10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2018

OR

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

For the transition period from            to

Commission File Number:  001-35808

READY CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	90-0729143
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1140 Avenue of the Americas, 7th Floor
New York, NY	10036
(Address of principal executive offices)	(Zip Code)
(212) 257-4600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐     No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. 

Yes ☐     No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes ☒      No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☐      No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ☒

As of June 30, 2018, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $296,481,510 based on the closing sales price of the registrant’s common stock on June 30, 2017 as reported on the New York Stock Exchange.

On March 1, 2019, the registrant had a total of 32,124,966 shares of common stock, $0.0001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the 2019 annual meeting of stockholders are incorporated by reference into Part III of this annual report on Form 10-K.

TABLE OF CONTENTS

	Page
PART I
Item 1. Business	5
Item 1A. Risk Factors	21
Item 1B. Unresolved Staff Comments	69
Item 2. Properties	69
Item 3. Legal Proceedings	69
Item 4. Mine Safety Disclosures	70
PART II	71
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	71
Item 6. Selected Financial Data	73
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	74
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	104
Item 8. Financial Statements and Supplementary Data	109
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	178
Item 9A. Controls and Procedures	178
Item 9B. Other Information	178
PART III	179
Item 10. Directors, Executive Officers and Corporate Governance	179
Item 11. Executive Compensation	179
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	179
Item 13. Certain Relationships and Related Transactions and Director Independence	179
Item 14. Principal Accountant Fees and Services	179
PART IV	180
Item 15. Exhibits and Financial Statement Schedules	180
Item 16. Form 10-K Summary	183
SIGNATURES	184

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FORWARD-LOOKING STATEMENTS

Except where the context suggests otherwise, the terms “Company,” “we,” “us” and “our” refer to Ready Capital Corporation and its subsidiaries. We make forward-looking statements in this annual report on Form 10-K within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements,  we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our operations, financial condition, liquidity, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may,” “potential” or the negative of these terms or other comparable terminology, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

· our investment objectives and business strategy;

· our ability to obtain future financing arrangements;

· our expected leverage;

· our expected investments;

· estimates or statements relating to, and our ability to make, future distributions;

· our ability to compete in the marketplace;

· the availability of attractive risk-adjusted investment opportunities in small to medium balance commercial loans (“SBC loans”), loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its Section 7(a) loan program (the “SBA Section 7(a) Program”), mortgage backed securities (“MBS”), residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies; 

· our ability to borrow funds at favorable rates;

· market, industry and economic trends;

· recent market developments and actions taken and to be taken by the U.S. Government, the U.S. Department of the Treasury (“Treasury”) and the Board of Governors of the Federal Reserve System, the Federal Depositary Insurance Corporation, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the “GSEs”), the Government National Mortgage Association (“Ginnie Mae”), Federal Housing Administration (“FHA”) Mortgagee, U.S. Department of Agriculture (“USDA”), U.S. Department of Veterans Affairs (“VA”) and the U.S. Securities and Exchange Commission (“SEC”);

· mortgage loan modification programs and future legislative actions;

· our ability to maintain our qualification as a real estate investment trust (“REIT”);

· our ability to maintain our exemption from qualification under the Investment Company Act of 1940, as amended (the “1940 Act” or “Investment Company Act”);

· projected capital and operating expenditures;

· availability of qualified personnel;

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· prepayment rates; and

· projected default rates.

Our beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control, including:

· factors described in this annual report on Form 10‑K, including those set forth under the captions “Risk Factors” and “Business”;

· applicable regulatory changes;

· risks associated with acquisitions;

· risks associated with achieving expected revenue synergies, cost savings and other benefits from the merger with ZAIS Financial Corp. (“ZAIS Financial”) and the increased scale of our Company;

· general volatility of the capital markets;

· changes in our investment objectives and business strategy;

· the availability, terms and deployment of capital;

· the availability of suitable investment opportunities;

· our dependence on our external advisor, Waterfall Asset Management, LLC (“Waterfall” or the “Manager”), and our ability to find a suitable replacement if we or our Manager were to terminate the management agreement we have entered into with our Manager;

· changes in our assets, interest rates or the general economy;

· increased rates of default and/or decreased recovery rates on our investments;

· changes in interest rates, interest rate spreads, the yield curve or prepayment rates; changes in prepayments of our assets;

· limitations on our business as a result of our qualification as a REIT; and

· the degree and nature of our competition, including competition for SBC loans, MBS, residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies.

Upon the occurrence of these or other factors, our business, financial condition, liquidity and consolidated results of operations may vary materially from those expressed in, or implied by, any such forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements apply only as of the date of this annual report on Form 10-K. We are not obligated, and do not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See Item 1A, “Risk Factors” of this annual report on Form 10-K.

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PART I

Item 1. Business.

GENERAL

Overview

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 range in original principal amounts up to $35 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. Our origination and acquisition platforms consist of the following four operating segments:

· SBC Originations. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial, LLC (“ReadyCap Commercial”). These originated loans are generally held-for-investment or placed into securitization structures. Additionally, as part of this segment, we originate and service multi-family loan products under Freddie Mac’s small balance loan program (the “Freddie Mac program”). These originated loans are sold.

· SBA Originations, Acquisitions and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) loan program through our wholly-owned subsidiary, ReadyCap Lending, LLC (“ReadyCap Lending”). We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA. In the future, we may originate SBC loans for real estate under the SBA 504 loan program, under which the SBA guarantees subordinated, long-term financing. These originated loans are either held-for-investment, placed into securitization structures, or sold.

· Loan Acquisitions. We acquire performing and non-performing SBC loans and intend to continue to acquire these loans as part of our business strategy. We hold performing SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through proprietary loan modification programs. We typically acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns.

· Residential Mortgage Banking.  In connection with our merger with ZAIS Financial Corp. on October 31, 2016, we added a residential mortgage loan origination segment through its wholly-owned subsidiary, GMFS, LLC ("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.

Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. In order to achieve this objective, we intend to continue to grow our investment portfolio and we 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 are organized and conduct our operations to qualify as a REIT under the Internal Revenue Code (“IRC”) of 1986, as amended (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 all of our net taxable income to stockholders. We are organized in a traditional umbrella partnership REIT (“UpREIT”) format pursuant to which we serve as the general partner of, and conduct substantially all of our business through Sutherland Partners, LP, or our operating partnership, which serves as our operating partnership subsidiary. 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.

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Our Path to Becoming a Public Company

Our history of acquiring SBC loans traces back to August 2007 when the Victoria series of funds (“Victoria Funds”) made their initial acquisition of an equity tranche of an SBC loan securitization. The Victoria Funds were formed and managed by our Manager to invest in a range of loan products requiring active management to generate returns. Our business was operated as part of the Victoria Funds until November of 2011 at which time the Victoria Funds contributed substantially all of their SBC loans to our operating partnership in exchange for substantially all of the operating partnership’s units, representing $371.5 million in assets and $262.2 million of equity capital. In November of 2013, we completed the private placement of shares of common stock and operating partnership units (“OP units”), pursuant to which we raised approximately $226 million of equity capital (the “2013 private placement”). Concurrently with the closing of the 2013 private placement, we engaged in a series of transactions, referred to as the REIT formation transactions, in order to allow us to conduct our business as a REIT for U.S. federal income tax purposes. As part of these transactions, we became a Maryland corporation.

On October 31, 2016, we completed our path to becoming a publicly traded company through our merger with and into a subsidiary of ZAIS Financial, with ZAIS Financial surviving the merger and changing its name to Sutherland Asset Management Corporation. Prior to and as a condition to the merger, ZAIS Financial disposed of its seasoned re-performing mortgage loan portfolio, such that upon the completion of the merger, ZAIS Financial’s assets largely consisted of its GMFS origination subsidiary, cash, conduit loans, and residential mortgage backed securities (“RMBS”).  Additionally, prior to the closing of the merger, ZAIS Financial completed a tender offer, purchasing 4,185,478 shares of common stock from existing ZAIS Financial stockholders at a purchase price of $15.37 per share. In connection with the merger, 25,870,420 shares of common stock were issued to our pre-merger common stockholders and 2,288,663 units in the operating partnership subsidiary (“OP units”) were issued to our pre-merger OP unit holders. Our pre-merger stockholders held approximately 86% of our stockholders’ equity as a result of the merger, with continuing ZAIS Financial stockholders holding approximately 14% of our stockholders’ equity, on a fully diluted basis. We were designated as the accounting acquirer because of our larger pre-merger size relative to ZAIS Financial, the relative voting interests of our stockholders after consummation of the merger, and our senior management and board of directors continuing on after the consummation of the merger.  Because we were designated as the accounting acquirer, our historical financial statements (and not those of ZAIS Financial) are the historical financial statements following the consummation of the merger and are included in this annual report on Form 10-K.  On November 1, 2016, we began trading on the New York Stock Exchange (“NYSE”) under ticker symbol “SLD”.

On September 26, 2018, we filed Articles of Amendment to our charter (the “Articles of Amendment”) with the State Department of Assessments and Taxation of Maryland, to change our name to Ready Capital Corporation. In addition, we amended and restated our bylaws and the second amended and restated agreement of limited partnership, effective September 26, 2018, each solely the reflect the name change.

In connection with the name change, our trading symbol on the NYSE changed from “SLD” to “RC” for shares of our common stock.

On November 7, 2018, the Company entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Owens Realty Mortgage, Inc. (“ORM”), a specialty finance company that focuses on the origination, investment, and management of commercial real estate loans, primarily in the Western U.S. Pursuant to the Merger Agreement, the Company will acquire ORM in a stock-for-stock transaction, whereby each outstanding share of ORM common stock will be converted into the right to receive 1.441 shares of Company common stock, based on a fixed exchange ratio. The estimated total consideration transferred of $182.6 million represents the current value of the Company’s common stock, adjusted for the exchange ratio, based on a November 7, 2018 closing price. Upon the closing of the transaction, which is conditioned on shareholder approval, Ready Capital stockholders will own approximately 72.4% of the combined company’s stock, while Owens Realty Mortgage stockholders will own approximately 27.6%  of the combined company’s stock. The transaction is expected to close during the first quarter of 2019 and is subject to regulatory approvals and customary closing conditions. The stockholder base resulting from the acquisition of ORM is expected to enhance the trading volume and liquidity for our stockholders and support a greater level of institutional investor interest in our businesses.

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Our Manager

We are externally managed and advised by Waterfall, an SEC registered investment adviser. Formed in 2005, Waterfall specializes in acquiring, managing, servicing and financing SBC and residential mortgage loans, as well as asset backed securities (“ABS”) and MBS. Waterfall has extensive experience in performing and non-performing loan acquisition, resolution and financing strategies. Waterfall’s investment committee is chaired by Thomas Capasse and Jack Ross, who serve as our Chief Executive Officer and President, respectively. Messrs. Capasse and Ross, who are co-founders of Waterfall, each have over 25 years of experience in managing and financing a range of financial assets, including having executed the first public securitization of SBC loans in 1993, through a variety of credit and interest rate environments. Messrs. Capasse and Ross have worked together in the same organization for more than 20 years. They are supported by a team of approximately 100 investment and other professionals with extensive experience in commercial mortgage credit underwriting, distressed asset acquisition and financing, SBC loan originations, commercial property valuation, capital deployment, financing strategies and legal and financial matters impacting our business.

We rely on Waterfall’s expertise in identifying loan acquisitions and origination opportunities. Waterfall uses the data and analytics developed through its experience as an owner of SBC loans and in implementing loss mitigation actions to support its origination activities and to develop its loan underwriting standards. Waterfall makes decisions based on a variety of factors, including expected risk-adjusted returns, credit fundamentals, liquidity, availability of financing, borrowing costs and macroeconomic conditions, as well as maintaining our REIT qualification and our exclusion from registration as an investment company under the 1940 Act.

Our Investment Strategy and Market Opportunities Across Our Operating Segments

Our investment strategy is to opportunistically expand our market presence in our acquisition and origination segments and further grow our SBC securitization capabilities which serve as a source of attractively priced, match-term financing.  Following the 2013 private placement transaction, we capitalized on the dislocation of the credit markets and depressed levels of available capital by acquiring SBC loans from distressed sellers at historically high risk-adjusted returns.  Alongside the growth in our acquired loan portfolio and using our experience in underwriting and managing such loans, we built out our SBC and SBA origination capabilities and most recently added a residential agency mortgage origination component.  As such, we have become a full-service real estate finance platform and we believe that the breadth of our business allows us to adapt to market conditions and deploy capital in our asset classes with the most attractive risk-adjusted returns.

Our acquisition strategy complements our origination strategy by increasing our market intelligence in potential origination geographies, providing additional data to support our underwriting criteria and offering securitization market insight for various product offerings. The proprietary database on the causes of borrower default, loss severity, and market information that we developed from our SBC loan acquisition experience has served as the basis for the development ofour SBC and SBA loan origination programs. Additionally, our origination strategy complements our acquisition strategy by providing additional captive refinancing options for our borrowers and further data to support our investment analysis while increasing our market presence with potential sellers of SBC assets.

The following table illustrates certain information with respect to our four business segments as of December 31, 2018. 

	Loan	SBC	SBA Originations,	Residential Mortgage
	Acquisitions	Originations	Acquisitions and	Banking
			Servicing
Coordinating Affiliate / Manager	Waterfall	ReadyCap Commercial	ReadyCap Lending	GMFS
Strategy	SBC loan acquisition	SBC loan origination	SBA loan origination, acquisition and servicing	Residential mortgage origination and servicing
Gross Assets	$646.3 million	$1,606.2 million	$455.5 million	$260.5 million
% Equity Allocation	18.8%	54.9%	14.8%	11.5%
Personnel	136*	80	102	235

*Employees of Waterfall Asset Management

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According to the Federal Reserve, the U.S. commercial mortgage market including multi-family residences, and nonfarm, nonresidential mortgages totaled approximately $4.2 trillion as of December 2018.  The commercial mortgage market is largely bifurcated by loan size between “large balance” loans and “small balance” loans.  Large balance commercial loans typically include those loans with original principal balances of at least $20 million and are primarily financed by insurance companies and commercial mortgage backed securities (“CMBS”) conduits.  SBC loans typically include those loans with original principal amounts of between $500,000 and $35 million and are primarily financed by community and regional banks, specialty finance companies and loans guaranteed under the SBA loan programs.

SBC loans are used by small businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. SBC loans represent a special category of commercial mortgage loans, sharing both commercial and residential mortgage loan characteristics. SBC loans are typically secured by first mortgages on commercial properties or other business assets, but because SBC loans are also often accompanied by personal guarantees, aspects of residential mortgage credit analysis are utilized in the underwriting process. Most SBC loans are fully amortizing on a schedule of up to 30 years.

The table presented below illustrates a summary of how our Manager categorizes SBC loans compared to other real estate loan asset classes.

Asset Class	Average Initial Principal Balance	Loan-to-value	Yield
Residential housing	~ $225,000	~ 80%	~ 4.0%
Large balance commercial loans	>= $20.0 million	~ 65%	~ 4.0%
Small balance commercial loans	~ $2.0 million	~ 60%	~ 7.0%

We rely on our Manager’s expertise in identifying SBC loans for us to acquire. Our Manager will make decisions based on a variety of factors, including expected risk-adjusted returns, credit fundamentals, liquidity, availability of financing, borrowing costs and macroeconomic conditions, as well as maintaining our REIT qualification and our exclusion from registration as an investment company under the 1940 Act. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different economic and capital market environments. As a result, we cannot predict the percentage of its equity that will be invested in any particular asset or strategy at any given time.

Our Loan Portfolio

The table below presents a summary of the sourcing of our loan assets as of December 31, 2018 (in thousands):

Loan Type (1)	Segment	UPB		% of Total UPB		Carrying Amount (2)		% of Total Carrying Amount		Fair Value		% of Total Fair Value
Acquired loans	Loan Acquisitions (3)	$	572,942	22.1	%	$	553,147	21.8	%	$	560,083	21.8	%
Originated SBC loans	SBC Originations		787,973	30.5			800,072	31.5			796,329	31.0
Originated Freddie Mac loans	SBC Originations (4)		22,973	0.9			23,322	0.9			23,322	0.9
Originated Transitional loans	SBC Originations		668,353	25.8			664,733	26.2			671,132	26.1
Acquired SBA 7(a) loans	SBA Originations, Acquisitions and Servicing		357,977	13.8			320,274	12.6			346,524	13.5
Originated SBA 7(a) loans	SBA Originations, Acquisitions and Servicing (4)		109,402	4.2			106,722	4.2			105,035	4.1
Originated Residential Agency loans	Residential Mortgage Banking (4)		67,486	2.6			69,674	2.7			69,683	2.7
Total Loan portfolio		$	2,587,106	100.0	%	$	2,537,944	100.0	%	$	2,572,108	100.0	%
(1) Includes Loan assets of consolidated variable interest entities ("VIEs"). (2) Excludes specific and general allowance for loan losses. (3) Excludes real estate acquired in settlement of loans. (4) Excludes MSR assets.

The charts presented below illustrates additional information related to the geographic concentration, collateral concentration, and lien type of our loan portfolio:

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Our SBC Loan Acquisition Platform

Our SBC loan acquisition segment represents our investments in acquired SBC loans. We hold performing SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through proprietary loan modification programs. Where this is not possible, such as in the case of many non-performing loans, we seek to effect property resolution through the use of resolution alternatives to foreclosure.

Our Manager specializes in acquiring SBC loans that are sold by banks, including as part of bank recapitalizations or mergers, and from other financial institutions such as thrifts and non-bank lenders. Other sources of SBC loans include special servicers of large balance SBC ABS and CMBS trusts, the Federal Deposit Insurance Corporation, as receiver for failed banks, servicers of non-performing SBA Section 7(a) Program loans, and Community Development Companies originating loans under the SBA 504 program, GSEs, and state economic development authorities. Over the last several years, our Manager has developed relationships with many of these entities, primarily banks and their advisors. In many cases, we are able to acquire SBC loans through negotiated transactions, at times partnering with acquiring banks or private equity firms in bank acquisitions and recapitalizations. We believe that our Manager’s experience, reputation and ability to underwrite SBC loans make it an attractive buyer for this asset class, and that its network of relationships will continue to produce opportunities for it to acquire SBC loans on attractive terms.

Competition for SBC loan asset acquisitions has been limited due to the special servicing expertise required to manage SBC loan assets due to the small size of each loan, the uniqueness of the real properties that collateralize the loans, licensing requirements, the high volume of loans needed to build portfolios, and the need to utilize residential mortgage credit analysis in the underwriting process. These factors have limited institutional investor participation in SBC loan acquisitions, which has allowed us to acquire SBC loans with attractive risk-adjusted return profiles.

