain and difficult to\n\npredict.\n\nCash flow\n\nThree Months Ended March 31, 2026. Cash and cash equivalents as of March 31, 2026, decreased by $8.3 million to\n\n$241.2 million from December 31, 2025, primarily due to net cash used for financing activities, partially offset by net\n\ncash provided by investing and operating activities. The net cash used for financing activities primarily reflected\n\nrepayments of securitized debt obligations of consolidated VIEs and net repayments of secured borrowings. The net cash\n\nprovided by investing activities primarily reflected proceeds from disposition and principal payments of loans, partially\n\noffset by net cash used for loan originations. The net cash provided by operating activities primarily reflected the sale of\n\nLoans, held for sale, realized losses on financial instruments and provision for loan losses, partially offset by net losses.\n\nThree Months Ended March 31, 2025. Cash and cash equivalents as of March 31, 2025, increased by $65.6 million to\n\n$248.4 million from December 31, 2024, primarily due to net cash provided by investing and operating activities,\n\npartially offset by net cash used for financing activities. The net cash provided by investing activities primarily reflected\n\nproceeds from disposition and principal payments of loans, partially offset by net cash used for loan originations. The net\n\ncash provided by operating activities reflected a valuation allowance related to the transfer of Loans, net to Loans held\n\nfor sale, the sale of Loans, held for sale, and net income, partially offset by a recovery of loan losses related to the\n\ntransfer of Loans, net to Loans, held for sale and a bargain purchase gain in connection with the UDF IV Merger, which\n\nwas primarily driven by a discount in UDF IV’s market valuation due to factors such as the illiquid nature of UDF IV’s\n\nshares and a change in our stock price between the date of the agreement and the closing date of the merger. The net cash\n\nused for financing activities primarily reflected repayments of securitized debt obligations of consolidated VIEs, partially\n\noffset by net proceeds from secured borrowings.\n\nFinancing Strategy and Leverage\n\nIn addition to raising capital through offerings of our public equity and debt securities, we finance our investment\n\nportfolio through securitization and secured borrowings. We generally seek to match-fund our investments to minimize\n\nthe differences in the terms of our investments and our liabilities. Our secured borrowings have various recourse levels\n\nincluding full recourse, partial recourse and non-recourse, as well as varied mark-to-market provisions including full\n\nmark-to-market, credit mark only and non-mark-to-market. Securitizations allow us to match fund loans pledged as\n\ncollateral on a long-term, non-recourse basis. Securitization structures typically consist of trusts with principal and\n\ninterest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches, and provide\n\ndebt equal to 50% to 90% of the cost basis of the assets.\n\nWe also finance originated SBL with secured borrowings until the loans are sold, generally within 30 days.\n\n77\n\nAs of March 31, 2026, we had a total leverage ratio of 3.0x and recourse leverage ratio of 1.8x. Our operating segments\n\nhave different levels of recourse debt according to the differentiated nature of each segment. Our LMM Commercial\n\nReal Estate and Small Business Lending segments have recourse leverage ratios of 0.7x and 0.2x, respectively. The\n\nremaining recourse leverage ratio is from our corporate debt offerings.\n\nSecured Borrowings\n\nCredit Facilities and Other Financing Agreements. We utilize credit facilities and other financing arrangements to\n\nfinance our business. The financings are collateralized by the underlying mortgages, assets, related documents, and\n\ninstruments, and typically contain index-based financing rate and terms, haircut and collateral posting provisions which\n\ndepend on the types of collateral and the counterparties involved. These agreements often contain customary negative\n\ncovenants and financial covenants, including maintenance of minimum liquidity, minimum tangible net worth,\n\nmaximum debt to net worth ratio and current ratio and limitations on capital expenditures, indebtedness, distributions,\n\ntransactions with affiliates and maintenance of positive net income.\n\nThe table below presents certain characteristics of our credit facilities and other financing arrangements.