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The following table summarizes our loan acquisitions since 2008, including acquisitions prior to the formation of our operating partnership in November 2011 when our business was operated as part of the Victoria Funds, as of December 31, 2018:

Acquisition Year(1)	Purchased UPB (in thousands)		Cost (in thousands)		Liquidated UPB (in thousands)		Liquidated Cost (in thousands)		Current UPB (in thousands)		Amortized Cost of Remaining Loans (in thousands)
2008	$	21,887	$	16,197	$	20,108	$	14,784	$	1,477	$	1,069
2009		18,604		9,351		17,900		9,043		608		572
2010		158,449		61,459		155,400		59,780		2,441		1,687
2011		356,378		233,444		316,829		202,773		30,793		27,221
2012		203,956		134,136		202,032		133,335		1,621		491
2013		221,549		152,603		180,211		119,245		32,313		27,248
2014		347,809		224,607		287,503		178,487		48,684		35,733
2015		208,504		199,597		123,368		118,847		67,328		63,892
2016		139,724		136,771		74,309		72,992		49,155		47,983
2017		97,951		95,830		28,781		28,699		62,365		60,425
2018		371,804		372,875		64,357		63,474		288,078		289,769
Total	$	2,146,615	$	1,636,870	$	1,470,798	$	1,001,458	$	584,863	$	556,092

(1) Table includes real estate owned balances with current UPB of $11.9 million and a carrying value of approximately $2.9 million. Excludes general allowance for loan losses of $0.6 million.

The following chart sets forth certain information as of December 31, 2018 related to the unlevered yields on our acquired loan portfolio:

The following table sets forth certain information as of December 31, 2018 related to our acquired loan portfolio (in thousands):

Contractual Status (1)	Original UPB		Current UPB		Average UPB		Carrying Value (2)		Average Cost		Weighted Average Interest Rate		Weighted Average Maturity
Current	$	1,151,935	$	541,796	$	674	$	527,933	$	657	6.3	%	February 2027
30 - 59 days delinquent		9,364		5,444		340		4,749		297	6.5		November 2028
60 - 89 days delinquent		5,029		3,145		286		2,463		224	5.8		July 2027
90 - 179 days delinquent		11,671		8,278		443		5,437		320	6.3		August 2028
180 + days delinquent		19,969		10,131		326		4,831		297	6.6		January 2021
Bankruptcy		4,711		2,609		201		1,846		142	5.7		December 2024
Foreclosure		3,093		2,289		572		1,438		360	6.4		July 2031
Total	$	1,205,772	$	573,692	$	648	$	548,697	$	616	6.3	%	July 2026
(1) Includes Loan assets of consolidated VIEs. (2) Excludes specific and general allowance for loan losses.

Waterfall’s extensive experience in securitization strategies for SBC loans dates to the first SBC ABS for performing loans and liquidating trusts for non-performing loans purchased from the Resolution Trust Corporation in 1993. We believe that in 2011, we were the first post-financial crisis issuer of SBC ABS and have since completed several SBC

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bond issuances backed by newly originated and acquired SBC and SBA 7(a) loan assets. The following table summarizes our acquired loan securitization activities:

Deal Name	Asset Class	Issuance	Ratings	Bonds Issued (in $ millions)		Weighted Average Debt Cost
WVMT 2011-SBC1	SBC Acquired Loans - NPL	February 2011	NR(1)	$	40.5	7.0	%
WVMT 2011-SBC2	SBC Acquired Loans	March 2011	DBRS(2)		97.7	5.1
WVMT 2011-SBC3	SBC Acquired Loans - NPL	October 2011	NR(1)		143.4	6.4
SCML 2015-SBC4	SBC Acquired Loans - NPL	August 2015	NR(1)		125.4	4.0
SCMT 2017-SBC6	SBC Acquired Loans	August 2017	NR(1)		154.9	3.3
SCMT 2018-SBC7	SBC Acquired Loans	November 2018	NR(1)		217.0	4.7
Total				$	778.9	4.8	%

(1) Not rated.

(2) DBRS is an SEC-registered nationally recognized statistical rating organization.

Our Loan Origination Platforms

We originate SBC loans generally ranging in initial principal amount of between $500,000 and $35 million, and typically with a duration of six years at origination. Our origination platform, which focuses on first mortgage loans, provides conventional SBC mortgage financing for SBC properties nationwide through the following programs:

· First mortgage loans. Loans for the acquisition or refinancing of stabilized properties secured by traditional commercial properties such as multi-family, office, retail, mixed use or warehouse properties, which are often guaranteed by the property owners. The loans are typically amortizing and have maturities of five to twenty years.

· Transitional loans. Loans for the acquisition of properties requiring more substantial expenditures for stabilization, secured by traditional commercial properties such as multi-family, office, retail, mixed use or warehouse properties which may be guaranteed by the property owners. The loans are typically interest-only and have maturities of two to four years.

· Freddie Mac loans. Origination of loans ranging from $1 million to $5 million secured by multi-family properties through the recently launched Freddie Mac program. Loans are 90% guaranteed through the program. We sell qualifying loans to Freddie Mac, which, in turn, sells such loans to securitization structures. We are obligated to purchase the B-pieces secured by its underlying loans.

· SBA loans. Loans secured by real estate, machinery, equipment and inventory that are guaranteed, typically 75% under the SBA Section 7(a) Programs. SBA loans include personal guarantees of the borrower and are typically amortizing and have maturities of seven to twenty-five years.

Additionally, as a large regional mortgage lender, we are approved to originate and service Fannie Mae, Freddie Mac and Ginnie Mae eligible loans through the residential mortgage loan programs. These include prime, subprime and alternative-A and alternative-B mortgage loans, which may be adjustable-rate, hybrid and/or fixed-rate residential mortgage loans and pay option adjustable rate mortgage loans (“ARMs”).

Our origination platforms include the following segments: (i) SBC Originations (ii) SBA Originations and (iii) Residential Mortgage Originations.

SBC Originations

We operate our SBC loan originations segment through ReadyCap Commercial. ReadyCap Commercial is a specialty-finance nationwide originator focused on originating commercial real estate mortgage loans through its conventional,

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agency multi-family and transitional loan programs. The following table summarizes the loan features of ReadyCap Commercial’s three product types:

	Stabilized Conventional/Agency Commercial Real Estate Lending		Transitional, Value-Add and Event Driven Commercial Real Estate Lending
	First Mortgage Product	Freddie Mac Product	Transitional Product
Loan Purpose	Purchase, Cash-Out Refinance, Rate & Term Refinance, Transitional Lite	Purchase, Cash-Out Refinance, Rate & Term Refinance	Purchase, Cash-Out Refinance, Rate & Term Refinance, Bridge
Product Highlights	Stabilized Properties, Single-Tenants, Earn-Outs, Transitional-Lite	>= 90% Occupancy	Unstabilized Properties, Earn-outs, Rehab/Renovation, Construction, Lease Roll Issues, Vacancy Issues
Core Property Types	Multi-family, Mixed Use, Retail, Office, Industrial	Multi-family	Multi-family, Mixed Use, Retail, Office, Industrial
Loan Size	$750,000 - $10,000,000	$1,000,000 - $5,000,000	$5,000,000 - $35,000,000
Terms	2 - 10 Years	5 - 20 Years	< 5 Years
Amortization	20 - 30 Years	20 - 30 Years	Full Term Interest Only
Leverage	Up to 75% LTV	Up to 80% LTV	Up to 80% LTV
Take Out	Term Securitization	GSE Wrap Securitization	CLO Securitization
Origination Fees	Up to 1%	Up to 1%	Up to 1% & Up to 2% Exit Fee

                                     (1) Bonds guaranteed by the GSEs.

Through December 31, 2018, we have originated more than $3.5 billion in SBC loans in 38 states since ReadyCap Commercial’s inception in September 2012.    The following chart summarizes our SBC conventional loan originations since ReadyCap Commercial’s formation:

As of December 31, 2018, our originated SBC loans held in our portfolio had a UPB of $1,479.3 million and a carrying value of approximately $1,488.1 million. Our originated SBC loans, substantially all of which are currently classified as performing loans, represented approximately 57.2% of the UPB and 58.6% of the carrying value of our total loan portfolio as of December 31, 2018.  

The following table summarizes our originated SBC loan securitization activities:

Deal Name	Asset Class	Issuance	Ratings	Bonds Issued (in $ millions)		Weighted Average Debt Cost
RCMT 2014-1	SBC Originated Conventional	September 2014	MDY(1) / DBRS	$	181.7	3.2%
RCMT 2015-2	SBC Originated Conventional	November 2015	MDY(1) / Kroll(2)		218.8	4.0%
FRESB 2016-SB11	Originated Agency Multi-family	January 2016	GSE Wrap(3)		110.0	2.8%
FRESB 2016-SB18	Originated Agency Multi-family	July 2016	GSE Wrap(3)		118.0	2.2%
RCMT 2016-3	SBC Originated Conventional	November 2016	MDY(1) / Kroll(2)		162.1	3.4%
FRESB 2017-SB33	Originated Agency Multi-family	June 2017	GSE Wrap(3)		197.9	2.6%
RCMF 2017-FL1	SBC Originated Transitional	August 2017	MDY(1) / Kroll(2)		198.8	L + 139 bps
FRESB 2018-SB45	Originated Agency Multi-family	January 2018	GSE Wrap		362.0	2.8%
RCMT 2018-4	SBC Originated Conventional	March 2018	MDY(1) / Kroll(2)		165.0	3.8%
RCMF 2018-FL2	SBC Originated Transitional	June 2018	MDY(1) / Kroll(2)		217.1	L + 121 bps
FRESB 2018-SB52	Originated Agency Multi-family	September 2018	GSE Wrap		505.0	2.9%
Total				$	2,436.40	4.2%

(1) Moody’s is a rating agency and an SEC-registered nationally recognized statistical rating organization.

(2) Kroll Bond Rating Agency is a rating agency and an SEC-registered nationally recognized statistical rating organization.

(3) GSE wrap guarantee.

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Additionally, ReadyCap Commercial has been approved by Freddie Mac as one of 11 originators and servicers for multi-family loan products under the Freddie Mac program. As of December 31, 2018, ReadyCap Commercial employs 80 people focused on originating and supporting the SBC loan origination business.

The SBC loan origination market is highly fragmented, with few dedicated lenders. Furthermore, we believe that as economic conditions continue to stabilize or strengthen, the volume of short-term loan extensions and restructurings of existing SBC loans will be reduced, resulting in increased opportunities for us to originate new SBC loans.

We believe that we have significant opportunity to originate SBC loans at attractive risk-adjusted returns. We believe that many banks have restrictive credit guidelines for our target assets. In addition, large banks are not focused on the SBC market and smaller banks only lend in specific geographies. We see an opportunity to earn an attractive risk spread premium by lending to borrowers that do not fit the credit guidelines of many banks. We believe that increased demand, coupled with the fragmentation of the SBC lending market, provides us with attractive opportunities to originate loans to borrowers with strong credit profiles and real estate collateral that supports ultimate repayment of the loans.

We expect to continue to source SBC loan originations through the following loan origination channels:

· Direct and indirect lending relationships.  We will generate origination loan leads directly through our extensive relationships with commercial real estate brokers, bank loan officers and mortgage brokers that refer leads to our loan officers. To a lesser extent, we will also source loan leads through commercial real estate realtors, trusted advisors such as financial planners, lawyers, and certified public accountants (“CPAs”) and through direct-to-the-borrower transactions.

· Other direct origination sources for SBC loans.  From time to time, we may enter into strategic alliances and other referral programs with servicers, sub-servicers, strategic partners and vendors targeted at the refinancing of SBC loans.

SBA Origination, Acquisition and Servicing Platform

We operate our SBA loan origination, acquisition, and servicing segment through ReadyCap Lending. We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) Program through  ReadyCap Lending’s license, one of only 14 licensed non-bank SBLCs. In the future, we may also originate SBC loans for real estate under the SBA 504 loan program, pursuant to which the SBA guarantees subordinated, long-term financing. We believe investor demand for pass-through securities backed by the guaranteed portions of SBA Section 7(a) Program loans has been strong because the principal and interest payments are guaranteed by the full faith and credit of the U.S. Government. For this reason, we believe that SBA participating lenders that have sold the guaranteed portions of SBA Section 7(a) Program loans in recent years have been able to recognize attractive gains.

The SBA was created out of the Small Business Act in 1953. The SBA’s function is to protect the interests of small businesses. The SBA classifies a small business as a business that is organized for profit and is independently owned and operating primarily within the United States with less than $15 million in tangible net worth and not more than $5 million in average after-tax net income. The SBA supports small businesses by administering several programs that provide loan guarantees against default on qualified loans made to eligible small businesses.

The SBA Section 7(a) Program is the SBA’s primary program for providing financing for start-up and existing small businesses. The SBA typically guarantees 75% of qualified loans over $150,000. While the eligibility requirements of the SBA Section 7(a) Program vary depending on the industry of the borrower and other factors, the general eligibility requirements include the following: (i) gross sales of the borrower cannot exceed size standards set by the SBA (e.g., $30.0 million for limited service hospitality properties) or, alternatively, average net income cannot exceed $5.0 million for the most recent two fiscal years, (ii) liquid assets of the borrower and affiliates cannot exceed specified limits, (iii) tangible net worth of the borrower must be less than $15.0 million, (iv) the borrower must be a U.S. citizen or legal permanent resident and (v) the maximum aggregate SBA loan guarantees to a borrower cannot exceed $3.75 million. The table below provides information on the SBA Section 7(a) Program’s key features, including its eligible uses, maximum loan amount, loan maturity, interest rate, guarantee fee, yearly fee and personal guarantee.

Key Feature Program Summary

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Use of Proceeds	Fixed assets, working capital, financing of start-up or to purchase an existing business. Some debt payment allowed but lender’s loan exposure may not be reduced with the proceeds.
Maximum Loan Amount	$5,000,000
Maturity	Five to seven years for working capital and up to 25 years for equipment and real estate. All other loan purposes have a maximum term of ten years.
Interest Rate	Negotiated between applicant and lender and is subject to maximums. The current maximums are Prime Rate plus 2.25% for maturities fewer than seven years and Prime Rate plus 2.75% for maturities of seven years or longer. Spreads on loans with an initial UPB below $50,000 have higher maximums.
Guaranty Fee	Based on the loan’s maturity and the dollar amount guaranteed. The lender initially pays the guaranty fee and has the option to pass the expense on to the borrower at closing. A fee of 0.25% of the guaranteed portion of the loan is charged for loans with maturities of 12 months or less. For loans with maturities over 12 months, the fees are 2% for loans of $150,000 or less; 3% for loans of $150,001 to $700,000; 3.5% for loans over $700,000; and 3.75% for guaranteed portion over $1 million.
Yearly Fee	The ongoing yearly fee due from lenders to SBA is 0.52% of the guaranteed portion of the outstanding balance on the 7(a) loan.
Personal Guarantee	Required from all owners of 20% or more of the equity of the business. Lenders can require personal guarantees of owners with less than 20% ownership.

Sources:  SBA, Business Development Corporation, Office of the Comptroller of the Currency, Congressional Research Service

      Our return on equity related to the SBA 7(a) program is generated through retained yield on the unguaranteed principal balance as well as sale premium and retained servicing on the guaranteed principal balance as displayed by the following:

The following table sets forth certain information as of December 31, 2018 related to our acquired SBA 7(a) loan portfolio (in thousands):

Contractual Status (1)	Original UPB		Current UPB		Average UPB		Carrying Value (2)		Average Cost		Weighted Average Rate		Weighted Average Maturity
Current	$	750,360	$	328,021	$	251	$	298,032	$	228	6.9	%	March 2028
30 - 89 days delinquent		48,175		16,645		216		14,942		194	7.1		July 2026
90+ days delinquent		54,131		10,124		123		3,907		48	7.1		December 2027
Bankruptcy		23,173		3,174		96		1,602		49	6.0		March 2025
Total	$	875,839	$	357,964	$	143	$	318,483	$	211	6.9	%	January 2028
(1) Includes loan assets of consolidated VIEs. (2) Excludes specific and general allowance for loan losses.

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We have originated more than $393.8 million in SBA loans in 38 states since the program’s inception in mid-2015 through December 31, 2018.  As of December 31, 2018, our originated SBA loans held in our loan portfolio had a UPB of $109.4 million and a carrying value of approximately $106.7 million.

The following table sets forth certain information as of December 31, 2018 related to our sale of originated SBA loans (in thousands):

Quarter	Proceeds Received for Sale of Guaranteed Portion of Loans		UPB Sold		Net Proceeds		Weighted Average Sales Premium
Q1 2016	$	10,344	$	9,271	$	1,072	11.6	%
Q2 2016		6,964		6,186		778	12.6
Q3 2016		14,414		12,879		1,535	11.9
Q4 2016		12,857		11,732		1,125	9.6
Q1 2017		10,638		9,595		1,044	10.9
Q2 2017		23,570		21,125		2,445	11.6
Q3 2017		32,855		29,354		3,501	11.9
Q4 2017		28,189		25,260		2,929	11.6
Q1 2018		33,647		30,158		3,487	11.6
Q2 2018		55,574		50,064		5,510	11.0
Q3 2018		35,086		31,995		3,091	9.7
Q4 2018		54,996		50,426		4,570	9.1
Total	$	372,153	$	338,690	$	33,462	9.9	%

The following table sets forth certain information as of December 31, 2018, related to our SBA servicing portfolio (in thousands):

Origination Vintage	Serviced Principal Balance		Weighted Average Servicing Fee		Weighted Average Remaining Term (in months)	% in Default
< 1999	$	2,055	2.1	%	52	10.1	%
2000 - 2004		39,349	1.7		103	6.0
2005 - 2009		167,702	2.2		139	10.1
2010 - 2014		33,207	1.0		198	6.5
2015 +		263,842	1.0		225	1.0
Total	$	506,155	1.5	%	185	4.8	%

We use the securitization markets to access term financing on the unguaranteed retained portion of the SBA 7(a) Program loans. The following table summarizes our SBA loan securitization activities:

Deal Name	Asset Class	Issuance	Ratings	Collateral Securitized	Weighted Average Debt Cost
RCLT 2015-1	SBA 7(a) Loans	June 2015	S&P(1)	$ 189.5 million	2.5%

(1) S&P is a rating agency and an SEC-registered nationally recognized statistical rating organization.

Residential Mortgage Origination Platform

GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, VA and USDA through retail, correspondent and broker channels. GMFS is licensed in 18 states and provides a wide range of residential mortgage services, including home purchase financing, mortgage refinancing, reverse mortgages, new construction loans and condo financing. GMFS operates through 13 retail branches located in Louisiana, Georgia, Mississippi, Alabama, and Texas.GMFS employs both a servicing retained and servicing released execution strategy, while retaining approximately 85-90% of current production. Our residential mortgage loan portfolio represented approximately 2.7% of the carrying value and 2.6% of the UPB of our total loan portfolio as of December 31, 2018. Our residential mortgage origination platform employed a total of 235 people as of December 31, 2018. 

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GMFS provides a residential origination platform to our sourcing capabilities, allowing access to new credit investment opportunities while controlling the origination process.  We believe we can enhance and grow the GMFS origination platform through better access to capital and an expanded product offering. In addition, using this platform we intend to continue to invest in MSRs through retention and secondary market transactions and to selectively pursue new residential product offerings.

Highlights of the historical GMFS origination activity by purpose for the year ended December 31, 2018 are as follows:

The following table sets forth certain historical information related to the GMFS servicing of residential mortgage loans: 

 

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Highlights of the GMFS operating activity (which is included in our residential mortgage banking segment) for the year ended December 31, 2018 are as follows:

Our management team has extensive experience and an established track record of operating through multiple market cycles.  We primarily originate, sell and service conventional, conforming agency and government insured residential mortgage loans originated or acquired through our three channels: retail, correspondent and wholesale. Our mortgage lending operation generates origination and processing fees, net of origination costs, at the time of origination as well as gains or unexpected losses when the loans are sold to third party investors, including the GSEs and Ginnie Mae. We retain servicing rights from the mortgage originations and earn servicing fees, net of sub-servicer costs, from our mortgage servicing portfolio.