\n\nPledged Assets\n\nCarrying Value at\n\nLenders (1)\n\nAsset Class\n\nCurrent Maturity (2)\n\nPricing (3)\n\nFacility Size\n\nCarrying Value\n\nMarch 31, 2026\n\nDecember 31, 2025\n\n3\n\nSBA loans\n\nApril 2026 to June 2027\n\nSOFR + 2.55%\n\nPrime - 0.82%\n\n$335,000\n\n$382,817\n\n$301,025\n\n$307,522\n\n1\n\nLMM loans - USD\n\nMay 2026\n\nSOFR + 1.35%\n\n40,000\n\n8,490\n\n8,277\n\n16,425\n\n1\n\nLMM loans - Non-USD (4)\n\nJanuary 2027\n\nEURIBOR +\n\n3.00%\n\n58,696\n\n21,356\n\n29,413\n\n29,965\n\n2\n\nUSDA loans\n\nJune 2027 - August 2028\n\nSOFR + 2.75%\n\n198,500\n\n33,851\n\n19,285\n\n31,204\n\nTotal borrowings under credit facilities and other financing agreements\n\n$632,196\n\n$446,514\n\n$358,000\n\n$385,116\n\n(1)Represents the total number of facility lenders.\n\n(2)Current maturity does not reflect extension options available beyond original commitment terms.\n\n(3)Asset class pricing is determined using an index rate plus a weighted average spread.\n\n(4)Non-USD denominated credit facilities have been converted into USD for purposes of this disclosure.\n\nRepurchase Agreements. Under the loan repurchase facilities and securities repurchase agreements, we may be required\n\nto pledge additional assets to our counterparties in the event that the estimated fair value of the existing pledged\n\ncollateral under such agreements declines and such lenders demand additional collateral, which may take the form of\n\nadditional assets or cash. Generally, the loan repurchase facilities and securities repurchase agreements contain a SOFR-\n\nbased financing rate, term and haircuts depending on the types of collateral and the counterparties involved. The loan\n\nrepurchase facilities also include financial maintenance covenants.\n\nIf the estimated fair values of the assets increase due to changes in market interest rates or other market factors, lenders\n\nmay release collateral back to us. Margin calls may result from a decline in the value of the investments securing the\n\nloan repurchase facilities and securities repurchase agreements, prepayments on the loans securing such investments and\n\nfrom changes in the estimated fair value of such investments generally due to principal reduction of such investments\n\nfrom scheduled amortization and resulting from changes in market interest rates and other market factors. Counterparties\n\nalso may choose to increase haircuts based on credit evaluations of our Company and/or the performance of the assets in\n\nquestion. Historically, disruptions in the financial and credit markets have resulted in increased volatility in these levels,\n\nand this volatility could persist as market conditions continue to change. Should prepayment speeds on the mortgages\n\nunderlying our investments or market interest rates suddenly increase, margin calls on the loan repurchase facilities and\n\nsecurities repurchase agreements could result, causing an adverse change in our liquidity position. To date, we have\n\nsatisfied all of our margin calls and have never sold assets in response to any margin call under these borrowings.\n\nOur borrowings under repurchase agreements are renewable at the discretion of our lenders and, as such, our ability to\n\nroll-over such borrowings are not guaranteed. The terms of the repurchase transaction borrowings under our repurchase\n\nagreements generally conform to the terms in the standard master repurchase agreement as published by the Securities\n\nIndustry and Financial Markets Association, as to repayment, margin requirements and the segregation of all assets we\n\nhave initially sold under the repurchase transaction. In addition, each lender typically requires that we include\n\nsupplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and\n\nconditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts and\n\n78\n\npurchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be\n\nlitigated in a particular jurisdiction, and cross default and setoff provisions.\n\nWe maintain certain assets, which, from time to time, may include cash, unpledged LMM loans, LMM ABS and short-\n\nterm investments (which may be subject to various haircuts if pledged as collateral to meet margin requirements) and\n\ncollateral in excess of margin requirements held by our counterparties, or collectively, the “Cushion”, to meet routine\n\nmargin calls and protect against unforeseen reductions in our borrowing capabilities. Our ability to meet future margin\n\ncalls will be impacted by the Cushion, which varies based on the fair value of our investments, our cash position and\n\nmargin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities\n\nand is managed based on our anticipated cash needs.