We believe that we have a significant opportunity to expand our footprint within the mortgage banking industry through:

· Enhancement of our technology systems to drive further efficiency and customer satisfaction.

· Increased penetration of existing clients and through the addition of new branches and independent originators in our correspondent and wholesale channels.

· Opportunistic geographic expansion in our retail channel.

· Expansion of our Texas operation (launched in the Fall of 2015), which originates loans through our retail, correspondent, and wholesale channels. 

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 pipeline or our 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 and

· 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.

As of December 31, 2018, our Manager has identified approximately $1,004.2 million in potential assets as measured by the fully committed amounts of the loans, comprised of:

· $230.0 million in potential acquisitions of SBC loans,

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· $482.5 million in SBC loan originations,

· $167.7 million in SBA loan originations, and

· $124.0 million in commitments to originate residential agency loans.

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.

FINANCING STRATEGY

We use prudent leverage to increase potential returns to our stockholders. We finance the loans we originate primarily through securitization transactions, as well through other borrowings. We also plan to sell the guaranteed portion of our SBA loan originations in the secondary market.

Our Manager’s extensive experience in non-performing and performing loan acquisition, origination, servicing and securitization strategies has enabled us to complete several securitizations of SBC loan and SBA 7(a) loan assets since January 2011. SBC securitization structures are non-recourse and typically provide debt equal to 50% to 90% of the cost basis of the SBC assets. Non-performing SBC ABS involve liquidating trusts with liquidation proceeds used to repay senior debt. Performing SBC ABS involve longer-duration trusts with principal and interest collections allocated to senior debt and losses on liquidated loans to equity and subordinate tranches. Our strategy is to continue to finance our assets through the securitization market, which will allow us to continue to match fund the SBC loans pledged as collateral to secure these securitizations on a long-term non-recourse basis.

We anticipate using other borrowings as part of our financing strategy, including re-securitizations, repurchase agreements, warehouse facilities, bank credit facilities (including term loans and revolving facilities), and public and private equity and debt issuances.

As of December 31, 2018, our committed and outstanding financing arrangements included:

· Seven committed credit facilities and three master repurchase agreements to finance our SBC and residential mortgage loans with $729.7 million of borrowings outstanding;

· $905.3 million of securitized debt obligations outstanding from $3.4 billion ABS that financed our whole loan acquisitions and SBC originations;

· master repurchase agreements with four counterparties to fund our acquisition of MBS, short term investments, and SBC loans with $635.2 million of borrowings outstanding;

· $50.0 million in principal amount of 6.50% senior notes due 2021, our “Corporate Debt,” to originate or acquire our target assets and for general corporate purposes;

· $180.0 million in principal amount of 7.50% senior secured notes due 2022, or “Senior Secured Notes,” to originate or acquire our target assets and for general corporate purposes; and

· $115.0 million in principal amount of 7.00% convertible senior notes due 2023, our “Convertible Notes (and together with our Corporate Debt and Senior Secured Notes, the “Notes”), to originate or acquire our target assets and for general corporate purposes.

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Our financing agreements require the company to maintain a debt-to-equity leverage ratio at certain levels. The amount of leverage we may employ for particular assets will depend upon the availability of particular types of financing and our Manager's assessment of the credit, liquidity, price volatility and other risks of those assets and financing counterparties. We currently target a total debt-to-equity leverage ratio between 3:1 to 4:1 and a recourse debt-to-equity leverage ratio between 1.5:1 to 2.5:1. We believe that these target leverage ratios are conservative for these asset classes and exemplify the conservative levels of borrowings we intend to use over time. We intend to use leverage for the primary purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. We may, however, be limited or restricted in the amount of leverage we may employ by the terms and provisions of any financing or other agreements that we may enter into in the future, and we may be subject to margin calls as a result of its financing activity. At December 31, 2018, we had a leverage ratio of 2.1x on a recourse debt-to-equity ratio.

HEDGING STRATEGY

Subject to maintaining our qualification as a REIT, we may use derivative financial instruments (or hedging instruments), including interest rate swap agreements, interest rate cap agreements, options on interest rate swaps, or swaptions, financial futures, structured credit indices, and options in an effort to hedge the interest rate and credit spread risk associated with the financing of our portfolio. Specifically, we attempt to hedge our exposure to potential interest rate mismatches between the interest we earn on our assets and our borrowing costs caused by fluctuations in short-term interest rates, and we intend to hedge our SBC loan originations from the date the interest rate is locked until the loan is included in a securitization. We also use hedging instruments in connection with our residential mortgage loan origination platform in an attempt to offset some of the impact of prepayments on our loans. In particular, we use MBS forward sales contracts to manage the interest rate price risk associated with the interest rate lock commitments we make with potential borrowers.  In utilizing leverage and interest rate hedges, our objectives include, where desirable, locking in, on a long-term basis, a spread between the yield on our assets and the cost of our financing in an effort to improve returns to our stockholders. We will undertake to hedge our originated loan inventory pending securitization with respect to changes in securitization liability cost resulting from both changes in benchmark treasuries and credit spreads. Hedges are periodically re-balanced to match expected duration of the securitization and are closed at securitization issuance with the resulting gain or loss allocated to the retained basis in the securitization with the objective of protecting the yield for the aforementioned changes in securitization liabilities.

CORPORATE GOVERNANCE

We strive to maintain an ethical workplace in which the highest standards of professional conduct are practiced.

· Our board of directors is composed of a majority of independent directors. The Audit, Nominating and Corporate Governance and Compensation Committees of our board of directors are composed exclusively of independent directors.

· In order to foster the highest standards of ethics and conduct in all business relationships, we have adopted a Code of Conduct and Ethics policy, which covers a wide range of business practices and procedures, that applies to our officers, directors, employees, if any, and independent contractors, to our Manager and our Manager’s officers and employees, and to any of our affiliates or affiliates of the Manager, and such affiliates’ officers and employees, who provide services to us or the Manager in respect of our Company. In addition, we have implemented Whistleblowing Procedures for Accounting and Auditing Matters and Code of Conduct and Ethics Violations (the “Whistleblower Policy”) that set forth procedures by which any Covered Persons (as defined in the Whistleblower Policy) may raise, on a confidential basis, concerns regarding, among other things, any questionable or unethical accounting, internal accounting controls or auditing matters and any potential violations of the Code of Conduct and Ethics with our Audit Committee or the Chief Compliance Officer.

· We have adopted an Insider Trading Policy for Trading in the Securities of our Company (the “Insider Trading Policy”), that governs the purchase or sale of our securities by any of our directors, officers, and associates (as defined in the Insider Trading Policy), if any, and independent contractors, as well as officers and employees of the Manager and our officers, employees and affiliates, and that prohibits any such persons from buying or selling our securities on the basis of material non-public information.

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COMPETITION

We compete with numerous regional and community banks, specialty-finance companies, savings and loan associations and other entities, and we expect that others may be organized in the future. The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of SBC and SBA assets suitable for purchase, which may cause the price for such assets to rise. Additionally, origination of SBC loans, SBA loans and residential agency loans by our competitors may increase the availability of these loans, which may result in a reduction of interest rates on these loans.

In the face of this competition, we expect to have access to our Manager’s professionals and their industry expertise, which may provide us with a competitive advantage in sourcing transactions and help it assess acquisition and origination risks and determine appropriate pricing for potential assets. Additionally, we believe that we are currently one of only a handful of active market participants in the secondary SBC loan market. Due to the special servicing expertise needed to effectively manage these assets, the small size of each loan, the uniqueness of the real properties that collateralize the loans and the need to bring residential mortgage credit analysis into the underwriting process, we expect a competitive demand for these assets to remain constrained. We seek to manage credit risk through our loan-level pre-origination or pre-acquisition due diligence and underwriting processes, which as of December 31, 2018 has limited the amount of realized losses. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, see “Item 1A - Risk Factors – Risks Related to Our Business – New entrants in the market for SBC loan acquisitions and originations could adversely impact our ability to acquire SBC loans at attractive prices and originate SBC loans at attractive risk-adjusted returns.”

EMPLOYEES; STAFFING

We are managed by Waterfall pursuant to the management agreement with Waterfall. Frederick Herbst, who is employed by Waterfall and serves as our Chief Financial Officer, is dedicated exclusively to us, along with seven of Waterfall’s accounting professionals, one marketing professional, and one information technology professional whom are also dedicated primarily to us. Waterfall or we may in the future hire additional personnel that may be dedicated to our business. Waterfall is not, however, obligated under the management agreement to dedicate any of its personnel exclusively to our business, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business. Accordingly, with the exception of our Chief Financial Officer, our executive officers are not required to devote any specific amount of time to our business. We are responsible for the costs of our own employees. However, with the exception of our ReadyCap Commercial, ReadyCap Lending and GMFS subsidiaries, which will employ its own personnel, we do not expect to have our own employees.

Our corporate headquarters are located at 1140 Avenue of the Americas, 7th Floor, New York, NY 10036, and our telephone number is (212) 257-4600.

EXECUTIVE OFFICERS OF THE COMPANY

The following sets forth certain information with respect to our executive officers.

Name	Age	Position with the Company
Thomas E. Capasse	61	Chairman of the Company Board of Directors and Chief Executive Officer
Jack J. Ross	61	President and Director
Frederick C. Herbst	61	Chief Financial Officer
Tom Buttacavoli	41	Chief Investment Officer

Set forth below is biographical information for our executive officers and other key personnel.

Thomas E. Capasse is a Manager and co-founder of our Manager. Mr. Capasse also serves as Chairman of our board of directors and our Chief Executive Officer. Prior to founding Waterfall, Mr. Capasse managed the principal finance groups at Greenwich Capital from 1995 until 1997, Nomura Securities from 1997 until 2001, and Macquarie Securities from 2001 until 2004. Mr. Capasse has significant and long-standing experience in the securitization market as a founding member of Merrill Lynch’s ABS Group (1983 – 1994) with a focus on MBS transactions (including the initial Subprime Mortgage and Manufactured Housing ABS) and experience in many other ABS sectors. Mr. Capasse began his career as

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a fixed income analyst at Dean Witter and Bank of Boston. Mr. Capasse received a Bachelor of Arts degree in Economics from Bowdoin College in 1979.

Jack J. Ross is a Manager and co-founder of our Manager. Mr. Ross also serves as our President and as a member of our board of directors. Prior to founding Waterfall in January 2005, Mr. Ross was the founder of Licent Capital, a specialty broker/dealer for intellectual property securitization. From 1987 until 1999, Mr. Ross was employed by Merrill Lynch where he managed the real estate finance and ABS groups. Mr. Ross began his career at Drexel Burnham Lambert where he worked on several of the early ABS transactions and at Laventhol & Horwath where he served as a senior auditor. Mr. Ross received a Masters of Business Administration degree in Finance with distinction from the University of Pennsylvania’s Wharton School of Business in 1984 and a Bachelor of Science degree in Accounting, cum laude, from the State University of New York at Buffalo in 1978.

Frederick C. Herbst serves as a Managing Director of our Manager and as our Chief Financial Officer. Prior to 2009, Mr. Herbst was Chief Financial Officer of Clayton Holdings, Inc., a publicly traded provider of analytics and due diligence services to participants in the mortgage industry. Prior to Clayton Holdings, he was Chief Financial Officer of Arbor Realty Trust, Inc., a publicly traded real estate investment trust, from 2003 until 2005, and of Arbor Commercial Mortgage, LLC from 1999 until 2005. Prior to joining Arbor, Mr. Herbst was Chief Financial Officer of The Hurst Companies, Inc., Controller with The Long Island Savings Bank, FSB, Vice President Finance with Eastern States Bankcard Association and a Senior Manager with Ernst & Young. Mr. Herbst received a Bachelor of Arts degree in Accounting from Wittenberg University in 1979. Mr. Herbst became a CPA in 1983.

Thomas Buttacavoli is a Manager, Managing Director and co-founder of our Manager. Mr. Buttacavoli serves as our Chief Investment Officer and Portfolio Manager of our SBC loan portfolio. Prior to joining Waterfall in 2005, Mr. Buttacavoli was a Structured Finance Analyst specializing in intellectual property securitization at Licent Capital. Prior to joining Licent Capital, he was a Strategic Planning Analyst at BNY Capital Markets. Mr. Buttacavoli started his career as a Financial Analyst within Merrill Lynch’s Partnership Finance Group. Mr. Buttacavoli received a Bachelor of Arts degree in Finance and Accounting from New York University’s Stern School of Business in 1999.

AVAILABLE INFORMATION

We maintain a website at www.readycapital.com and will make available, free of charge, on our website (a) our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (including any amendments thereto), proxy statements and other information (collectively, “Company Documents”) filed with, or furnished to, the SEC, as soon as reasonably practicable after such documents are so filed or furnished, (b) Corporate Governance Guidelines, (c) Director Independence Standards, (d) Code of Conduct and Ethics and (e) written charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of the board of directors. Company Documents filed with, or furnished to, the SEC are also available for review and copying by the public at the SEC’s website at www.sec.gov. We provide copies of our Corporate Governance Guidelines and Code of Conduct and Ethics, free of charge, to stockholders who request such documents. Requests should be directed to Jacques Cornet, ICR, Inc., at 685 Third Avenue, 2nd Floor, New York, NY 10017.

Item 1A. Risk Factors

Our business and operations are subject to a number of risks and uncertainties, the occurrence of which could adversely affect our business, financial condition, consolidated results of operations and ability to make distributions to stockholders and could cause the value of our capital stock to decline. Please refer to the section entitled “Forward-Looking Statements.”

Risks Related to Our Business

Our acquisitions and the integration of acquired businesses subject us to various risks and may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations.

     We have in the past, and may in the future, seek to grow our business by acquiring other businesses that we believe will complement or augment our existing businesses. In the first half of 2019, we expect to complete our acquisition of ORM. In October 2016, we completed our merger with ZAIS Financial. We cannot predict with certainty the benefits of these acquisitions, which often constitute multi-year endeavors. There is risk that our acquisitions may not have the

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anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being acquired; the total cost and time required to complete the integration successfully; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.

     If we are unable to successfully integrate our acquisitions into our business, we may never realize their expected benefits. With each acquisition, we may discover or experience unexpected costs, liabilities for which we are not indemnified, delays, lower than expected cost savings or synergies, or incurrence of other significant charges such as impairment of goodwill or other intangible assets and asset devaluation. In addition, we may be unable to successfully integrate the diverse company cultures, retain key personnel, apply our expertise to new competencies, or react to adverse changes in industry conditions.

    Acquisitions may also result in business disruptions that could cause customers to move their business to our competitors. It is possible that the integration process related to acquisitions could result in the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients, customers, and employees. The loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business. Acquisition and integration efforts could divert management attention and resources, which could have an adverse effect on our financial condition and results of operations. Additionally, the operation of the acquired businesses may adversely affect our existing profitability, and we may not be able to achieve results in the future similar to those achieved by our existing business or manage growth resulting from the acquisition effectively.

We anticipate that a significant portion of our investments will be in the form of SBC loans that are subject to increased risks.

Our acquired non-performing loans represented in the aggregate 4.3% of the UPB and 4.0% of the carrying value, of our total loan portfolio as of December 31, 2018. As of December 31, 2018, our 376 non-performing loans had a current unpaid principal balance of $112.6 million and a carrying value of $100.7 million. We consider a loan to be performing if the borrower is current on 100% of the contractual payments due for principal and interest during the most recent 90 days. We consider a loan to be non-performing if the borrower does not meet the criteria of a performing loan. Non-performing SBC loans are subject to increased risks of credit loss for a variety of reasons, including, the underlying property is too highly-leveraged or the borrower has experienced financial distress. Whatever the reason, the borrower may be unable to meet its contractual debt service obligation to us or our subsidiaries. Non-performing SBC loans may require a substantial amount of workout negotiations and/or restructuring, which may divert our attention from other activities and entail, among other things, a substantial reduction in the interest rate or capitalization of past due interest. However, even if restructurings are successfully accomplished, risks still exist that borrowers will not be able or willing to maintain the restructured payments or refinance the restructured mortgage upon maturity. Additional risks inherent in the acquisition of non-performing SBC loans include undisclosed claims, undisclosed tax liens that may have priority, higher legal costs and greater difficulties in determining the value of the underlying property.

As of December 31, 2018 the average loan-to-value (“LTV”), of ReadyCap Commercial’s originated portfolio was 61%. The weighted LTV of our acquired loans was 72% as of December 31, 2018. If such SBC loans with higher LTV ratios become delinquent, we may experience greater credit losses compared to lower-leveraged properties. Additional risks inherent in the acquisition of delinquent SBC loans include undisclosed claims, undisclosed tax liens that may have priority, higher legal costs and greater difficulties in determining the value of the underlying property.

The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets.

A portion of the SBC loans and ABS we own, acquire or originate may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less value than the value at which we have previously recorded our assets. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.

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Waterfall’s due diligence of potential SBC loans and ABS assets may not reveal all of the liabilities associated with such SBC loans and ABS assets and may not reveal the other combined weaknesses in such SBC loans and ABS assets, which could lead to investment losses.

Before making an investment, Waterfall calculates the level of risk associated with the SBC loan to be acquired or originated based on several factors which include the following: a complete review of seller’s data files, including data integrity, compliance review and custodial file review; rent rolls and other property operating data; personal credit reports of the borrower and owner and/or operator; property valuation review; environmental review; and tax and title search. In making the assessment and otherwise conducting customary due diligence, we will employ standard documentation requirements and require appraisals prepared by local independent third party appraisers it selects. Additionally, we will seek to have sellers provide representations and warranties on SBC loans we acquire, and if we are unable to obtain representations and warranties, we will factor the increased risk into the price we pay for such loans. Despite our review process, there can be no assurance that our due diligence process will uncover all relevant facts or that any investment will be successful.

If Waterfall underestimates the credit analysis and the expected risk adjusted return relative to other comparable investment opportunities, we may experience losses.

Waterfall expects to value our SBC and SBC ABS investments based on an initial credit analysis and the investment’s expected risk adjusted return relative to other comparable investment opportunities available to us, taking into account estimated future losses on the mortgage loans, and the estimated impact of these losses on expected future cash flows. Waterfall’s loss estimates may not prove accurate, as actual results may vary from estimates. In the event that Waterfall underestimates the losses relative to the price we pay for a particular SBC or SBC ABS investment, we may experience losses with respect to such investment.

The failure of a third-party servicer or the failure of our own internal servicing system to effectively service our portfolio of mortgage loans would materially and adversely affect us.