\n\nThe table below presents certain characteristics of our repurchase agreements.\n\nPledged Assets\n\nCarrying Value at\n\nLenders (1)\n\nAsset Class\n\nCurrent Maturity (2)\n\nPricing (3)\n\nFacility Size\n\nCarrying Value\n\nMarch 31, 2026\n\nDecember 31, 2025\n\n7\n\nLMM loans\n\nJune 2026 -\n\nSeptember 2028\n\nSOFR + 2.56%\n\n$3,425,000\n\n$2,997,237\n\n$1,841,176\n\n$2,277,028\n\n5\n\nMBS\n\nApril 2026 -\n\nSeptember 2026\n\n5.38%\n\n122,267\n\n212,800\n\n122,267\n\n126,782\n\nTotal borrowings under repurchase agreements\n\n$3,547,267\n\n$3,210,037\n\n$1,963,443\n\n$2,403,810\n\n(1)Represents the total number of facility lenders.\n\n(2)Current maturity does not reflect extension options available beyond original commitment terms.\n\n(3)Asset class pricing is determined using an index rate plus a weighted average spread.\n\nCollateralized borrowings under repurchase agreements\n\nThe table below presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end\n\nof each quarter, the average amount of collateralized borrowings outstanding under repurchase agreements during the\n\nquarter and the highest balance of any month end during the quarter.\n\n(in thousands)\n\nQuarter End Balance\n\nAverage Balance in Quarter\n\nHighest Month End Balance in Quarter\n\nQ2 2024\n\n2,087,661\n\n2,058,766\n\n2,087,661\n\nQ3 2024\n\n1,882,327\n\n1,971,347\n\n2,049,273\n\nQ4 2024\n\n1,718,131\n\n1,795,627\n\n1,846,677\n\nQ1 2025\n\n2,425,258\n\n1,922,525\n\n2,425,258\n\nQ2 2025\n\n3,135,931\n\n2,673,449\n\n3,135,931\n\nQ3 2025\n\n2,460,953\n\n2,699,935\n\n3,021,745\n\nQ4 2025\n\n2,403,810\n\n2,402,929\n\n2,431,561\n\nQ1 2026\n\n1,963,443\n\n2,178,978\n\n2,628,893\n\nThe net decrease in the outstanding balances during the first quarter of 2026 was primarily due to the sales and\n\npaydowns of warehouse loans, partially offset by the collapse of RCMF 2021-FL7, RCMF 2023-FL11 and RCMF 2023-\n\nFL12.\n\nPaycheck Protection Program Liquidity Facility borrowings. The Company uses the PPPLF from the Federal Reserve\n\nto finance PPP loans. The program charges an interest rate of 0.35%. As of March 31, 2026, we had approximately $3.8\n\nmillion outstanding under this credit facility.\n\n79\n\nSenior Secured Notes and Corporate Debt, Net\n\nThe table below presents information about senior secured notes and corporate debt issued through public and private\n\ntransactions.\n\n(in thousands)\n\nCoupon Rate\n\nMaturity Date\n\nMarch 31, 2026\n\nSenior secured notes principal amount(1)\n\n4.50%\n\n10/20/2026\n\n$350,000\n\nSenior secured notes principal amount(2)\n\n9.375%\n\n3/1/2028\n\n270,000\n\nTerm loan principal amount(3)\n\nSOFR + 5.50%\n\n4/12/2029\n\n115,250\n\nUnamortized discount\n\n(1,747)\n\nUnamortized deferred financing costs\n\n(9,796)\n\nTotal senior secured notes, net\n\n$723,707\n\nCorporate debt principal amount(4)\n\n5.50%\n\n12/30/2028\n\n110,000\n\nCorporate debt principal amount(5)\n\n6.20%\n\n7/30/2026\n\n67,443\n\nCorporate debt principal amount(6)\n\n7.375%\n\n7/31/2027\n\n100,000\n\nCorporate debt principal amount(7)\n\n5.00%\n\n11/15/2026\n\n100,000\n\nCorporate debt principal amount(8)\n\n9.00%\n\n12/15/2029\n\n129,371\n\nUnamortized discount - corporate debt\n\n(4,600)\n\nUnamortized deferred financing costs - corporate debt\n\n(1,492)\n\nJunior subordinated notes principal amount(9)\n\nSOFR + 3.10%\n\n3/30/2035\n\n15,000\n\nJunior subordinated notes principal amount(10)\n\nSOFR + 3.10%\n\n4/30/2035\n\n21,250\n\nTotal corporate debt, net\n\n$536,972\n\nTotal carrying amount of debt\n\n$1,260,679\n\n(1)Interest on the senior secured notes is payable semiannually on April 20 and October 20 of each year.\n\n(2)Interest on the senior secured notes is payable semiannually on March 1 and September 1 of each year.\n\n(3)Interest on the term loan is payable quarterly on January 12, April 12, July 12 and October 12 of each year.\n\n(4)Interest on the corporate debt is payable semiannually on June 30 and December 30 of each year.\n\n(5)Interest on the corporate debt is payable quarterly on January 30, April 30, July 30, and October 30 of each year.\n\n(6)Interest on the corporate debt is payable semiannually on January 31 and July 31 of each year.\n\n(7)Interest on the corporate debt is payable semiannually on May 15 and November 15 of each year; assumed as part of the Broadmark Merger (as defined below).\n\n(8) Interest on the corporate debt is payable quarterly on March 15, June 15, September 15, and December 15 of each year.\n\n(9) Interest on the Junior subordinated notes I-A is payable quarterly on March 30, June 30, September 30, and December 30 of each year.\n\n(10) Interest on the Junior subordinated notes I-B is payable quarterly on January 30, April 30, July 30, and October 30 of each year.\n\nThe table below presents the contractual maturities for senior secured notes and corporate debt.\n\n(in thousands)\n\nMarch 31, 2026\n\n2026\n\n$517,443\n\n2027\n\n100,000\n\n2028\n\n380,000\n\n2029\n\n244,621\n\n2030\n\n—\n\nThereafter\n\n36,250\n\nTotal contractual amounts\n\n$1,278,314\n\nUnamortized deferred financing costs, discounts, and premiums, net\n\n(17,635)\n\nTotal carrying amount of debt\n\n$1,260,679\n\nReadyCap Holdings 4.50% senior secured notes due 2026. On October 20, 2021, ReadyCap Holdings, an indirect\n\nsubsidiary of the Company, completed the offer and sale of $350.0 million of its 4.50% Senior Secured Notes due 2026\n\n(the “2026 Senior Secured Notes”). The 2026 Senior Secured Notes are fully and unconditionally guaranteed by the\n\nCompany, each direct parent entity of ReadyCap Holdings, and other direct or indirect subsidiaries of the Company from\n\ntime to time that is a direct parent entity of Sutherland Asset III, LLC or otherwise pledges collateral to secure the 2026\n\nSenior Secured Notes (collectively, the “2026 SSN Guarantors”).\n\nReadyCap Holdings’ and the 2026 SSN Guarantors’ respective obligations under the 2026 Senior Secured Notes are\n\nsecured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2026 SSN Collateral”)\n\nowned by certain subsidiaries of the Company.\n\nThe 2026 Senior Secured Notes are redeemable by ReadyCap Holdings’ following a non-call period, through the\n\npayment of the outstanding principal balance of the 2026 Senior Secured Notes plus a “make-whole” or other premium\n\nthat decreases the closer the 2026 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to\n\nrepurchase the 2026 Senior Secured Notes at 101% of the principal balance of the 2026 Senior Secured Notes in the\n\n80\n\nevent of a change in control and a downgrade of the rating on the 2026 Senior Secured Notes in connection therewith, as\n\nset forth more fully in the note purchase agreement governing the 2026 Senior Secured Notes.\n\nThe 2026 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary\n\nnegative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2026 SSN\n\nGuarantors, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net worth\n\nratio, and limitations on transactions with affiliates.\n\nReadyCap Holdings 9.375% senior secured notes due 2028. On February 21, 2025, ReadyCap Holdings completed the\n\noffer and sale of $220.0 million of its 9.375% Senior Secured Notes due 2028 (the “2028 Senior Secured Notes” and,\n\nwith the 2026 Senior Secured Notes, collectively, the “Senior Secured Notes”) for net proceeds of $216.7 million before\n\nexpenses. The 2028 Senior Secured Notes are fully and unconditionally guaranteed by the Company and other direct or\n\nindirect subsidiaries of the Company from time to time that pledge collateral to secure the 2028 Senior Secured Notes\n\n(collectively, the “2028 SSN Guarantors”).\n\nReadyCap Holdings’ and the 2028 SSN Guarantors’ respective obligations under the 2028 Senior Secured Notes are\n\nsecured by a perfected first-priority lien on certain capital stock and assets (collectively, the “2028 SSN Collateral”)\n\nowned by certain subsidiaries of the Company.\n\nThe 2028 Senior Secured Notes are redeemable by ReadyCap Holdings following a non-call period, through the\n\npayment of the outstanding principal balance of the 2028 Senior Secured Notes plus a “make-whole” or other premium\n\nthat decreases the closer the 2028 Senior Secured Notes are to maturity. ReadyCap Holdings is required to offer to\n\nrepurchase the 2028 Senior Secured Notes at 101% of the principal balance of the 2028 Senior Secured Notes in the\n\nevent of a change in control and a downgrade of the rating on the 2028 Senior Secured Notes in connection therewith, as\n\nset forth more fully in the note purchase agreement governing the 2028 Senior Secured Notes.\n\nThe 2028 Senior Secured Notes were issued pursuant to a note purchase agreement, which contains certain customary\n\nnegative covenants and requirements relating to the collateral and the Company, ReadyCap Holdings, and the 2028 SSN\n\nGuarantors, including maintenance of minimum tangible net worth, maximum debt to net worth ratio, unencumbered\n\ncash and asset requirements, and limitations on transactions with affiliates.