Most mortgage loans and securitizations of mortgage loans require a servicer to manage collections for each of the underlying loans. We will service our loan portfolio under a “component servicing” model (which includes the use of primary servicing by nationally recognized servicers and sub-servicing by participants in our Qualified Partner Program (“QPP”), who specialize in assets for the particular region in which the asset sits), which allows for highly customized loss mitigation strategies for non-performing and performing loans. Performing SBC loans (either loans purchased with historical activity, i.e., not originated, purchased in the secondary market or ReadyCap Commercial originations) will be securitized with us retaining the subordinate tranches. KeyBank Real Estate Capital, performs both primary and special servicing with all loss mitigation decisions directed by Waterfall (which also maintains an option to purchase delinquent loans from the securitization trust). Non-performing SBC loans are serviced either through an approved SBC primary servicer providing both primary and special servicing or providing only primary servicing with special servicing contracted to smaller regionally focused SBC operators and servicers who gain eligibility to participate in its QPP. Servicers’ responsibilities include providing collection activities, loan workouts, modifications and refinancings, foreclosures, short sales, sales of foreclosed real estate and financings to facilitate such sales. Both default frequency and default severity of loans may depend upon the quality of the servicer. If a servicer is not vigilant in encouraging the borrowers to make their monthly payments, the borrowers may be far less likely to make these payments, which could result in a higher frequency of default. If a servicer takes longer to liquidate non-performing assets, loss severities may be higher than originally anticipated. Higher loss severity may also be caused by less competent dispositions of real estate owned properties.

We will seek to increase the value of non-performing loans through special servicing activities that will be performed by our participating special servicers. Servicer quality is of prime importance in the default performance of SBC loans and SBC ABS. Many servicers have gone out of business in recent years, requiring a transfer of loan servicing to another servicer. Should we have to transfer loan servicing to another servicer, the transfer of loans to a new servicer could result in more loans becoming delinquent because of confusion or lack of attention. Servicing transfers involve notifying borrowers to remit payments to the new servicer, and these transfers could result in misdirected notices, misapplied payments, data input errors and other problems. Industry experience indicates that mortgage loan delinquencies and defaults are likely to temporarily increase during the transition to a new servicer and immediately following the servicing transfer. Further, when loan servicing is transferred, loan servicing fees may increase, which may have an adverse effect on the credit support of assets held by us.

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Effectively servicing our portfolio of SBC loans is critical to our success, particularly given our strategy of maximizing the value of our portfolio with our loan modifications, loss mitigation, restructuring and other special servicing activities, and therefore, if one of our servicers fails to effectively service the portfolio of mortgage loans, it could have a material and adverse effect on our business, results of operations and financial condition.

The bankruptcy of a third-party servicer would adversely affect our business, results of operation and financial condition.

Depending on the provisions of the agreement with the servicer of any of our SBC loans, the servicer may be allowed to commingle collections on the mortgage loans owned by us with its own funds for certain periods of time (usually a few business days) after the servicer receives them. In the event of a bankruptcy of a servicer, we may not have a perfected interest in any collections on the mortgage loans owned by us that are in that servicer’s possession at the time of the commencement of the bankruptcy case. The servicer may not be required to turn over to us any collections on mortgage loans that are in its possession at the time it goes into bankruptcy. To the extent that a servicer has commingled collections on mortgage loans with its own funds, we may be required to return to that servicer as preferential transfers all payments received on the mortgage loans during a period of up to one year prior to that servicer’s bankruptcy.

If a servicer were to go into bankruptcy, it may stop performing its servicing functions (including any obligations to advance moneys in respect of a mortgage loan) and it may be difficult to find a third party to act as that servicer’s successor. Alternatively, the servicer may take the position that unless the amount of its compensation is increased or the terms of its servicing obligations are otherwise altered it will stop performing its obligations as servicer. If it were to be difficult to find a third party to succeed the servicer, we may have no choice but to agree to a servicer’s demands. The servicer may also have the power, with the approval of the bankruptcy court, to assign its rights and obligations to a third party without our consent, and even over our objections, and without complying with the terms of the applicable servicing agreement. The automatic stay provisions of Title 11 of the United States Code (the “Bankruptcy Code”), would prevent (unless the permission of the bankruptcy court were obtained) any action by us to enforce the servicer’s obligations under its servicing agreement or to collect any amount owed to us by the servicer. The Bankruptcy Code also prevents the removal of the servicer as servicer and the appointment of a successor without the permission of the bankruptcy court or the consent of the servicer.

Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss.

In the future, it is possible that we may find it necessary or desirable to foreclose on some, if not many, of the SBC loans we acquire, and the foreclosure process may be lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against us including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force us into a modification of the SBC loan or a favorable buy-out of the borrower’s position. In some states, foreclosure actions can sometimes take several years or more to litigate. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process. Foreclosure may create a negative public perception of the related mortgaged property, resulting in a decrease in its value. Even if we are successful in foreclosing on a SBC loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the SBC loan, resulting in a loss to us. Furthermore, any costs or delays involved in the completion of a foreclosure of the SBC loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. Any such reductions could materially and adversely affect the value of the commercial SBC loans in which we invests and, therefore, could have a material and adverse effect on our business, results of operations and financial condition.

Inaccurate and/or incomplete information received in connection with our due diligence and underwriting process could have a negative impact on our financial condition and results of operation.

Our credit and underwriting philosophy for both acquired and originated SBC loans will encompass individual borrower and property diligence, taking into consideration several factors, including (i) the seller’s data files, including data integrity, compliance review and custodial file review; (ii) rent rolls and other property operating data; (iii) personal credit reports of the borrower, owner and/or operator; (iv) property valuations; (v) environmental reviews; and (vi) tax and title searches. We will also ask sellers to provide representations and warranties on SBC loans we acquire, and if we are unable to obtain representations and warranties, we will factor the increased risk into the price we pay for such loans. Our

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financial condition and results of operations could be negatively impacted to the extent we rely on information that is misleading, inaccurate or incomplete.

The use of underwriting guideline exceptions in the SBC loan origination process may result in increased delinquencies and defaults.

Although SBC loan originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators, including the Company, will make exceptions to these guidelines. On a case-by-case basis, our underwriters may determine that a prospective borrower that does not strictly qualify under our underwriting guidelines warrants an underwriting exception, based upon compensating factors. Compensating factors may include a lower LTV ratio, a higher debt coverage ratio, experience as a real estate owner or investor, borrower net worth or liquidity, stable employment, longer length of time in business and length of time owning the property. Loans originated with exceptions may result in a higher number of delinquencies and defaults, which could have a material and adverse effect on our business, results of operations and financial condition.

Deficiencies in appraisal quality in the mortgage loan origination and acquisition process may result in increased principal loss severity.

During the mortgage loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective mortgage. The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value. Inaccurate or inflated appraisals may result in an increase in the severity of losses on the mortgage loans, which could have a material and adverse effect on our business, results of operations and financial condition.

We may be exposed to environmental liabilities with respect to properties to which we take title, which may in turn decrease the value of the underlying properties.

In the course of our business, we may take title to real estate, and, if we do take title, we could be subject to environmental liabilities with respect to these properties. In such a circumstance, we may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected. In addition, an owner or operator of real property may become liable under various federal, state and local laws, for the costs of removal of certain hazardous substances released on its property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage-related assets held by us.

Waterfall will utilize analytical models and data in connection with the valuation of our SBC loans and SBC ABS, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks.

As part of the risk management process Waterfall intends to use detailed proprietary models, including loan-level non-performing loan models, to evaluate collateral liquidation timelines and price changes by region, along with the impact of different loss mitigation plans. Additionally, Waterfall intends to use information, models and data supplied by third parties. Models and data will be used to value potential target assets. In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks. For example, by relying on incorrect models and data, especially valuation models, Waterfall may be induced to buy certain target assets at prices that are too high, to sell certain other assets at prices that are too low, or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.

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Any disruption in the availability and/or functionality of our technology infrastructure and systems and any failure of our security measures related to these systems could adversely impact our business.

Our ability to acquire and originate SBC loans and manage any related interest rate risks and credit risks is critical to our success and is highly dependent upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. For example, we will rely on our proprietary database to track and maintain all loan performance and servicing activity data for loans in our portfolio. This data is used to manage the portfolio, track loan performance, develop and execute asset disposition strategies. In addition, this data is used to evaluate and price new investment opportunities. Some of these systems will be located at our facility and some will be maintained by third party vendors. Any significant interruption in the availability and functionality of these systems could harm our business. In the event of a systems failure or interruption by our third party vendors, we will have limited ability to affect the timing and success of systems restoration. If such interruptions continue for a prolonged period of time, it could have a material and adverse impact on our business, results of operations and financial condition.

Our security measures may not effectively prohibit others from obtaining improper access to our information. If a person is able to circumvent our security measures, he or she could destroy or misappropriate valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation.

We are highly dependent on information systems and communication systems; systems failures and other operational disruptions could significantly affect our business, which may, in turn, negatively affect our operating results and our ability to pay dividends to our stockholders.

Our business is highly dependent on our communications and our information systems, which may interface with or depend on systems operated by third parties, including market counterparties, loan originators and other service providers. Any failure or interruption of these systems could cause delays or other problems in our activities, including in our target asset origination or acquisition activities, which could have a material adverse effect on our operating results and negatively affect the value of our common stock and our ability to pay dividends to our stockholders.

Additionally, we rely heavily on financial, accounting and other data processing systems and operational risks arising from mistakes made in the confirmation or settlement of transactions, from transactions not being properly booked, evaluated or accounted for or other similar disruption in our operations may cause us to suffer financial loss, the disruption of our business, liability to third parties, regulatory intervention or reputational damage.

Difficult conditions in the mortgage, residential and commercial real estate markets may cause us to experience market losses related to our holdings, and there is no assurance that these conditions will improve in the near future.

Our results of operations are materially affected by conditions in the mortgage market, the residential and commercial real estate markets, the financial markets and the economy generally. Continuing concerns about the mortgage market and a declining real estate market, as well as inflation, energy costs, geopolitical issues, unemployment and the availability and cost of credit, have contributed to increased volatility and diminished expectations for the economy and markets going forward. In particular, the U.S. mortgage market has been severely affected by changes in the lending landscape and has experienced defaults, credit losses and significant liquidity concerns, and there is no assurance that these conditions have fully stabilized or that they will not worsen. This is especially true in the SBC loan sector. Disruptions in mortgage markets negatively impact new demand for real estate. A deterioration of the SBC or SBC ABS markets may cause us to experience losses related to our assets and to sell assets at a loss. Our profitability may be materially adversely affected if we are unable to obtain cost effective financing. A continuation or increase in the volatility and deterioration in the SBC and SBC ABS markets as well as the broader financial markets may adversely affect the performance and fair market values of our SBC loan and SBC ABS assets and may adversely affect our results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

New entrants in the market for SBC loan acquisitions and originations could adversely impact our ability to acquire SBC loans at attractive prices and originate SBC loans at attractive risk-adjusted returns.

Although we believe that we are currently one of only a handful of active market participants in the secondary SBC loan market, new entrants in this market could adversely impact our ability to acquire and originate SBC loans at attractive

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prices. In acquiring and originating our target assets, we may compete with numerous regional and community banks, specialty finance companies, savings and loan associations, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders and other entities, and we expect that others may be organized in the future. The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of SBC assets suitable for purchase, which may cause the price for such assets to rise, which may limit our ability to generate desired returns. Additionally, origination of SBC loans by our competitors may increase the availability of SBC loans which may result in a reduction of interest rates on SBC loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of SBC loans and ABS assets and establish more relationships than us.

We cannot assure you that the competitive pressures we may face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, desirable investments in our target assets may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that it will be able to identify and make investments that are consistent with our investment objectives.

We cannot predict the unintended consequences and market distortions that may stem from far-ranging regulatory reform of the oversight of financial markets.

The U.S. Government, Federal Reserve, Treasury, the SEC and other governmental and regulatory bodies have taken or are taking various actions involving intervention in the economic and financial system and regularly reform of the oversight of financial markets. We cannot predict whether or when such actions may occur or what effect, if any, such actions could have on our business, results of operations and financial condition. For example, in July 2010, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act has imposed significant restrictions on the proprietary trading activities of certain banking entities and has subjected other systemically significant organizations regulated by the U.S. Federal Reserve to increased capital requirements and quantitative limits for engaging in such activities. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and securitization of commercial mortgage loans. Also, the SEC has proposed significant changes to Regulation AB, which, if adopted in their present form, could have sweeping changes to commercial and residential mortgage loan securitization markets as well as to the market for the re-securitization of MBS. The Dodd-Frank Act also created a new regulator, the Consumer Financial Protection Bureau (the “CFPB”), which oversees many of the core laws which regulate the mortgage industry, including the Real Estate Settlement Procedures Act and the Truth in Lending Act. While the full impact of the Dodd-Frank Act and the role of the CFPB cannot be assessed until all implementing regulations are released, the Dodd-Frank Act’s extensive requirements may have a significant effect on the financial markets, and may affect the availability or terms of financing from our lender counterparties and the availability or terms of SBC loans and MBS, both of which may have an adverse effect on our financial condition and results of operations.

The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which we intend to invest and could materially increase our cost of doing business.

Various bankruptcy legislation has been proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in us being held responsible for violations in the mortgage loan origination process even where we were not the originators of the loan. We do not know what impact this type of legislation, which has been primarily, if not entirely, focused on residential mortgage originations, would have on the SBC loan market. We are unable to predict whether United States federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could materially and adversely affect our cost of doing business and profitability.

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Failure to obtain or maintain required approvals and/or state licenses necessary to operate our mortgage-related activities may adversely impact our investment strategy.

We may be required to obtain and maintain various approvals and/or licenses from federal or state governmental authorities, government sponsored entities or similar bodies in connection with some or all of our activities. There is no assurance that we can obtain and maintain any or all of the approvals and licenses that we desire or that we will avoid experiencing significant delays in seeking such approvals and licenses. Furthermore, we will be subject to various disclosure and other requirements to obtain and maintain these approvals and licenses, and there is no assurance that we will satisfy those requirements. Our failure to obtain or maintain licenses will restrict our options and ability to engage in desired activities, and could subject us to fines, suspensions, terminations and various other adverse actions if it is determined that we have engaged without the requisite approvals or licenses in activities that required an approval or license, which could have a material and adverse effect on our business, results of operation and financial condition.

Some of our SBC loans will have interest rate features that adjust over time, and any interest rate caps on these loans may reduce our income or cause it to suffer a loss during periods of rising interest rates.

Our ARMs are subject to periodic and lifetime interest rate caps. Periodic interest rate caps limit the amount an interest rate can increase during any given period. Lifetime interest rate caps limit the amount an interest rate can increase through maturity of a loan. Our borrowings, including our repurchase agreement and securitizations, are not subject to similar restrictions. Accordingly, in a period of rapidly increasing interest rates, the interest rates paid on our borrowings could increase without limitation while interest rate caps would limit the interest rates on our ARMs. This problem is magnified for our ARMs that are not fully indexed. Further, some ARMs may be subject to periodic payment caps that result in a portion of the interest being deferred and added to the principal outstanding. As a result, we could receive less cash income on ARMs than we need to pay interest on our related borrowings. These factors could lower our net interest income or cause us to suffer a loss during periods of rising interest rates.

Our inability to manage future growth effectively could have an adverse impact on our financial condition and results of operations.

Our ability to achieve our investment objectives will depend on our ability to grow, which will depend, in turn, on Waterfall’s ability to identify, acquire, originate and invest in SBC loans and ABS that meet our investment criteria. Our ability to grow our business will depend in large part on our ability to expand our SBC loan origination activities. Any failure to effectively manage our future growth, including a failure to successfully expand our SBC loan origination activities could have a material and adverse effect on our business, financial condition and results of operations.

Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions, and changes in such rules, accounting interpretations or our assumptions could adversely impact our ability to timely and accurately prepare our consolidated financial statements.

We are subject to Financial Accounting Standards Board standards and interpretations that can result in significant accounting changes that could have a material and adverse impact on our results of operations and financial condition. Accounting rules for financial instruments, including the acquisition and sales or securitization of mortgage loans, investments in ABS, derivatives, investment consolidations and other aspects of our anticipated operations are highly complex and involve significant judgment and assumptions. For example, the Company estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our SBC loans, the likelihood of repayment in full at the maturity of a loan, potential for an SBC loan refinancing opportunity in the future and expected market discount rates for varying property types. These complexities could lead to a delay in the preparation of financial information and the delivery of this information to our stockholders.

Changes in accounting rules, interpretations or our assumptions could also undermine our ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in our financial information and could materially and adversely affect the market price of our common stock.

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We will depend on Waterfall and its key personnel for our success. We may not find a suitable replacement for Waterfall if the management agreement with Waterfall is terminated, or if key personnel leave the employment of Waterfall or otherwise become unavailable to us.

We will be dependent on Waterfall for our day-to-day management. Frederick Herbst, who is employed by Waterfall and serves as our Chief Financial Officer, is dedicated exclusively to our business, and seven of Waterfall’s accounting professionals are also dedicated exclusively to our business, and such persons are expected to be dedicated to us. In addition, Waterfall or we may in the future hire additional personnel that may be dedicated to our business. Waterfall is not, however, obligated under the management agreement to dedicate any of its personnel exclusively to our business, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business. We will also be responsible for the costs of our own employees. However, with the exception of our subsidiaries, which will employ their own personnel, we do not expect to have our own employees. Accordingly, we believe that our success will depend to a significant extent upon the efforts, experience, diligence, skill and network of business contacts of the executive officers and key personnel of Waterfall. The executive officers and key personnel of Waterfall will evaluate, negotiate, structure, close and monitor our acquisitions of assets, and our success will depend on its continued service. The departure of any of the executive officers or key personnel of Waterfall could have a material adverse effect on our performance. In addition, we offer no assurance that Waterfall will remain our Manager or that we will continue to have access to Waterfall’s principals and professionals. The initial term of our management agreement with Waterfall only extends for three years from the closing of the ZAIS Financial merger, with automatic one-year renewal terms starting on the third anniversary of the closing of the ZAIS Financial merger. If the management agreement is terminated and no suitable replacement is found to manage the Company, we may not be able to execute our business plan.

Should one or more of Waterfall’s key personnel leave the employment of Waterfall or otherwise become unavailable to the Company, Waterfall may not be able to find a suitable replacement and the Company may not be able to execute certain aspects of our business plan.

There are various conflicts of interest in our relationship with Waterfall which could result in decisions that are not in the best interests of our stockholders.

We are subject to conflicts of interest arising out of our relationship with Waterfall and its affiliates. Frederick Herbst, who is employed by Waterfall and serves as the Company’s Chief Financial Officer, is dedicated exclusively to the Company, along with seven of Waterfall’s accounting professionals, one marketing professional, and one information technology professional whom are also dedicated exclusively to our Company. With the exception of our subsidiaries, which will employ their own personnel, we do not expect to have our own employees. In addition, we expect that the Chief Executive Officer, President, portfolio managers and any other appropriate personnel of Waterfall will devote such portion of their time to our affairs as is necessary to enable us to effectively operate its business. Waterfall and our officers may have conflicts between their duties to us and their duties to, and interests in, Waterfall and its affiliates. Waterfall is not required to devote a specific amount of time or the services of any particular individual to our operations. Waterfall manages or provides services to other clients, and we will compete with these other clients for Waterfall’s resources and support. The ability of Waterfall and its officers and personnel to engage in other business activities may reduce the time they spend advising us.

There may also be conflicts in allocating assets that are suitable for us and other clients of Waterfall and its affiliates. Waterfall manages a series of funds and a limited number of separate accounts, which focus on a range of ABS and other credit strategies. With the exception of the Waterfall Olympic Offshore Fund, Ltd. (the “Olympic Fund”) discussed below, none of these other funds or separate accounts focus on SBC loans as their primary business strategy.

To address certain potential conflicts arising from our relationship with Waterfall or its affiliates, Waterfall has agreed in the side letter agreement that, for so long as the management agreement is in effect, neither it nor any of its affiliates will (i) sponsor or manage any additional investment vehicle where we do not participate as an investor whose primary investment strategy will involve SBC mortgage loans, unless Waterfall obtains the prior approval of a majority of our board of directors (including a majority of our independent directors), or (ii) acquire a portfolio of assets, a majority of which (by value or UPB) are SBC mortgage loans on behalf of another investment vehicle (other than acquisitions of SBC ABS), unless we are first offered the investment opportunity and a majority of our board of directors (including a majority of our independent directors) decide not to acquire such assets.

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In March 2014, due to the size of SBC mortgage loan opportunities, which exceeded our financing capacity at that time, Waterfall sponsored the Olympic Fund. The Olympic Fund was established to invest in assets that may not be qualifying assets for REIT purposes or to invest in SBC loan assets that we decline to purchase for any reason. These opportunities were first presented to us and a majority of our board of directors (including a majority of our independent directors) decided not to acquire such assets and consented to the formation of the Olympic Fund. The Olympic Fund was liquidated in February 2019.

The side letter agreement does not cover SBC ABS acquired in the market and non-real estate secured loans and we may compete with other existing clients of Waterfall and its affiliates, including the Olympic Fund, other funds managed by Waterfall that focus on a range of ABS and other credit strategies and separately managed accounts, and future clients of Waterfall and its affiliates in acquiring SBC ABS, non-real estate secured loans and portfolios of assets less than a majority of which (by value or UPB) are SBC loans, and in acquiring other target assets that do not involve SBC loans.

We will pay Waterfall substantial management fees regardless of the performance of our portfolio. Waterfall’s entitlement to a base management fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for our portfolio. This in turn could hurt both our ability to make distributions to our stockholders and the market price of our common stock.

The management agreement was negotiated between related parties and their terms, including fees payable, may not be as favorable to us as if they had been negotiated with unaffiliated third parties.

The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, including in the case of termination for unsatisfactory performance, which may adversely affect our inclination to end our relationship with Waterfall.

Termination of the management agreement without cause is difficult and costly. Our independent directors will review Waterfall’s performance and the management fees annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of at least a majority of the outstanding shares of the Company common stock (other than shares held by members of our senior management team and affiliates of Waterfall), based upon: (i) Waterfall’s unsatisfactory performance that is materially detrimental to our Company, or (ii) a determination that the management fees or incentive distribution payable to Waterfall are not fair, subject to Waterfall’s right to prevent termination based on unfair fees by accepting a reduction of management fees or incentive distribution agreed to by at least two-thirds of our independent directors. We must provide Waterfall with 180 days prior notice of any such termination. Additionally, upon such a termination without cause, the management agreement provides that we will pay Waterfall a termination fee equal to three times the average annual base management fee earned by Waterfall during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, except upon an internalization. Additionally, if the management agreement is terminated under circumstances in which we are obligated to make a termination payment to Waterfall, our operating partnership shall repurchase, concurrently with such termination, the Class A special unit for an amount equal to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24-month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. These provisions may increase the cost to our Company of terminating the management agreement and adversely affect our ability to terminate Waterfall without cause.

If we internalize our management functions or if Waterfall is internalized by another sponsored program, we may be unable to obtain key personnel, and the consideration we pay for any such internalization could exceed the amount of any termination fee, either of which could have a material and adverse effect on our business, financial condition and results of operations.

We may engage in an internalization transaction, become self-managed and, if this were to occur, certain key employees may not become our employees but may instead remain employees of Waterfall or its affiliates. An inability to manage an internalization transaction effectively could thus result in us incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our investments. Additionally, if another program sponsored by Waterfall internalizes Waterfall, key personnel of Waterfall,

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who also are key personnel of the other sponsored program, would become employees of the other program and would no longer be available to us. Any such loss of key personnel could adversely impact our ability to execute certain aspects of our business plan. Furthermore, in the case of any internalization transaction, we expect that we would be required to pay consideration to compensate Waterfall for the internalization in an amount that we will negotiate with Waterfall in good faith and which will require approval of at least a majority of our independent directors. It is possible that such consideration could exceed the amount of the termination fee that would be due to Waterfall if the conditions for terminating the management agreement without cause are satisfied and we elected to terminate the management agreement and payment of such consideration could have a material and adverse effect on our business, financial condition and results of operations.

Waterfall and its affiliates have limited prior experience operating a REIT and therefore may have difficulty in successfully and profitably operating our business or complying with regulatory requirements, including the REIT provisions of the Code, which may hinder their ability to achieve our objectives or result in loss of our qualification as a REIT.

Prior to the completion of our private placement in 2013, Waterfall and its affiliates had no experience operating a REIT or complying with regulatory requirements, including the REIT provisions of the Code. The REIT rules and regulations are highly technical and complex, and the failure to comply with the income, asset, and other limitations imposed by these rules and regulations could prevent us from qualifying as a REIT or could force us to pay unexpected taxes and penalties. Waterfall and its affiliates have limited experience operating a business in compliance with the numerous technical restrictions and limitations set forth in the Code or the 1940 Act, applicable to REITs. We cannot assure you that Waterfall or our management team will perform on our behalf as they have in their previous endeavors. The inexperience of Waterfall and its affiliates described above may hinder our ability to achieve our objectives or result in loss of our qualification as a REIT or payment of taxes and penalties. As a result, we cannot assure you that we will be able to successfully operate as a REIT, execute our business strategies or comply with regulatory requirements applicable to REITs.

The Class A special unit entitling Waterfall to an incentive distribution may induce Waterfall to make certain investments that may not be favorable to us, including speculative investments.

Under the partnership agreement of our operating partnership, Waterfall, the holder of the Class A special unit, will be entitled to receive an incentive distribution that may cause Waterfall to place undue emphasis on the maximization of our “core earnings” as defined under the partnership agreement at the expense of other criteria, such as preservation of capital, to achieve a higher incentive distribution. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our portfolio.  For a discussion of the calculation of core earnings under the partnership agreement, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Incentive Distribution Payable to Our Manager” included in this annual report on Form 10-K.

Our board of directors will not approve each investment and financing decision made by Waterfall unless required by our investment guidelines.

We expect to authorize Waterfall to follow broad investment guidelines established by our board of directors. Our board of directors will periodically review our investment guidelines and investment portfolio but will not, and will not be required to, review all of our proposed investments. These investment guidelines may be changed from time to time by our board of directors without the approval of our stockholders. To the extent that our board of directors approves material changes to the investment guidelines, we will inform stockholders of such changes through disclosure in our periodic reports and other filings required under the Exchange Act. In addition, in conducting its periodic reviews, our board of directors may rely primarily on information provided to them by Waterfall. Furthermore, Waterfall may use complex strategies, and transactions entered into may be costly, difficult or impossible to unwind by the time they are reviewed by our board of directors. Accordingly, Waterfall will have great latitude in determining the types and amounts of target assets it may decide are attractive investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results.

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We may be subject to liability in connection with our residential mortgage loans for potential violations of consumer protection laws and regulations.

Federal consumer protection laws and regulations have been enacted and promulgated that are designed to regulate residential mortgage loan underwriting and originators’ lending processes, standards, and disclosures to borrowers. These laws and regulations include the ATR/Qualified Mortgage Rule and the Servicing Rules. In addition, there are various other federal, state, and local laws and regulations that are intended to discourage predatory lending practices by residential mortgage loan originators. For example, the federal Home Ownership and Equity Protection Act of 1994 prohibits inclusion of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations. In addition, under the anti-predatory lending laws of some states, the origination of certain residential mortgage loans, including loans that are not classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower. This test, as well as certain standards set forth in the ATR/Qualified Mortgage Rule, may be highly subjective and open to interpretation. As a result, a court may determine that a residential mortgage loan did not meet the standard or test even if the originator reasonably believed such standard or test had been satisfied.

Mortgage loans also are subject to various other federal laws, including:

· the Equal Credit Opportunity Act of 1974, as amended and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act of 1968, as amended, in the extension of credit;

· the Truth in Lending Act (“TILA”) and Regulation Z promulgated under TILA, which both require certain disclosures to the mortgagors regarding the terms of residential loans;

· the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X promulgated under RESPA, which (among other things) prohibit the payment of referral fees for real estate settlement services (including mortgage lending and brokerage services) and regulate escrow accounts for taxes and insurance and billing inquiries made by mortgagors;

· the Americans with Disabilities Act of 1990, as amended which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation;

· the Fair Credit Reporting Act of 1970, as amended, which regulates the use and reporting of information related to the borrower’s credit experience;

· the Consumer Financial Protection Act, enacted as part of the Dodd-Frank Act, which (among other things) created the CFPB and gave it broad rulemaking, supervisory and enforcement jurisdiction over mortgage lenders and servicers, and proscribes any unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service;

· the Home Equity Loan Consumer Protection Act of 1988, which requires additional disclosures and limits changes that may be made to the loan documents without the mortgagor’s consent, and restricts a mortgagee’s ability to declare a default or to suspend or reduce a mortgagor’s credit limit to certain enumerated events;

· the Depository Institutions Deregulation and Monetary Control Act of 1980, which preempts certain state usury laws;

· the Dodd-Frank Act, including as described above under “— We cannot predict the unintended consequences and market distortions that may stem from far-ranging regulatory reform of the oversight of financial markets”; and

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· the Service Members Civil Relief Act, as amended, which provides relief to borrowers who enter into active military service or who were on reserve status but are called to active duty after the origination of their mortgage loans; and

· the Alternative Mortgage Transaction Parity Act of 1982, which preempts certain state lending laws which regulate alternative mortgage transactions.

Failure of us, residential mortgage loan originators, mortgage brokers or servicers to comply with these laws and regulations, could subject us to monetary penalties and defenses to foreclosure, including by recoupment or setoff of finance charges and fees collected, and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and financial results.

GMFS is a seller/servicer approved to sell residential mortgage loans to Freddie Mac, Fannie Mae, the Housing and Urban Development (“HUD”)/ FHA, the USDA, and the VA and failure to maintain its status as an approved seller/servicer could harm our business.

GMFS is an approved Fannie Mae Seller-Servicer, Freddie Mac Seller-Servicer, Ginnie Mae issuer, HUD/ FHA mortgagee, USDA approved originator, and VA lender. As an approved seller/servicer, GMFS is required to conduct certain aspects of its operations in accordance with applicable policies and guidelines published by these entities. Failure to maintain GMFS’s status as an approved seller/servicer would mean it would not be able to sell mortgage loans to these entities, could result in it being required to re-purchase loans previously sold to these entities, or could otherwise restrict our business and investment options and could harm our business and expose us to losses or other claims. Fannie Mae, Freddie Mac or these other entities may, in the future, require GMFS to hold additional capital or pledge additional cash or assets in order to maintain approved seller/servicer status, which, if required, would adversely impact our financial results.

GMFS operates within a highly regulated industry on a federal, state and local level and the business results of GMFS are significantly impacted by the laws and regulations to which GMFS is subject.

As a mortgage loan originator, GMFS is subject to extensive and comprehensive regulation under federal, state and local laws in the United States. These laws and regulations significantly affect the way that GMFS conducts its business and restrict the scope of the existing business of GMFS and limit the ability of GMFS to expand its product offerings or can make the cost to originate and service mortgage loans higher, which could impact our financial results.

The CFPB issued proposed changes to its Servicing Rules in November 2014. The proposed changes, if adopted, may increase the costs of loss mitigation and increase foreclosure timelines. Other new regulatory requirements or changes to existing requirements that the CFPB may promulgate could require changes in the business of GMFS, result in increased compliance costs and impair the profitability of such business. In addition, as a result of the Dodd-Frank Act’s potential expansion of the authority of state attorneys general to bring actions to enforce federal consumer protection legislation, GMFS could be subject to state lawsuits and enforcement actions, thereby further increasing the legal and compliance costs relating to GMFS. The proposed amendments to the Servicing Rules will increase the complexity of the loss mitigation and foreclosure processes and an inadvertent failure to comply with these rules could lead to losses in the value of the mortgage loans, be an event of default under various servicing agreements or subject GMFS to fines and penalties. The cumulative effect of these changes could result in a material impact on our earnings.

Additionally, the Dodd-Frank Act directed the CFPB to integrate certain mortgage loan disclosures under the TILA and RESPA, and effective October 3, 2015, new disclosure rules went into effect for newly originated residential mortgage loans. These rules include new consumer disclosure document forms, new processes for determining when disclosures must be updated and new timelines for providing disclosure documents to borrowers. These new rules have created the need for substantial system and process changes at GMFS and new training for its employees. Failure to comply with these new requirements may result in penalties for disclosure violations under the TILA and RESPA.

GMFS could be subject to additional regulatory requirements or changes under the Dodd-Frank Act beyond those currently proposed, adopted or contemplated, particularly given the ongoing heightened regulatory environment in which financial institutions operate. The ongoing implementation of the Dodd-Frank Act, including the implementation of the Servicing Rules and the rules related to mortgage loan disclosures by the CFPB, could increase the regulatory compliance

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burden and associated costs of GMFS and place restrictions on the operations of GMFS, which could in turn adversely affect our financial condition and results of operations.

Mortgage loan modification and refinance programs as well as future legislative action may adversely affect the value of, and the returns on, the target assets in which we invest.

The U.S. Government, through the Federal Reserve, the FHA and the FDIC, commenced implementation of programs designed to provide homeowners with assistance in avoiding residential or commercial mortgage loan foreclosures, including the Home Affordable Modification Program, which provides homeowners with assistance in avoiding residential mortgage loan foreclosures, and the Home Affordable Refinance Program, which we refer to as HARP, which allows borrowers who are current on their mortgage payments to refinance and reduce their monthly mortgage payments at loan-to-value ratios without new mortgage insurance. The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans.

Loan modification and refinance programs may adversely affect the performance of residential mortgage loans, Agency RMBS and non-Agency RMBS. Especially with non-Agency RMBS, a significant number of loan modifications with respect to a given security, including those related to principal forgiveness and coupon reduction, could negatively impact the realized yields and cash flows on such security. These loan modification programs, future legislative or regulatory actions, including possible amendments to the bankruptcy laws, which result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may adversely affect the value of, and the returns on, residential mortgage loans, non-Agency RMBS, Agency RMBS and our other target assets that we may purchase.

We may be affected by alleged or actual deficiencies in servicing and foreclosure practices of third parties, as well as related delays in the foreclosure process.

Allegations of deficiencies in servicing and foreclosure practices among several large sellers and servicers of residential mortgage loans that surfaced in 2010 raised various concerns relating to such practices, including the improper execution of the documents used in foreclosure proceedings, inadequate documentation of transfers and registrations of mortgages and assignments of loans, improper modifications of loans, violations of representations and warranties at the date of securitization, and failure to enforce put-backs.

As a result of alleged deficiencies in foreclosure practices, a number of servicers temporarily suspended foreclosure proceedings beginning in the second half of 2010 while they evaluated their foreclosure practices. In late 2010, a group of state attorneys general and state bank and mortgage regulators representing nearly all 50 states and the District of Columbia, along with the U.S. Department of Justice and HUD, began an investigation into foreclosure practices of banks and servicers. The investigations and lawsuits by several state attorneys general led to a settlement agreement in March 2012 with five of the nation’s largest banks, pursuant to which the banks agreed to pay more than $25 billion to settle claims relating to improper foreclosure practices. The settlement does not prohibit the states, the federal government, individuals or investors in RMBS from pursuing additional actions against the banks and servicers in the future.

The integrity of the servicing and foreclosure processes are critical to the value of the residential mortgage loans and the RMBS collateralized by residential mortgage loans in which we will invest, and our financial results could be adversely affected by deficiencies in the conduct of those processes. For example, delays in the foreclosure process that have resulted from investigations into improper servicing practices may adversely affect the values of, and our losses on, the residential mortgage loans and non-Agency RMBS we own or may originate or acquire. Foreclosure delays may also increase the administrative expenses of any securitization trusts that we may sponsor for non-Agency RMBS, thereby reducing the amount of funds available for distribution to our stockholders. In addition, the subordinate classes of securities issued by any such securitization trusts may continue to receive interest payments while the defaulted loans remain in the trusts, rather than absorbing the default losses. This may reduce the amount of credit support available for the senior classes we may own, thus possibly adversely affecting these securities.

In addition, in these circumstances, we may be obligated to fund any obligation of the servicer to make advances on behalf of a delinquent loan obligor. To the extent that there are significant amounts of advances that need to be funded in respect of loans where we own the servicing right, it could have a material adverse effect on our business and financial results.

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While we believe that the sellers and servicers would be in violation of their servicing contracts to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive and time consuming for us to enforce our contractual rights.

We will continue to monitor and review the issues raised by the alleged improper foreclosure practices. While we cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect our business, there can be no assurance that these matters will not have an adverse impact on our consolidated results of operations and financial condition.

Homeowner association super priority liens, special assessments and energy efficiency liens may take priority over the mortgage lien.

Homeowner association super priority liens may take priority over the mortgage lien. In some jurisdictions it is possible that the first lien of a mortgage may be extinguished by super priority liens of homeowners associations (“HOAs”), potentially resulting in a loss of the outstanding principal balance of the mortgage loan. In a number of states, HOA or condominium association assessment liens can take priority over first lien mortgages in certain circumstances. The number of these so called superlien jurisdictions has increased in the past few decades and may increase further. Recent rulings by the highest courts in Nevada and the District of Columbia have held that the superlien statute provides the HOA or condominium association with a true lien priority rather than a payment priority from the proceeds of the sale, creating the ability to extinguish the existing senior mortgage and greatly increasing the risk of losses on mortgage loans secured by homes whose owners fail to pay HOA or condominium fees. If an HOA, or a purchaser of an HOA superlien, completes a foreclosure in respect of an HOA superlien on a mortgaged property, the related mortgage loan may be extinguished. In those circumstances, a loan owner could suffer a loss of the entire principal balance of such mortgage loan. A servicer might be able to attempt to recover, on an unsecured basis, by suing the related mortgagor personally for the balance, but recovery in these circumstances will be problematic if the related mortgagor has no meaningful assets against which to recover. Special assessments and energy efficiency liens may take priority over the mortgage lien. Mortgaged properties securing mortgage loans may be subject to the lien of special property taxes and/or special assessments. These liens may be superior to the liens securing the mortgage loans, irrespective of the date of the mortgage. In some instances, individual mortgagors may be able to elect to enter into contracts with governmental agencies for property assessed clean energy or similar assessments that are intended to secure the payment of energy and water efficiency and distributed energy generation improvements that are permanently affixed to their properties, possibly without notice to or the consent of the mortgagee. These assessments may also have lien priority over the mortgages securing mortgage loans. No assurance can be given that a mortgaged property so assessed will increase in value to the extent of the assessment lien. Additional indebtedness secured by the assessment lien would reduce the amount of the value of a mortgaged property available to satisfy the affected mortgage loan. Such actions could have a dramatic impact on our business, results of operations and financial condition, and the cost of complying with any additional laws and regulations could have a material adverse effect on our business, financial condition, results of operations, the market price of our common stock and our ability to pay dividends to our stockholders.