\n\nOn April 16, 2025, ReadyCap Holdings issued an additional $50.0 million in aggregate principal amount of its 2028\n\nSenior Secured Notes for net proceeds of $49.3 million before expenses. The additional notes are fungible with and\n\ntreated as a single series of debt securities as the Company’s 2028 Senior Secured Notes issued on February 21, 2025.\n\nThe Company used the net proceeds from the issuance of the additional notes to repay its indebtedness and for general\n\ncorporate purposes.\n\nReady Term Holdings, LLC (“Ready Term Holdings”) term loan due 2029. On April 12, 2024, Ready Term Holdings,\n\nan indirect subsidiary of the Company, entered into a credit agreement which provides for a delayed draw term loan to\n\nthe Company in an aggregate principal amount not to exceed $115.25 million (the “Term Loan”). The Term Loan is fully\n\nand unconditionally guaranteed by the Company and other direct or indirect subsidiaries of the Company from time to\n\ntime that pledge collateral to secure the Term Loan (collectively, the “Term Loan Guarantors”).\n\nReady Term Holdings’ and the Term Loan Guarantors’ respective obligations under the Term Loan are secured by a\n\nperfected first-priority lien on certain capital stock and assets (collectively, the “Term Loan Collateral”) owned by\n\ncertain subsidiaries of the Company.\n\nThe Term Loan matures on April 12, 2029, and may be drawn at any time on or prior to January 12, 2025, subject to the\n\nsatisfaction of customary conditions. The Company borrowed $75.0 million in connection with the initial closing of the\n\nTerm Loan. On August 19, 2024, the Company borrowed an additional $20.0 million. The Term Loan bears interest on\n\nthe outstanding principal amount thereof at a rate equal to (a) SOFR plus 5.50% per annum or (b) base rate plus 4.50%\n\nper annum; provided that if at any time the Term Loan is rated below investment grade, the interest rate shall increase to\n\n(x) SOFR plus 6.50% per annum or (y) base rate plus 5.50% per annum until the rating is no longer below investment\n\ngrade. In connection with the entry into the credit agreement, the Company also agreed to pay certain upfront fees on the\n\n81\n\ninitial borrowing date. The Company will also pay, with respect to any unused portion of the Term Loan, a commitment\n\nfee of 1.00% per annum.\n\nThe Term Loan was issued pursuant to a credit agreement, which contains certain customary representations and\n\nwarranties and affirmative and negative covenants and requirements relating to the collateral and the Company, Ready\n\nTerm Holdings, and the Term Loan Guarantors, including maintenance of a minimum asset coverage ratio and a\n\nmaximum debt to equity ratio.\n\nCorporate debt\n\nWe issue senior unsecured notes in public and private transactions. The notes are governed by a base indenture and\n\nsupplemental indentures. Often, the notes are redeemable by us following a non-call period, through the payment of the\n\noutstanding principal balance plus a “make-whole” or other premium that typically decreases the closer the notes are to\n\nmaturity. We are often required to offer to repurchase the notes, in some cases at 101% of the principal balance of the\n\nnotes, in the event of a change in control or fundamental change pertaining to our company, as defined in the applicable\n\nsupplemental indentures. The notes rank equal in right of payment to any of our existing and future unsecured and\n\nunsubordinated indebtedness; effectively junior in right of payment to any of our existing and future secured\n\nindebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and\n\nfuture indebtedness, other liabilities (including trade payables) and (to the extent not held by us) preferred stock, if any,\n\nof our subsidiaries. The supplemental indentures governing the notes often contain customary negative covenants and\n\nfinancial covenants relating to maintenance of minimum liquidity, minimum tangible net worth, maximum debt to net\n\nworth ratio and limitations on transactions with affiliates.\n\nIn addition, in connection with the merger among the Company, Broadmark Realty Capital Inc. (“Broadmark”), and\n\nRCC Merger Sub, LLC, a wholly owned subsidiary of the operating partnership (“RCC Merger Sub”), in which\n\nBroadmark merged with and into RCC Merger Sub, with RCC Merger Sub remaining as a wholly owned subsidiary of\n\nthe operating partnership (the “Broadmark Merger”), RCC Merger Sub assumed Broadmark’s obligations on certain\n\nsenior unsecured notes. The note purchase agreement governing these notes contains financial covenants that require\n\ncompliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as other\n\ncustomary affirmative and negative covenants.\n\nSecuritization transactions\n\nOur Manager’s extensive experience in loan acquisition, origination, servicing and securitization strategies has enabled\n\nus to complete several securitizations of LMM and SBA loan assets since January 2011. These securitizations allow us\n\nto match fund the LMM and SBA loans on a long-term, non-recourse basis. The assets pledged as collateral for these\n\nsecuritizations were contributed from our portfolio of assets. By contributing these LMM and SBA assets to the various\n\nsecuritizations, these transactions created capacity for us to fund other investments.\n\n82\n\nThe table below presents information on the securitization structures and related issued tranches of notes to investors.\n\n(in millions)\n\nCollateral Asset Class\n\nIssuance\n\nActive / Collapsed\n\nBonds Issued\n\nTrusts (Firm sponsored)\n\nWaterfall Victoria Mortgage Trust 2011-1 (SBC1)\n\nLMM Acquired loans\n\nFebruary 2011\n\nCollapsed\n\n$40.5\n\nWaterfall Victoria Mortgage Trust 2011-3 (SBC3)\n\nLMM Acquired loans\n\nOctober 2011\n\nCollapsed\n\n143.4\n\nSutherland Commercial Mortgage Trust 2015-4 (SBC4)\n\nLMM Acquired loans\n\nAugust 2015\n\nCollapsed\n\n125.4\n\nSutherland Commercial Mortgage Trust 2018 (SBC7)\n\nLMM Acquired loans\n\nNovember 2018\n\nCollapsed\n\n217.0\n\nReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1)\n\nAcquired SBA 7(a) loans\n\nJune 2015\n\nCollapsed\n\n189.5\n\nReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2)\n\nOriginated SBA 7(a) loans,\n\nAcquired SBA 7(a) loans\n\nDecember 2019\n\nActive\n\n131.0\n\nReadyCap Lending Small Business Loan Trust 2023-3 (RCLT 2023-3)\n\nOriginated SBA 7(a) loans,\n\nAcquired SBA 7(a) loans\n\nJuly 2023\n\nActive\n\n132.0\n\nReal Estate Mortgage Investment Conduits (REMICs)\n\nReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1)\n\nLMM Originated conventional\n\nSeptember 2014\n\nCollapsed\n\n181.7\n\nReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2)\n\nLMM Originated conventional\n\nNovember 2015\n\nCollapsed\n\n218.8\n\nReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3)\n\nLMM Originated conventional\n\nNovember 2016\n\nActive\n\n162.1\n\nReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4)\n\nLMM Originated conventional\n\nMarch 2018\n\nActive\n\n165.0\n\nReady Capital Mortgage Trust 2019-5 (RCMT 2019-5)\n\nLMM Originated conventional\n\nJanuary 2019\n\nActive\n\n355.8\n\nReady Capital Mortgage Trust 2019-6 (RCMT 2019-6)\n\nLMM Originated conventional\n\nNovember 2019\n\nActive\n\n430.7\n\nReady Capital Mortgage Trust 2022-7 (RCMT 2022-7)\n\nLMM Originated conventional\n\nApril 2022\n\nActive\n\n276.8\n\nWaterfall Victoria Mortgage Trust 2011-2 (SBC2)\n\nLMM Acquired loans\n\nMarch 2011\n\nCollapsed\n\n97.6\n\nSutherland Commercial Mortgage Trust 2018 (SBC6)\n\nLMM Acquired loans\n\nAugust 2017\n\nCollapsed\n\n154.9\n\nSutherland Commercial Mortgage Trust 2019 (SBC8)\n\nLMM Acquired loans\n\nJune 2019\n\nActive\n\n306.5\n\nSutherland Commercial Mortgage Trust 2020 (SBC9)\n\nLMM Acquired loans\n\nJune 2020\n\nCollapsed\n\n203.6\n\nSutherland Commercial Mortgage Trust 2021 (SBC10)\n\nLMM Acquired loans\n\nMay 2021\n\nActive\n\n232.6\n\nCollateralized Loan Obligations (CLOs)\n\nReady Capital Mortgage Financing 2017– FL1\n\nLMM Originated bridge\n\nAugust 2017\n\nCollapsed\n\n198.8\n\nReady Capital Mortgage Financing 2018 – FL2\n\nLMM Originated bridge\n\nJune 2018\n\nCollapsed\n\n217.1\n\nReady Capital Mortgage Financing 2019 – FL3\n\nLMM Originated bridge\n\nApril 2019\n\nCollapsed\n\n320.2\n\nReady Capital Mortgage Financing 2020 – FL4\n\nLMM Originated bridge\n\nJune 2020\n\nCollapsed\n\n405.3\n\nReady Capital Mortgage Financing 2021 – FL5\n\nLMM Originated bridge\n\nMarch 2021\n\nCollapsed\n\n628.9\n\nReady Capital Mortgage Financing 2021 – FL6\n\nLMM Originated bridge\n\nAugust 2021\n\nCollapsed\n\n652.5\n\nReady Capital Mortgage Financing 2021 – FL7\n\nLMM Originated bridge\n\nNovember 2021\n\nCollapsed\n\n927.2\n\nReady Capital Mortgage Financing 2022 – FL8\n\nLMM Originated bridge\n\nMarch 2022\n\nCollapsed\n\n1,135.0\n\nReady Capital Mortgage Financing 2022 – FL9\n\nLMM Originated bridge\n\nJune 2022\n\nCollapsed\n\n754.2\n\nReady Capital Mortgage Financing 2022 – FL10\n\nLMM Originated bridge\n\nOctober 2022\n\nCollapsed\n\n860.1\n\nReady Capital Mortgage Financing 2023 – FL11\n\nLMM Originated bridge\n\nFebruary 2023\n\nCollapsed\n\n586.0\n\nReady Capital Mortgage Financing 2023 – FL12\n\nLMM Originated bridge\n\nJune 2023\n\nCollapsed\n\n648.6\n\nTrusts (Non-firm sponsored)\n\nFreddie Mac Small Balance Mortgage