Our MSRs will expose us to significant risks.

Fannie Mae and Freddie Mac generally require mortgage servicers to be paid a minimum servicing fee that significantly exceeds the amount a servicer would charge in an arm’s-length transaction.

Our residential MSRs are recorded at fair value on our balance sheet based upon significant estimates and assumptions, with changes in fair value included in our consolidated results of operations. Such estimates and assumptions would include, without limitation, estimates of future cash flows associated with our residential MSRs based upon assumptions involving interest rates as well as the prepayment rates, delinquencies and foreclosure rates of the underlying serviced mortgage loans.

The ultimate realization of the value of MSRs may be materially different than the fair values of such MSRs as may be reflected in our financial statements as of any particular date. The use of different estimates or assumptions in connection with the valuation of these assets could produce materially different fair values for such assets, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. Accordingly, there may be material uncertainty about the value of our MSRs.

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Changes in interest rates are a key driver of the performance of MSRs. Historically, the value of MSRs has increased when interest rates rise and decreased when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. We may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity will vary in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us. To the extent the we do not utilize derivatives to hedge against changes in the fair value of MSRs, our balance sheet, consolidated results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, MSRs as interest rates change.

Prepayment speeds significantly affect excess mortgage servicing fees. Prepayment speed is the measurement of how quickly borrowers pay down the unpaid principal balance of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. We will base the price we pay for MSRs and the rate of amortization of those assets on factors such as our projection of the cash flows from the related pool of mortgage loans. Our expectation of prepayment speeds will be a significant assumption underlying those cash flow projections. If prepayment speeds are significantly greater than expected, the carrying value of MSRs could exceed their estimated fair value. If the fair value of MSRs decreases, we would be required to record a non-cash charge, which would have a negative impact on our financial results. Furthermore, a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from MSRs, and we could ultimately receive substantially less than what we paid for such assets.

Moreover, delinquency rates have a significant impact on the valuation of any excess mortgage servicing fees. An increase in delinquencies will generally result in lower revenue because typically we will only collect servicing fees from agencies or mortgage owners for performing loans. If delinquencies are significantly greater than we expect, the estimated fair value of the MSRs could be diminished. When the estimated fair value of MSRs is reduced, we could suffer a loss, which could have a negative impact on our financial results.

Furthermore, MSRs are subject to numerous U.S. federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on our business. Our failure to comply, or the failure of the servicer to comply, with the laws, rules or regulations to which we or the servicer are subject by virtue of ownership of MSRs, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on our business, financial condition, consolidated results of operations or cash flows.

Risks Related to Financing and Hedging

We will use leverage as part of our investment strategy but we will not have a formal policy limiting the amount of debt we may incur. Our board of directors may change our leverage policy without stockholder consent.

We will use prudent leverage to increase potential returns to our stockholders. We have completed several securitizations of predominantly SBC loan and SBA 7(a) loan assets since January 2011, issuing bonds with an aggregate face value of $3.8 billion. As of December 31, 2018, our committed and outstanding financing arrangements included:

· Seven committed credit facilities and three master repurchase agreements to finance our SBC and residential mortgage loans with $831.6 million of borrowings outstanding;

· $905.0 million of securitized debt obligations outstanding from $3.4 billion ABS that financed our whole loan acquisitions and SBC originations;

· master repurchase agreements with four counterparties to fund our acquisition of MBS, short term investments, and SBC loans with $635.2 million of borrowings outstanding;

· $50.0 million in principal amount of our Corporate Debt to originate or acquire its target assets and for general corporate purposes;

· $180.0 million in principal amount of our Senior Secured Notes, to originate or acquire our target assets and for general corporate purposes; and

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· $115.0 million in principal amount of our Convertible Notes, to originate or acquire our target assets and for general corporate purposes.

For further information on these funding sources see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” included in this annual report on Form 10-K. Over time, as market conditions change, we plan to use these and other borrowings.

The return on our assets and cash available for distribution to our stockholders may be reduced to the extent that market conditions prevent us from leveraging our assets or cause the cost of our financing to increase relative to the income that can be derived from the assets acquired. Our financing costs will reduce cash available for distribution to stockholders. We may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. A decrease in the value of our assets that are subject to repurchase agreement financing may lead to margin calls that we will have to satisfy. We may not have the funds available to satisfy any such margin calls and may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses. The satisfaction of any such margin calls may reduce cash flow available for distribution to our stockholders. Any reduction in distributions to our stockholders may cause the value of our common stock to decline.

We may not be able to successfully complete additional securitization transactions, which could limit potential future sources of financing and could inhibit the growth of our business.

We may use our existing credit facilities or repurchase agreements or, if we are successful in entering into definitive documentation in respect of our other potential financing facilities, other borrowings to finance the origination and/or acquisition of SBC loans until a sufficient quantity of eligible assets has been accumulated, at which time we would refinance these short-term facilities or repurchase agreements through the securitization market, which could include the creation of CMBS, collateralized debt obligations (“CDOs”), or the private placement of loan participations or other long-term financing. When we employ this strategy, we are subject to the risk that we would not be able to obtain, during the period that our short-term financing arrangements are available, a sufficient amount of eligible assets to maximize the efficiency of a CMBS, CDO or private placement issuance. We are also subject to the risk that we will not able to obtain short-term financing arrangements or will not be able to renew any short-term financing arrangements after they expire should we find it necessary to extend such short-term financing arrangements to allow more time to obtain the necessary eligible assets for a long-term financing.

The inability to consummate securitizations of our portfolio to finance our SBC loan and ABS assets on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could have a material and adverse effect on our business, financial condition and results of operations.

We may be required to repurchase mortgage loans or indemnify investors if we breach representations and warranties, which could harm our earnings.

We have sold and, on occasion, consistent with our qualification as a REIT and our desire to avoid being subject to the “prohibited transaction” penalty tax, we may sell some of our loans in the secondary market or as a part of a securitization of a portfolio of our loans. When we sell loans, we are required to make customary representations and warranties about such loans to the loan purchaser. Our mortgage loan sale agreements may require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan. Likewise, we may be required to repurchase or substitute loans if we breach a representation or warranty in connection with our securitizations, if any.

The remedies available to a purchaser of mortgage loans are generally broader than those available to us against the originating broker or correspondent. Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the sellers. The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the UPB. Significant repurchase activity could harm our cash flow, results of operations, financial condition and business prospects.

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Our financing arrangements will contain financial covenants that could restrict our borrowings or subject it to additional risks.

Our financing arrangements, including the our senior secured notes issued in February 2017 by ReadyCap Holdings, LLC (“ReadyCap Holdings”), an indirect wholly-owned subsidiary of our Company, contain various financial and other restrictive covenants, including covenants that require us to maintain a certain interest coverage ratio and net asset value and that create a maximum balance sheet leverage ratio. For further information on these covenants see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” included in this annual report on Form 10-K. If we fail to satisfy any of the financial or other restrictive covenants, or otherwise default under these financings, the lender or noteholders may have the right to take certain actions, including accelerating repayment or repurchase and terminating the financing. Accelerating repayment or repurchase or terminating the facility would require immediate repayment by us of the borrowed funds, which may require us to liquidate assets at a disadvantageous time, causing us to incur further losses and adversely affecting our results of operations and financial condition, which may impair our ability to maintain our current level of distributions.

Certain financing arrangements restrict our operations and expose us to additional risk.

Our existing financing arrangements, including the Senior Secured Notes, Convertible Notes, and our future financing arrangements are or will be governed by a credit agreement, indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock. We will bear the cost of issuing and servicing such credit facilities, arrangements or securities.

These restrictive covenants and operating restrictions could have a material adverse effect on our operating results, cause us to lose our REIT status, restrict our ability to finance or securitize new originations and acquisitions, force us to liquidate collateral and negatively affect the market price of our common stock and our ability to pay dividends. For further information on these covenants see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” included in this annual report on Form 10-K.

Our securitizations may also reduce and/or restrict our available cash needed to pay dividends to our stockholders in order to satisfy the REIT requirements. Under the terms of the securitization, excess interest collections with respect to the securitized loans are distributed to us as the trust certificate holder once the overcollateralization target is reached and maintained. If the securitized loans experience delinquencies exceeding default triggers specified in the securitizations, the excess interest collections will be paid to the noteholders as additional principal payments on the notes. If excess interest collections are paid to noteholders rather than to us, we will be required to use cash from other sources to pay dividends to our stockholders in order to satisfy the REIT requirements or to fund our ongoing operations.

Our inability to access funding could have a material adverse effect on our results of operations, financial condition and business. We will rely on short-term financing and thus are especially exposed to changes in the availability of financing.

We will use short-term borrowings, such as our existing credit facilities and repurchase agreements, to fund the acquisition of our assets, pending our completion of longer-term matched funded financings. Our use of short-term financings exposes us to the risk that our lenders may respond to market conditions by making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings. If we are not able to renew our then existing short-term facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under these types of financing, we may have to curtail our asset acquisition and origination activities and/or dispose of assets.

Our ability to fund our target asset originations and acquisitions may be impacted by our ability to secure further such borrowings as well as securitizations, term financings and derivative contracts on acceptable terms. Because repurchase agreements and warehouse facilities are short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings. If we are not able to renew our then existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities, we may have to curtail our origination and asset acquisition activities and/or dispose of assets.

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It is possible that the lenders that will provide us with financing could experience changes in their ability to advance funds to us, independent of our performance or the performance of our portfolio of assets. Further, if many of our potential lenders are unwilling or unable to provide us with financing, we could be forced to sell our assets at an inopportune time when prices are depressed. In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also may revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, based on, among other factors, the regulatory environment and their management of perceived risk, particularly with respect to assignee liability. Moreover, the amount of financing we receive under our short-term borrowing arrangements will be directly related to the lenders’ valuation of our target assets that cover the outstanding borrowings.

The dislocations in the mortgage sector in the financial crisis that began in 2007 have caused many lenders to tighten their lending standards, reduce their lending capacity or exit the market altogether. Further contraction among lenders, insolvency of lenders or other general market disruptions could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing on attractive terms or at all. This could increase our financing costs and reduce our access to liquidity. 

The repurchase agreements that we will use to finance our assets will restrict us from leveraging our assets as fully as desired, and may require us to provide additional collateral.

In June 2017, we extended our master repurchase agreement to finance our acquisition of SBC loans for up to $200.0 million, $102.6 million of which is committed, with $97.4 million outstanding as of December 31, 2018. In December 2015, we closed on a master repurchase agreement to fund the origination of our SBC loans for up to $275.0 million, with $173.8 million outstanding as of December 31, 2018, which was extended in February 2017 and further extended in February 2018 through February 14, 2020. In June 2016, we closed on a master repurchase agreement to fund the origination of transitional loans and acquisition of mezzanine loans for up to $250.0 million, with $60.5 million outstanding as of December 31, 2018. In June 2017, we extended the maturity date under this repurchase agreement through June 2018. We also entered into master repurchase agreements to fund our acquisition of SBC ABS and short-term investments with four counterparties and had $65.4 million of borrowings as of December 31, 2018. We also entered into a promissory note agreement with $6.1 million outstanding as of December 31, 2018. We may use these facilities together with other borrowings structured as repurchase agreements to finance our assets. If the market value of the assets pledged or sold by us under a repurchase agreement borrowing to a financing institution declines, we will normally be required by the financing institution to pay down a portion of the funds advanced, but we may not have the funds available to do so, which could result in defaults. Repurchase agreements that we may use in the future may also require us to provide additional collateral if the market value of the assets pledged or sold by us to a financing institution declines. Posting additional collateral to support our credit will reduce our liquidity and limit our ability to leverage our assets, which could adversely affect our business. In the event we do not have sufficient liquidity to meet such requirements, financing institutions can accelerate repayment of our indebtedness, increase interest rates, liquidate our collateral or terminate our ability to borrow. Such a situation would likely result in a rapid deterioration of our financial condition and possibly necessitate a filing for bankruptcy protection. For further information on our repurchase agreements see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —  Liquidity and Capital Resources” included in this annual report on Form 10-K.

Further, financial institutions providing the repurchase facilities may require us to maintain a certain amount of cash that is not invested or to set aside non-leveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. If we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.

If a counterparty to our repurchase transactions defaults on its obligation to resell the underlying asset back to us at the end of the transaction term, or if the value of the underlying asset has declined as of the end of that term, or if we default on our obligations under the repurchase agreement, we will incur losses on our repurchase transactions.

Under repurchase agreement financings, we generally sell assets to lenders (that is, repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same assets back to us at the end of the term of the transaction, which typically ranges from 30 to 90 days, but which may have terms of up to 364 days or longer. Because the cash we will receive from the lender when it initially sells the assets to the lender is less than the value of those assets (this is referred to as the haircut), if the lender defaults on its obligation to resell the same assets back to us,

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we would incur a loss on the transaction equal to the amount of the haircut (assuming there was no change in the value of the assets). We would also incur losses on a repurchase transaction if the value of the underlying assets has declined as of the end of the transaction term, as we would have to repurchase the assets for their initial value but would receive assets worth less than that amount. Further, if we default on one of our obligations under a repurchase transaction, the lender will be able to terminate the transaction and cease entering into any other repurchase transactions with us. It is also possible that our repurchase agreements will contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default. If a default occurs under any of our repurchase agreements and the lenders terminate one or more of our repurchase agreements, we may need to enter into replacement repurchase agreements with different lenders. There can be no assurance that we will be successful in entering into such replacement repurchase agreements on the same terms as the repurchase agreements that were terminated or at all. Any losses we incur on our repurchase transactions could adversely affect our earnings and thus our cash available for distribution to our stockholders.

An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution to our stockholders.

As our financings mature, we will be required either to enter into new borrowings or to sell certain of our assets. An increase in short-term interest rates at the time that we seek to enter into new borrowings would reduce the spread between the returns on our assets and the cost of our borrowings. This would adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution to our stockholders.

Our rights under our repurchase agreements may be subject to the effects of bankruptcy laws in the event of the bankruptcy or insolvency of our Company or our lenders under the repurchase agreements, which may allow our lenders to repudiate our repurchase agreements.

In the event of insolvency or bankruptcy, repurchase agreements normally qualify for special treatment under the Bankruptcy Code, the effect of which, among other things, would be to allow the lender under the applicable repurchase agreement to avoid the automatic stay provisions of the Bankruptcy Code and to foreclose on the collateral agreement without delay. In the event of the insolvency or bankruptcy of a lender during the term of a repurchase agreement, the lender may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the lender for damages may be treated simply as an unsecured creditor. In addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our securities under a repurchase agreement or to be compensated for any damages resulting from the lender’s insolvency may be further limited by those statutes. These claims would be subject to significant delay and, if and when received, may be substantially less than the damages we actually incur.

The change of control provisions in the Notes and the related indentures could deter, delay or prevent an otherwise beneficial merger, acquisition, tender offer or other takeover attempt involving our Company.

The change of control provisions in the Notes and the related indentures could make it more difficult or more expensive for a third-party to acquire our Company.  If a merger, acquisition, tender offer or other takeover attempt involving our Company by a third-party constitutes a change of control under the related indentures, we or ReadyCap Holdings may be required to offer to repurchase all of the Notes. As a result, our obligations under the Notes could increase the cost of acquiring our Company or otherwise discourage a third party from acquiring our Company.

We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition.

Subject to maintaining our qualification as a REIT, part of our strategy involves entering into hedging transactions that could require us to fund cash payments in certain circumstances (such as the early termination of a hedging instrument caused by an event of default or other early termination event). The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges, and these economic losses will be reflected in our results of operations. We may also be required to provide margin to our counterparties to collateralize our obligations under hedging agreements. Our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time. The need to fund these obligations could adversely impact our financial condition.

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Through certain of our subsidiaries we may engage in securitization transactions relating to mortgage loans, which would expose us to potentially material risks.

Through certain of our subsidiaries we may engage in securitization transactions relating to mortgage loans, which generally would require us to prepare marketing and disclosure documentation, including term sheets and prospectuses, which include disclosures regarding the securitization transactions and the assets being securitized. If our marketing and disclosure documentation are alleged or found to contain inaccuracies or omissions, we may be liable under federal and state securities laws (or under other laws) for damages to third parties that invest in these securitization transactions, including in circumstances where we relied on a third party in preparing accurate disclosures, or we may incur other expenses and costs in connection with disputing these allegations or settling claims.

In recent years there has also been debate as to whether there are defects in the legal process and legal documents governing transactions in which securitization trusts and other secondary purchasers take legal ownership of mortgage loans and establish their rights as first priority lien holders on underlying mortgaged property. To the extent there are problems with the manner in which title and lien priority rights were established or transferred, securitization transactions that we may sponsor and third-party sponsored securitizations that we hold investments in may experience losses, which could expose us to losses and could damage our ability to engage in future securitization transactions.

Our potential securitization activities could expose us to litigation, which may adversely affect our business and financial results.

Through certain of our subsidiaries we may engage in or participate in securitization transactions relating to mortgage loans. As a result of declining property values, increasing defaults, changes in interest rates, or other factors, the aggregate cash flows from the loans held by any securitization entity that we may sponsor and the securities and other assets held by these entities may be insufficient to repay in full the principal amount of ABS issued by these securitization entities. We do not expect to be directly liable for any of the ABS issued by these entities. Nonetheless, third parties who hold the ABS issued by these entities may try to hold us liable for any losses they experience, including through claims under federal and state securities laws or claims for breaches of representations and warranties we would make in connection with engaging in these securitization transactions.

Defending a lawsuit can consume significant resources and may divert management’s attention from our operations. We may be required to establish reserves for potential losses from litigation, which could be material. To the extent we are unsuccessful in our defense of any lawsuit, we could suffer losses, which could be in excess of any reserves established relating to that lawsuit, and these losses could be material.

GMFS originates residential mortgage loans which have risks of losses due to mortgage loan defaults or fraud.

GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, VA and USDA through retail, correspondent and broker channels. We also expect GMFS to originate loans that are not guaranteed or insured by such agencies or channels, and the origination of these residential mortgage loans have risks of losses due to mortgage loan defaults or fraud. The ability of borrowers to make timely principal and interest payments could be adversely affected by changes in their personal circumstances, a rise in interest rates, a recession, declining real estate property values or other economic events, resulting in losses. Moreover, if a borrower defaults on a mortgage loan that GMFS or we own and if the liquidation proceeds from the sale of the property do not cover the loan amount and the legal, broker and selling costs, GMFS or we would experience a loss. We could experience losses if we fail to detect fraud, where a borrower or lending partner has misrepresented its financial situation or purpose for obtaining the loan, or an appraisal misrepresented the value of the property collateralizing its loan.

Currently, and in the future, some of the loans we may originate may be insured in part by mortgage insurers or financial guarantors. Mortgage insurance protects the lender or other holder of a loan up to a specified amount, in the event the borrower defaults on the loan. Mortgage insurance is generally obtained only when the principal amount of the loan at the time of origination is greater than 80% of the value of the property (loan-to-value), although it may not always be obtained in these circumstances. Any inability of the mortgage insurers to pay in full the insured portion of the loans that we hold would adversely affect the value of our loans, which could increase our credit risk, reduce our cash flows, or otherwise adversely affect our business.

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We will hold and may originate or acquire additional residential mortgage loans and non-agency RMBS collateralized by subprime mortgage loans, which are subject to increased risks.