Trust 2016-SB11\n\nOriginated agency multi-family\n\nJanuary 2016\n\nActive\n\n110.0\n\nFreddie Mac Small Balance Mortgage Trust 2016-SB18\n\nOriginated agency multi-family\n\nJuly 2016\n\nActive\n\n118.0\n\nFreddie Mac Small Balance Mortgage Trust 2017-SB33\n\nOriginated agency multi-family\n\nJune 2017\n\nActive\n\n197.9\n\nFreddie Mac Small Balance Mortgage Trust 2018-SB45\n\nOriginated agency multi-family\n\nJanuary 2018\n\nActive\n\n362.0\n\nFreddie Mac Small Balance Mortgage Trust 2018-SB52\n\nOriginated agency multi-family\n\nSeptember 2018\n\nActive\n\n505.0\n\nFreddie Mac Small Balance Mortgage Trust 2018-SB56\n\nOriginated agency multi-family\n\nDecember 2018\n\nActive\n\n507.3\n\nKey Commercial Mortgage Trust 2020-S3(1)\n\nLMM Originated conventional\n\nSeptember 2020\n\nActive\n\n263.2\n\n(1)Contributed portion of assets into trust\n\nWe used the proceeds from the sale of the tranches issued to purchase and originate LMM and SBL loans. We are the\n\nprimary beneficiary of all firm sponsored securitizations; therefore they are consolidated in our financial statements.\n\nContractual Obligations and Off-Balance Sheet Arrangements\n\nOther than the items referenced above, there have been no material changes to our contractual obligations for the three\n\nmonths ended March 31, 2026. Refer to Item 7, \"Management’s Discussion and Analysis of Financial Condition and\n\nResults of Operations – Contractual Obligations,\" in the Company's Form 10-K for further details. As of the date of this\n\nForm 10-Q, we had no off-balance sheet arrangements, other than as disclosed.\n\n83\n\nCritical Accounting Estimates\n\nOur consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and\n\nassumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial\n\nstatements and the reported amounts of revenues and expenses during the reporting period. We believe that all of the\n\ndecisions and assessments upon which our consolidated financial statements are based were reasonable at the time made,\n\nbased upon information available to us at that time. The following discussion describes the critical accounting estimates\n\nthat apply to our operations and require complex management judgment. This summary should be read in conjunction\n\nwith our accounting policies and use of estimates included in “Notes to Consolidated Financial Statements, Note 3 –\n\nSummary of Significant Accounting Policies” included in Item 8, “Financial Statements and Supplementary Data,” in the\n\nCompany’s Form 10-K.\n\nAllowance for credit losses\n\nThe allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at\n\namortized cost. Such loans and lending commitments are reviewed quarterly considering credit quality indicators,\n\nincluding probable and historical losses, collateral values, LTV ratio and economic conditions. The allowance for credit\n\nlosses increases through provisions charged to earnings and reduced by charge-offs, net of recoveries.\n\nWe utilize loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for its\n\nloan portfolio. The Current Expected Credit Loss (“CECL”) forecasting methods used by the Company include (i) a\n\nprobability of default and loss given default method using underlying third-party CMBS/CRE loan database with\n\nhistorical loan losses and (ii) probability weighted expected cash flow method, depending on the type of loan and the\n\navailability of relevant historical market loan loss data. We might use other acceptable alternative approaches in the\n\nfuture depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical\n\nmarket loan loss data.\n\nWe estimate the CECL expected credit losses for our loan portfolio at the individual loan level. Significant inputs to our\n\nforecasting methods include (i) key loan-specific inputs such as LTV, vintage year, loan-term, underlying property type,\n\noccupancy, geographic location, and others, and (ii) a macro-economic forecast. These estimates may change in future\n\nperiods based on available future macro-economic data and might result in a material change in our future estimates of\n\nexpected credit losses for its loan portfolio.\n\nIn certain instances, we consider relevant loan-specific qualitative factors to certain loans to estimate its CECL expected\n\ncredit losses. We consider loan investments that are both (i) expected to be substantially repaid through the operation or\n\nsale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-\n\ndependent” loans. For such loans that we determine that foreclosure of the collateral is probable, we measure the\n\nexpected losses based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is\n\nexpected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date. For\n\ncollateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate\n\nexpected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is\n\nexpected through the sale of the collateral) and the amortized cost basis of the loan.