We, through GMFS and other subsidiaries, will hold and may originate or acquire additional subprime residential mortgage loans and non-agency RMBS backed by collateral pools of subprime mortgage loans that have been originated using underwriting standards that are less restrictive than those used in underwriting other higher quality mortgage loans. These lower standards include mortgage loans made to borrowers having imperfect or impaired credit histories, mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgage property, mortgage loans made to borrowers with low credit scores, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified. Due to economic conditions, including lower home prices, as well as aggressive lending practices, subprime mortgage loans have in recent years experienced increased rates of delinquency, foreclosure, bankruptcy and loss, and they are likely to continue to experience delinquency, foreclosure, bankruptcy and loss rates that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner. Thus, because of the higher delinquency rates and losses associated with subprime mortgage loans, the performance of subprime mortgage loans and non-agency RMBS backed by subprime mortgage loans that we hold and may originate or acquire could be correspondingly adversely affected, which could adversely impact our consolidated results of operations, financial condition and business.

Deficiencies in the underwriting of newly originated residential mortgage loans may result in an increase in the severity of losses on our residential mortgage loans.

The underwriting of newly originated residential mortgage loans is different than the underwriting and investment process related to seasoned mortgage loans and RMBS, which focuses, in part, on performance history.

Prior to originating or acquiring residential mortgage loans or other assets, GMFS or other subsidiaries may undertake underwriting and due diligence efforts with respect to various aspects of the loan or asset. When underwriting or conducting due diligence, GMFS or other subsidiaries rely on available resources and data, which may be limited, and on investigations by third parties.

The mortgage loan originator may also only conduct due diligence on a sample of a pool of loans or assets it is acquiring and assume that the sample is representative of the entire pool. These underwriting and due diligence efforts may not reveal matters that could lead to losses. If the underwriting process is not robust enough or if we do not conduct adequate due diligence, or the scope of the underwriting or due diligence is limited, we may incur losses.

During the mortgage loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective mortgage. The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value. Inaccurate or inflated appraisals may result in an increase in the severity of losses on the residential mortgage loans.

Although mortgage originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators may make exceptions to these guidelines. On a case-by-case basis, underwriters may determine that a prospective borrower that does not strictly qualify under the underwriting guidelines warrants an underwriting exception, based upon compensating factors. Compensating factors may include a lower LTV, a higher debt coverage ratio, experience as an owner or investor, higher borrower net worth or liquidity, stable employment, longer length of time in business and length of time owning the property. Loans originated with exceptions may result in a higher number of delinquencies and defaults.

Losses could occur due to a counterparty that sold loans to GMFS or other Company subsidiaries refusing to or being unable to repurchase that loan or pay damages related to breaches of representations made by the seller.

Losses could occur due to a counterparty that sold loans or other assets to GMFS or other Company subsidiaries refusing to or being unable to (e.g., due to its financial condition) repurchase loans or pay damages if it is determined subsequent to purchase that one or more of the representations or warranties made to GMFS or other Company subsidiaries in connection with the sale was inaccurate.

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Even if GMFS or another Company subsidiary obtains representations and warranties from the loan seller counterparties they may not parallel the representations and warranties GMFS or other Company subsidiaries make to subsequent purchasers of the loans or may otherwise not protect the seller from losses, including, for example, due to the counterparty being insolvent or otherwise unable to make payments arising out of damages for a breach of representation or warranty. Furthermore, to the extent the counterparties from which loans were acquired have breached their representations and warranties, such breaches may adversely impact our business relationship with those counterparties, including by reducing the volume of business our subsidiaries conduct with those counterparties, which could negatively impact their ability to acquire loans and the larger mortgage origination business. To the extent our Company subsidiaries have significant exposure to representations and warranties made to them by one or more counterparties, we may determine, as a matter of risk management, to reduce or discontinue loan acquisitions from those counterparties, which could reduce the volume of mortgage loans available for acquisition and negatively impact our business and financial results.

We are subject to risks and can be exposed to significant losses relating to inaccurate representations made in connection with loan sales to third parties.

When selling loans (including sales to agencies and into a securitization trust), GMFS has historically made and GMFS and other Company subsidiaries will in the future continue to make representations and warranties to the purchaser regarding characteristics of the mortgage loans, information about the mortgage borrower and the completeness of records and documentation relating to the mortgage loans. Similarly, in connection with, and prior to the completion of, the merger, ZAIS Financial sold its seasoned, re-performing mortgage loans. ZAIS Financial made representations and warranties to the purchaser regarding the characteristics of whole loan assets included in such sales. If the representations and warranties are inaccurate with respect to any mortgage loan, the seller of that loan may be obligated to repurchase the mortgage loan or pay damages, which may result in a loss.

In the aftermath of the financial crisis that began in 2007, a significant amount of litigation has been commenced by mortgage loan purchasers and their successors against mortgage loan originators and sellers, seeking to recover damages for losses incurred when purchased or securitized loans eventually defaulted.

As previously disclosed in the Joint Proxy Statement Prospectus filed on August 26, 2016 and in our annual report on Form 10-K for the year ended December 31, 2017, a counterparty (the “Counterparty”) whose predecessor purchased mortgage loans from GMFS, which is currently our subsidiary, asserted claims against GMFS for breach of representations and warranties arising out these mortgage loan sales (the “Claims”).  We estimate that dating back to a period that began in 1999 and ended in 2006, approximately $1 billion of mortgage loans were sold servicing released by GMFS to the predecessor to the Counterparty.  As we have also previously disclosed, GMFS entered into a statute of limitations tolling agreement with the Counterparty on December 12, 2013 related to the Claims, which was further amended to extend the expiration date, most recently to May 15, 2017.

On April 25, 2017, our Company and GMFS entered into a definitive agreement (the “Settlement Agreement”) to settle all Claims with the Counterparty and provide for mutual releases.  Pursuant to the Settlement Agreement, our Company has paid a total of $6,000,000 in cash and issued 275,862 shares of our Company’s common stock to the Counterparty (the “Settlement Shares”).  The Settlement Shares were issued within seven days of the Settlement Agreement in a private placement transaction effected in reliance on an exemption from the registration requirements of the Securities Act; pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.  As part of the settlement, our Company granted the Counterparty customary resale registration rights.

During the period beginning on the 24-month anniversary of the date of the Settlement Agreement (and ending 30 days thereafter), the Counterparty will have the right, but not the obligation, to require that our Company repurchase any and all of the Settlement Shares that the Counterparty then owns at a price per share equal 65% of the then last reported book value per share of our Company’s common stock.

GMFS was an indirect subsidiary of ZAIS Financial when our Company completed its merger transaction with ZAIS Financial on October 31, 2016.  As disclosed in the Joint Proxy Statement Prospectus used in connection with the merger transaction and in our annual report on Form 10-K for the year ended December 31, 2017, ZAIS Financial had originally acquired GMFS on October 31, 2014 (the “GMFS 2014 acquisition”) from investment partnerships that were advised by our Manager, and from certain other entities controlled by GMFS management (together, the “2014 GMFS sellers”).  The terms of the GMFS 2014 acquisition provided for the payment of both cash consideration and the possible payment of additional contingent consideration based on the achievement by GMFS of certain financial milestones specified in the GMFS 2014 acquisition agreement.

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The GMFS 2014 acquisition agreement contained representations and warranties related to GMFS, as well as indemnification obligations to cover breaches of representations and warranties, repurchase claims or demands from investors in respect of mortgage loans originated, purchased or sold by GMFS prior to the closing date of the acquisition.  The GMFS 2014 acquisition agreement also established an escrow fund to support the payment of indemnification claims and allowed for indemnification claims to be offset against the contingent consideration that would otherwise be payable to the GMFS 2014 sellers under the GMFS 2014 acquisition agreement.  In accordance with the terms of the GMFS 2014 acquisition agreement, we applied the amounts paid to the Counterparty in settlement of the Claims to offset the amount of contingent consideration that we would otherwise be required to pay to the GMFS 2014 sellers under the GMFS 2014 acquisition agreement. We also recorded the amounts paid under the Settlement Agreement as a reduction of the $14.5 million liability that was accrued on our balance sheet as of December 31, 2017 to cover the possible payment of contingent consideration pursuant to the GMFS 2014 acquisition. As a result, we do not expect that the settlement will result in a charge to our earnings or otherwise adversely impact our results of operations.

Under the terms of the indemnification provisions contained in the GMFS 2014 acquisition agreement, the 2014 GMFS sellers are liable for amounts paid in settlement of Claims made with their consent, which consent was not to be unreasonably withheld or delayed. Certain of the 2014 GMFS sellers did not consent to the settlement, and as a result, there can be no assurance that the exercise of the right to indemnification by our Company under the terms of the GMFS 2014 acquisition agreement would be successful.

Hedging against interest rate exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.

Subject to maintaining our qualification as a REIT, we will likely pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity will vary in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:

· interest rate hedging can be expensive, particularly during periods of volatile interest rates;

· available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;

· the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value. Downward adjustments or “mark-to-market” losses would reduce earnings or stockholders’ equity;

· the market value of derivatives used for hedging may decrease from time to time, which may require us to deliver additional margin to our counterparties;

· the amount of income that a REIT may earn from non-qualifying hedging transactions (other than through taxable REIT subsidiaries (“TRSs”)) to offset interest rate losses is limited by U.S. federal tax provisions governing REITs;

· the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

· the hedging counterparty owing money in the hedging transaction may default on its obligation to pay; and

· the duration of the hedge may not match the duration of the related liability.

In general, when we acquire an SBC loan or ABS, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that effectively fixes our borrowing costs for a period close to the anticipated average life of the fixed-rate portion of the related assets. This strategy is designed to protect us from rising interest rates, because the borrowing costs are fixed for the duration of the fixed-rate portion of the related SBC loan or ABS.

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However, if prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument. This could have a negative impact on our results of operations, as borrowing costs would no longer be fixed after the end of the hedging instrument while the income earned on the SBC loan or ABS would remain fixed. This situation may also cause the market value of our SBC loan or ABS to decline, with little or no offsetting gain from the related hedging transactions. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

In addition, the use of this swap hedging strategy effectively limits increases in our book value in a declining rate environment, due to the effectively fixed nature of our hedged borrowing costs. In an extreme rate decline, prepayment rates on our assets might actually result in certain of our assets being fully paid off while the corresponding swap or other hedge instrument remains outstanding. In such a situation, we may be forced to terminate the swap or other hedge instrument at a level that causes us to incur a loss.

Our hedging transactions, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.

Our use of derivatives may expose us to counterparty and other risks.

We will likely enter into over-the-counter interest rate swap agreements to hedge risks associated with movements in interest rates. Because such interest rate swaps are not cleared through a central counterparty, the counterparty’s performance is not guaranteed by a clearing house. As a result, if a swap counterparty cannot perform under the terms of an interest rate swap, we would not receive payments due under that agreement, we may lose any unrealized gain associated with the interest rate swap and the hedged liability would cease to be hedged by the interest rate swap. We may also be at risk for any collateral we have pledged to secure our obligation under the interest rate swap if the counterparty becomes insolvent or files for bankruptcy.

The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in its default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our commitments, if any, at the then current market price. Although generally we will seek to reserve the right to terminate our hedging positions, we may not always be able to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot provide any assurances that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Derivative instruments are also subject to liquidity risk and may be difficult or impossible to sell, close out or replace quickly and at the price that reflects the fundamental value of the instrument. Although both over-the-counter and exchange-traded markets may experience lack of liquidity, over-the-counter, non-standardized derivative transactions are generally less liquid than exchange-traded instruments.

Furthermore, derivative transactions are subject to increasing statutory and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. Recently, new regulations have been promulgated by U.S. and foreign regulators attempting to strengthen oversight of derivative contracts. Any actions taken by regulators could constrain our strategy and could increase our costs, either of which could materially and adversely impact our operations.

In particular, the Dodd-Frank Act requires certain derivatives, including certain interest rate swaps, to be executed on a regulated market and cleared through a central counterparty. Unlike uncleared swaps, the counterparty for the cleared swaps is the clearing house, which reduces counterparty risk. However, cleared swaps require us to appoint clearing brokers and to post margin in accordance with the clearing house’s rules, which has resulted in increased costs for cleared swaps over uncleared swaps. Margin requirements for uncleared swaps have recently been issued by certain regulators, and requirements from other regulators are expected to be issued soon. Starting March 1, 2017, these rules require us to post margin for uncleared swaps with swap dealers. The margin for both cleared and uncleared swaps will generally be limited to cash and certain types of securities. These requirements may increase the costs of hedging and induce us to change or reduce our use of hedging transactions.

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Regulation as a commodity pool operator could subject us to additional regulation and compliance requirements, which could materially adversely affect our business and financial condition.

The Dodd-Frank Act extended the reach of commodity regulations for the first time to include not just traditional futures contracts but also derivative contracts referred to as “swaps.” As a consequence of this change, any investment fund that trades in swaps may be considered a “commodity pool,” which would cause its operator to be regulated as a commodity pool operator (“CPO”). Under the new requirements, CPOs must register or file for an exemption from registration with the National Futures Association, the self-regulatory organization for swaps and other financial instruments regulated by the U.S. Commodity Futures Trading Commission (“CFTC”), and become subject to regulation by the CFTC, including with respect to disclosure, recordkeeping and reporting.

On December 7, 2012, the CFTC issued a no-action letter that provides mortgage REITs relief from such registration, or the No-Action Letter, if they meet certain conditions and submit a claim for such no-action relief by email to the CFTC. We believe we will meet the conditions set forth in the No-Action Letter and we have filed our claim with the CFTC to perfect the use of the no-action relief from registration. However, if in the future we do not meet the conditions set forth in the No-Action Letter or the relief provided by the No-Action Letter becomes unavailable for any other reason and we are unable to obtain another exemption from registration, we may be required to reduce or eliminate our use of interest rate swaps or vary the manner in which we deploy interest rate swaps in our business and we or our directors may be required to register with the CFTC as CPOs and our Manager may be required to register as a “commodity trading advisor” with the CFTC, which will require compliance with CFTC rules and subject us, our board of directors and our Manager to regulation by the CFTC. In the event registration for our Company, our directors or our Manager is required but is not obtained, we, our board of directors or our Manager may be subject to fines, penalties and other civil or governmental actions or proceedings, any of which could have a material adverse effect on our business, financial condition and results of operations. The costs of compliance with the CFTC regulations, or the changes to our hedging strategy necessary to avoid their application, could have a material adverse effect on our business, financial condition and results of operations.

If we attempt to qualify for hedge accounting treatment for our derivative instruments, but we fail to qualify, we may suffer losses because losses on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction.

We record derivative and hedging transactions in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under these standards, we may fail to qualify for, or choose not to elect, hedge accounting treatment for a number of reasons, including if we use instruments that do not meet the definition of a derivative (such as short sales), we fail to satisfy hedge documentation, and hedge effectiveness assessment requirements or our instruments are not highly effective. If we fail to qualify for, or choose not to elect, hedge accounting treatment, our operating results may be volatile because changes in the fair value of the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction or item.

Declines in the fair market values of our assets may adversely affect periodic reported results and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

Our SBC loans held-for-sale and SBC ABS are carried at fair value and future mortgage related assets may also be carried at fair value. Accordingly, changes in the fair value of these assets may impact the results of our operations for the period in which such change in value occurs. The expectation of changes in real estate prices, which is beyond our control, is a major determinant of the value of SBC loans and SBC ABS.

Many of the assets in our portfolio are and will likely be SBC loans and SBC ABS that are not publicly traded. The fair value of assets that are not publicly traded may not be readily determinable. We value these assets quarterly at fair value, as determined in accordance with applicable accounting standards, which may include unobservable inputs. Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these assets existed.

A decline in the fair market value of our assets may adversely affect us, particularly in instances where we have borrowed money based on the fair market value of those assets. If the fair market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we are unable to post the additional collateral, we would have to sell the assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders.

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Our loans are dependent on the ability of the commercial property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure.

Our loans are generally secured by multi-family, office, retail, mixed use, commercial or warehouse properties and are subject to risks of delinquency, foreclosure and loss that may be greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be adversely affected by, among other things:

· tenant mix;

· success of tenant businesses;

· property management decisions;

· property location, condition and design;

· competition from comparable types of properties;

· changes in national, regional or local economic conditions and/or specific industry segments;

· declines in regional or local real estate values;

· declines in regional or local rental or occupancy rates;

· increases in interest rates, real estate tax rates and other operating expenses;

· costs of remediation and liabilities associated with environmental conditions;

· the potential for uninsured or underinsured property losses;

· changes in governmental laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance; and

· acts of God, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Foreclosure can be an expensive and lengthy process, and foreclosing on certain properties where we directly hold the mortgage loan and the borrower’s default under the mortgage loan is continuing could result in actions that could be costly to our operations, in addition to having a substantial negative effect on our anticipated return on the foreclosed mortgage loan.

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Our portfolio of assets may at times be concentrated in certain property types or secured by properties concentrated in a limited number of geographic areas, which increases our exposure to economic downturn with respect to those property types or geographic locations.

We are not required to observe specific diversification criteria. Therefore, our portfolio of assets may, at times, be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations.

Our loan portfolio is concentrated in California, Texas, Florida, New York, and Georgia and represents approximately 14.1%, 11.3%, 10.8%, 6.3%, and 5.3%,  respectively, of our total loans as of December 31, 2018. Continued deterioration of economic conditions in these or in any other state in which we have a significant concentration of borrowers could have a material and adverse effect on our business by reducing demand for new financings, limiting the ability of customers to repay existing loans and impairing the value of our real estate collateral and real estate owned properties. For example, the real estate market in South Florida has experienced a significant downturn which has an adverse impact on the collateral securing our loans in these areas.

To the extent that our portfolio is concentrated in any region, or by type of property, downturns relating generally to such region, type of borrower or security may result in defaults on a number of our assets within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders.

Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operation and financial condition.

Our operations and activities include loans to small, privately owned businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. Additionally, SBC loans are also often accompanied by personal guarantees. Often, there is little or no publicly available information about these businesses. Accordingly, we must rely on our own due diligence to obtain information in connection with our investment decisions. Our borrowers may not meet net income, cash flow and other coverage tests typically imposed by banks. A borrower’s ability to repay its loan may be adversely impacted by numerous factors, including a downturn in its industry or other negative local or more general economic conditions. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in the collateral for the loan. In addition, small businesses typically depend on the management talents and efforts of one person or a small group of people for their success. The loss of services of one or more of these persons could have a material and adverse impact on the operations of the small business. Small companies are typically more vulnerable to customer preferences, market conditions and economic downturns and often need additional capital to expand or compete. These factors may have an impact on loans involving such businesses. Loans to small businesses, therefore, involve a high degree of business and financial risk, which can result in substantial losses.

Some of the mortgage loans we will originate or acquire are loans made to self-employed borrowers who have a higher risk of delinquency and default, which could have a material and adverse effect on our business, results of operations and financial condition.

Many of our borrowers will be self-employed. Self-employed borrowers may be more likely to default on their mortgage loans than salaried or commissioned borrowers and generally have less predictable income. In addition, many self-employed borrowers are small business owners who may be personally liable for their business debt. Consequently, a higher number of self-employed borrowers may result in increased defaults on the mortgage loans we originate or acquire and, therefore, could have a material and adverse effect on our business, results of operations and financial condition.