\n\nWhile we have a formal methodology to determine the adequate and appropriate level of the allowance for credit losses,\n\nestimates of inherent loan losses involve judgment and assumptions as to various factors, including current economic\n\nconditions. Our determination of adequacy of the allowance for credit losses is based on quarterly evaluations of the\n\nabove factors. Accordingly, the provision for loan losses will vary from period to period based on management's ongoing\n\nassessment of the adequacy of the allowance for credit losses.\n\nSignificant judgment is required when evaluating loans for impairment; therefore, actual results over time could be\n\nmaterially different. Refer to “Notes to Consolidated Financial Statements, Note 6 – Loans and Allowance for Credit\n\nLosses” included in this Form 10-Q for results of our loan impairment evaluation.\n\n84\n\nValuation of financial assets and liabilities carried at fair value\n\nWe measure our MBS, derivative assets and liabilities, and any assets or liabilities where we have elected the fair value\n\noption at fair value, including certain loans we have originated that are expected to be sold to third parties or securitized\n\nin the near term.\n\nWe have established valuation processes and procedures designed so that fair value measurements are appropriate and\n\nreliable, that they are based on observable inputs where possible, that the valuation approaches are consistently applied,\n\nand the assumptions and inputs are reasonable. We also have established processes to provide that the valuation\n\nmethodologies, techniques and approaches for investments that are categorized within Level 3 of the ASC 820 Fair\n\nValue Measurement fair value hierarchy (the “fair value hierarchy”) are fair, consistent and verifiable. Our processes\n\nprovide a framework that ensures the oversight of our fair value methodologies, techniques, validation procedures, and\n\nresults.\n\nWhen actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities\n\nor valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity,\n\ncredit, market and/or other risk factors. Refer to “Notes to Consolidated Financial Statements, Note 7 – Fair Value\n\nMeasurements” included in Item 8, “Financial Statements and Supplementary Data,” in the Form 10-K for a more\n\ncomplete discussion of our critical accounting estimates as they pertain to fair value measurements.\n\nServicing rights impairment\n\nServicing rights, at amortized cost, are initially recorded at fair value and subsequently carried at amortized cost.\n\nFor purposes of testing our servicing rights, carried at amortized cost, for impairment, we first determine whether facts\n\nand circumstances exist that would suggest the carrying value of the servicing asset is not recoverable. If so, we then\n\ncompare the net present value of servicing cash flow with its carrying value. The estimated net present value of servicing\n\ncash flows of the intangibles is determined using discounted cash flow modeling techniques which require management\n\nto make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted loan\n\nprepayment rates, delinquency rates and anticipated maturity defaults. If the carrying value of the servicing rights\n\nexceeds the net present value of servicing cash flows, the servicing rights are considered impaired and an impairment\n\nloss is recognized in earnings for the amount by which carrying value exceeds the net present value of servicing cash\n\nflows. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and\n\nprepayment experience to modeled estimates.\n\nSignificant judgment is required when evaluating servicing rights for impairment therefore, actual results over time\n\ncould be materially different. Refer to “Notes to Consolidated Financial Statements, Note 8 – Servicing Rights” included\n\nin this Form 10-Q for a more complete discussion of our critical accounting estimates as they pertain to servicing rights\n\nimpairment.\n\nRefer to “Notes to Consolidated Financial Statements, Note 4– Recent Accounting Pronouncements” included in Item 8,\n\n“Financial Statements and Supplementary Data,” in the Company’s Form 10-K for a discussion of recent accounting\n\ndevelopments and the expected impact to the Company."}