Some of the mortgage loans we will originate or acquire are secured by non-owner/user properties that may experience increased frequency of default and, when in default, the owners are more likely to abandon their properties, which could have a material and adverse effect on our business, results of operations and financial condition.

Some of the loans we will originate or acquire have been, and in the future could be, made to borrowers who do not live in or operate a business on the mortgaged properties. These mortgage loans are secured by properties acquired by investors for rental income and capital appreciation and tend to default more than properties regularly occupied or used by the related borrowers. In a default, real property investors not occupying the mortgaged property may be more likely to

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abandon the related mortgaged property, increasing defaults and, therefore, could have a material and adverse effect on our business, results of operations and financial condition.

We may encounter risks associated with originating or acquiring SBA loans.

We will originate SBA loans and sell the guaranteed portion of such SBA loans into the secondary market. These sales may result in collecting cash premiums, creating a stream of future servicing spread or both. There can be no assurance that we will originate these loans, that a secondary market will exist or that we will realize premiums upon the sale of the guaranteed portion of these loans.

We may acquire SBA loans or originate SBA loans and sell the guaranteed portion of such SBA loans and retain the credit risk on the non-guaranteed portion of such loans. We would then expect to share pro-rata with the SBA in any recoveries. In the event of default on an SBA loan, our pursuit of remedies against a borrower would be subject to SBA rules and in some instances SBA approval. If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us. With respect to the guaranteed portion of SBA loans that may be sold by us, the SBA would first honor its guarantee and then may seek compensation from us in the event that a loss is deemed to be attributable to technical deficiencies. There can be no assurance that we will not experience a loss due to significant deficiencies with our underwriting or servicing of SBA loans.

In certain instances, including liquidation or charge-off of an SBA guaranteed loan, we may have a receivable for the SBA’s guaranteed portion of legal fees, operating expenses, property taxes paid etc. related to the loan or the collateral (upon foreclosure). While we may believe expenses incurred were justified and necessary for the care and preservation of the collateral and within the established rules of the SBA, there can be no assurance that the SBA will reimburse us. In addition, obtaining reimbursement from the SBA may be a time consuming and lengthy process and the SBA may seek compensation from us related to reimbursement of expenses that it does not believe were necessary for the care and preservation of a loan or its collateral and no assurance can be given that the SBA will not decline to reimburse us for our portion of material expenses.

A government shutdown or curtailment of the government-guaranteed loan programs could cut off an important segment of our business, and may adversely affect our SBA loan program acquisitions and originations and results of operations.

Although the program has been in existence since 1953, there can be no assurance that the federal government will maintain the SBA program, or that it will continue to guarantee loans at current levels. If we cannot acquire, make or sell government-guaranteed loans, we may generate less interest income, fewer origination fees, and our ability to generate gains on sale of loans may decrease. From time-to-time, the government agencies that guarantee these loans reach their internally budgeted limits and cease to guarantee loans for a stated time period. In addition, these agencies may change their rules for loans. Also, Congress may adopt legislation that could have the effect of discontinuing or changing the programs. Non-governmental programs could replace government programs for some borrowers, but the terms might not be equally acceptable. If these changes occur, the volume of loans to small business and industrial borrowers of the types that now qualify for government-guaranteed loans could decline, as could the profitability of these loans.

Our lending business could be materially and adversely affected by circumstances or events limiting the availability of funds for SBA loan programs. A government shutdown occurred in October 2013 and December 2018 that affected the ability of entities to originate SBA loans because Congress failed to approve a budget which in turn eliminated the availability of funds for these programs. A government shutdown could occur again, which may affect our ability to originate government guaranteed loans and to sell the government guaranteed portions of those loans in the secondary market. A government shutdown may adversely affect our SBA loan program acquisitions and originations and our results of operations.

We are a seller/servicer approved to sell mortgage loans to Freddie Mac and failure to maintain our status as an approved seller/servicer could harm our business.

We are an approved Freddie Mac seller/servicer. As an approved seller/servicer, we are required to conduct certain aspects of our operations in accordance with applicable policies and guidelines published by Freddie Mac and we are required to pledge a certain amount of cash to Freddie Mac to collateralize potential obligations to it. Freddie Mac

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performed an audit in June 2016.  As a result of that audit, ReadyCap Commercial received an overall assessment of Satisfactory.  Failure to maintain our status as an approved seller/servicer would mean we would not be able to sell mortgage loans to Freddie Mac, could result in us being required to re-purchase loans previously sold to Freddie Mac, or could otherwise restrict our business and investment options and could harm our business and expose us to losses or other claims. Freddie Mac may, in the future, require us to hold additional capital or pledge additional cash or assets in order to maintain approved seller/servicer status, which, if required, would adversely impact our financial results. Loans sold to Freddie Mac that may be required to be re-purchased as of December 31, 2018 included 37 loans with a combined unpaid principal balance of $79.3 million.

The diminished level of Freddie Mac participation in, and other changes in the role of Freddie Mac in, the mortgage market may adversely affect our business.

In September 2008, FHFA placed Fannie Mae and Freddie Mac in conservatorship and undertook the extraordinary dual role of supervisor and conservator. Now in their ninth year, FHFA’s conservatorships are of unprecedented scope, scale, and complexity. While in conservatorship, Fannie Mae and Freddie Mac have required $187.5 billion in financial investment from the Treasury to avert insolvency, and, through the start of 2017, have paid to Treasury over $255 billion in dividends. Despite their high leverage, lack of capital, conservatorship status, and uncertain future, the combined Fannie Mae and Freddie Mac have grown in size during conservatorship and, according to FHFA, their combined market share of newly issued MBS is more than 65%. In mid-2017, their combined total assets were approximately $5.3 trillion and their combined debt exceeded $5 trillion. Although market conditions have improved and Fannie Mae and Freddie Mac have returned to profitability, their ability to sustain profitability in the future cannot be assured for a number of reasons: the winding down of their investment portfolios and reduction in net interest income; the level of guarantee fees they will be able to charge and keep; the future performance of their business segments; and the significant uncertainties involving key market drivers such as mortgage rates, homes prices, and credit standards. Fannie Mae and Freddie Mac will also be required to eliminate their capital cushion by the end of 2018 and in any quarter in which they suffer a loss, will have to once again draw funds from Treasury to cover such losses. To address these challenges, a number of reform proposals have been introduced and suggested, but none have passed a congressional vote.

If Freddie Mac participation in the mortgage market were reduced or eliminated, or its structures were to change, our ability to originate and service loans under the Freddie Mac program could be adversely affected. These developments could also materially and adversely impact the pricing of our potential future Freddie Mac loan and ABS portfolio. Additionally, the current support provided by the Treasury to Freddie Mac, and any additional support it may provide in the future, could have the effect of lowering the interest rates we expect to receive from such assets, thereby tightening the spread between the interest we earn on these assets and the cost of financing these assets. Future legislation affecting Freddie Mac may create market uncertainty and have the effect of reducing the actual or perceived credit quality of Freddie Mac and the securities issued or guaranteed by it. As a result, such laws could increase the risk of loss on our investments related to the Freddie Mac program. It also is possible that such laws could adversely impact the market for such assets and the spreads at which they trade.

Our investments may include subordinated tranches of ABS and RMBS, which are subordinate in right of payment to more senior securities.

Our investments may include subordinated tranches of ABS and RMBS, which are subordinated classes of securities in a structure of securities collateralized by a pool of assets consisting primarily of SBC loans and, accordingly, are the first or among the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest and principal. Additionally, estimated fair values of these subordinated interests tend to be more sensitive to changes in economic conditions than more senior securities. As a result, such subordinated interests generally are not actively traded and may not provide holders thereof with liquid investments.

In certain cases we may not control the special servicing of the mortgage loans included in the securities in which we may invest in and, in such cases, the special servicer may take actions that could adversely affect our interests.

With respect to the SBC ABS in which we expect to invest, overall control over the special servicing of the related underlying mortgage loans will be held by a directing certificate holder, which is appointed by the holders of the most subordinate class of securities in such series. When we acquire investment-grade classes of existing series of securities originally rated AAA, we will not have the right to appoint the directing certificate holder. In these cases, in connection with the servicing of the specially serviced mortgage loans, the related special servicer may, at the direction of the directing

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certificate holder, take actions with respect to the specially serviced mortgage loans that could adversely affect our interests.

Any credit ratings assigned to our SBC loans and ABS assets will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.

Some of our SBC loan and ABS assets may be rated by Moody’s Investors Service, Standard & Poor’s, or S&P, or Fitch Ratings. Any credit ratings on our SBC loans and ABS assets are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Rating agencies may assign a lower than expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our SBC loans and ABS assets in the future. In addition, we may acquire assets with no rating or with below investment grade ratings. If the rating agencies take adverse action with respect to the rating of our SBC loans and ABS assets or if our unrated assets are illiquid, the value of these SBC loans and ABS assets could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.

The receivables underlying the ABS we may acquire are subject to credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks, which could result in losses to us.

We may acquire ABS securities, where the underlying pool of assets consists primarily of SBC loans. The structure of an ABS, and the terms of the investors’ interest in the underlying collateral, can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. Individual transactions can differ markedly in both structure and execution. Important determinants of the risk associated with issuing or holding ABS include: (i) the relative seniority or subordination of the class of ABS held by an investor, (ii) the relative allocation of principal, and interest payments in the priorities by which such payments are made under the governing documents, (iii) the effect of credit losses on both the issuing vehicle and investors’ returns, (iv) whether the underlying collateral represents a fixed set of specific assets or accounts, (v) whether the underlying collateral assets are revolving or closed-end, (vi) the terms (including maturity of the ABS) under which any remaining balance in the accounts may revert to the issuing vehicle and (vii) the extent to which the entity that sold the underlying collateral to the issuing vehicle is obligated to provide support to the issuing vehicle or to investors. With respect to some types of ABS, the foregoing risks are more closely correlated with similar risks on corporate bonds of similar terms and maturities than with the performance of a pool of similar assets.

In addition, certain ABS (particularly subordinated ABS) provide that the non-payment of interest thereon in cash will not constitute an event of default in certain circumstances, and the holders of such ABS will not have available to them any associated default remedies. Interest not paid in cash will generally be capitalized and added to the outstanding principal balance of the related security. Deferral of interest through such capitalization will reduce the yield on such ABS.

Holders of ABS bear various risks, including credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks. Credit risk arises from (i) losses due to defaults by obligors under the underlying collateral and (ii) the issuing vehicle’s or servicer’s failure to perform their respective obligations under the transaction documents governing the ABS. These two risks may be related, as, for example, in the case of a servicer that does not provide adequate credit-review scrutiny to the underlying collateral, leading to a higher incidence of defaults.

Market risk arises from the cash flow characteristics of the ABS, which for most ABS tend to be predictable. The greatest variability in cash flows come from credit performance, including the presence of wind-down or acceleration features designed to protect the investor in the event that credit losses in the portfolio rise well above expected levels.

Interest rate risk arises for the issuer from (i) the pricing terms on the underlying collateral, (ii) the terms of the interest rate paid to holders of the ABS and (iii) the need to mark to market the excess servicing or spread account proceeds carried on the issuing vehicle’s balance sheet. For the holder of the security, interest rate risk depends on the expected life of the ABS, which may depend on prepayments on the underlying assets or the occurrence of wind-down or termination events. If the servicer becomes subject to financial difficulty or otherwise ceases to be able to carry out its functions, it may be difficult to find other acceptable substitute servicers and cash flow disruptions or losses may occur, particularly with underlying collateral comprised of non-standard receivables or receivables originated by private retailers who collect many of the payments at their stores.

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Structural and legal risks include the possibility that, in a bankruptcy or similar proceeding involving the originator or the servicer (often the same entity or affiliates), a court having jurisdiction over the proceeding could determine that, because of the degree to which cash flows on the assets of the issuing vehicle may have been commingled with cash flows on the originator’s other assets (or similar reasons), (i) the assets of the issuing vehicle could be treated as never having been truly sold by the originator to the issuing vehicle and could be substantively consolidated with those of the originator, or (ii) the transfer of such assets to the issuer could be voided as a fraudulent transfer. The time and expense related to a challenge of such a determination also could result in losses and/or delayed cash flows.

Increases in interest rates could adversely affect the demand for new SBC loans, the value of our SBC loans and ABS assets and the availability of our target assets, and they could cause our interest expense to increase, which could result in reduced earnings or losses and negatively affect our profitability as well as the cash available for distribution to our stockholders.

We may invest in SBC loans, SBC ABS and other real estate-related investments. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing. A reduction in the volume of mortgage loans originated may affect the volume of our target assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives. Rising interest rates may also cause our target assets that were issued prior to an interest rate increase to provide yields that are below prevailing market interest rates. If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions may be materially and adversely affected.

The relationship between short-term and longer-term interest rates is often referred to as the “yield curve.” Ordinarily, short-term interest rates are lower than longer-term interest rates. If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs may increase more rapidly than the interest income earned on our assets. Because we expect that our SBC loans and ABS assets generally will bear, on average, interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income and the fair market value of our net assets. Additionally, to the extent cash flows from SBC loans and ABS assets that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new SBC loans and ABS assets and available borrowing rates may decline, which would likely decrease our net income. It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), in which event our borrowing costs may exceed our interest income and we could incur operating losses.

Fair market values of our SBC loans and ABS assets may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those SBC loans and ABS assets that are subject to prepayment risk or widening of credit spreads.

In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and our financing costs. We anticipate that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income. Increases in these rates will tend to decrease our net income and fair market value of our assets.

Interest rate fluctuations may adversely affect the level of our net income and the value of our assets and common stock.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Interest rate fluctuations present a variety of risks, including the risk of a narrowing of the difference between asset yields and borrowing rates, flattening or inversion of the yield curve and fluctuating prepayment rates, and may adversely affect our income and the value of our assets and common stock.

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Interest rate mismatches between our ARMs and RMBS backed by ARMs or hybrid ARMs and our borrowings used to fund our purchases of these assets may cause us to suffer losses.

We will likely fund our residential mortgage loans and RMBS with borrowings that have interest rates that adjust more frequently than the interest rate indices and repricing terms of ARMs and RMBS backed by ARMs or hybrid ARMs. Accordingly, if short-term interest rates increase, our borrowing costs may increase faster than the interest rates on our ARMs and RMBS backed by ARMs or hybrid ARMs adjust. As a result, in a period of rising interest rates, we could experience a decrease in net income or a net loss.

In most cases, the interest rate indices and repricing terms of ARMs and RMBS backed by ARMs or hybrid ARMs and our borrowings are not identical, thereby potentially creating an interest rate mismatch between our investments and our borrowings. While the historical spread between relevant short-term interest rate indices has been relatively stable, there have been periods when the spread between these indices was volatile. During periods of changing interest rates, these interest rate index mismatches could reduce our net income or produce a net loss, and adversely affect the level of our dividends and the market price of our common stock.

In addition, ARMs and RMBS backed by ARMs or hybrid ARMs are typically subject to lifetime interest rate caps that limit the amount an interest rate can increase through the maturity of the ARMs. However, our borrowings under repurchase agreements typically are not subject to similar restrictions. Accordingly, in a period of rapidly increasing interest rates, the interest rates paid on our borrowings could increase without limitation while caps could limit the interest rates on these types of assets. This problem is magnified for ARMs and RMBS backed by ARMs or hybrid ARMs that are not fully indexed. Further, some ARMs and RMBS backed by ARMs or hybrid ARMs may be subject to periodic payment caps that result in a portion of the interest being deferred and added to the principal outstanding. As a result, we may receive less income on these types of assets than we need to pay interest on our related borrowings. These factors could reduce our net interest income and cause us to suffer a loss during periods of rising interest rates.

Because we hold and may originate additional fixed-rate assets, an increase in interest rates on our borrowings may adversely affect our book value.

Increases in interest rates may negatively affect the fair market value of our assets. Any fixed-rate assets we hold or originate generally will be more negatively affected by these increases than adjustable-rate assets. In accordance with accounting rules, we will be required to reduce our earnings for any decrease in the fair market value of our assets that are accounted for under the fair value option. We will be required to evaluate our assets on a quarterly basis to determine their fair value by using third-party bid price indications provided by dealers who make markets in these assets or by third-party pricing services. If the fair value of an asset is not available from a dealer or third-party pricing service, we will estimate the fair value of the asset using a variety of methods, including discounted cash flow analysis, matrix pricing, option-adjusted spread models and fundamental analysis. Aggregate characteristics taken into consideration include type of collateral, index, margin, periodic cap, lifetime cap, underwriting standards, age and delinquency experience. However, the fair value reflects estimates and may not be indicative of the amounts we would receive in a current market exchange. If we determine that a security is other-than-temporarily impaired, we would be required to reduce the value of such security on our balance sheet by recording an impairment charge in our income statement and our stockholders’ equity would be correspondingly reduced. Reductions in stockholders’ equity decrease the amounts we may borrow to originate or purchase additional target assets, which could restrict our ability to increase our net income.

Because the assets we will hold and expect to acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell SBC loans and ABS assets at an opportune time.

We bear the risk of being unable to dispose of our assets at advantageous times or in a timely manner because SBC loans and ABS assets generally experience periods of illiquidity, including the recent period of delinquencies and defaults with respect to residential mortgage loans. Additionally, we believe that we are currently one of only a handful of active market participants in the secondary SBC loan market and the lack of liquidity may result from the absence of a willing buyer or an established market for these assets, as well as legal or contractual restrictions on resale or the unavailability of financing for these assets. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which may cause us to incur losses.

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Recent market conditions may make it more difficult for us to analyze potential investment opportunities for our portfolio of assets.

Our success will depend, in part, on our ability to effectively analyze potential acquisition and origination opportunities in order to assess the level of risk-adjusted returns that we should expect from any particular investment. To estimate the value of a particular asset, we may use historical assumptions that may or may not be appropriate during the recent unprecedented downturn in the real estate market and general economy. To the extent that we use historical assumptions that are inappropriate under current market conditions, we may overpay for an asset or acquire an asset that it otherwise might not acquire, which could have a material and adverse effect on our results of operations and our ability to make distributions to our stockholders.

In addition, as part of our overall portfolio risk management, we will analyze interest rate changes and prepayment trends separately and collectively to assess their effects on our portfolio of assets. In conducting our analysis, we will depend on certain assumptions based upon historical trends with respect to the relationship between interest rates and prepayments under normal market conditions. Recent dislocations in the mortgage market or other developments may change the way that prepayment trends respond to interest rate changes, which may adversely affect our ability to assess the market value of our portfolio of assets, implement our hedging strategies or implement techniques to reduce our prepayment rate volatility. If our estimates prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayments, we may incur losses that could materially and adversely affect our financial condition, results of operations and our ability to make distributions to our stockholders.

Any mezzanine loan assets we may purchase or originate may involve greater risks of loss than senior loans secured by income-producing properties.

We may originate or acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property, because the loan may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy its mezzanine loan. If a borrower defaults on any mezzanine loan we may purchase or originate, or debt senior to any such loan, or in the event of a borrower bankruptcy, such mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our initial expenditure. In addition, mezzanine loans may have higher LTVs than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to any mezzanine loans we may purchase or originate would result in operating losses for us and may limit our ability to make distributions to our stockholders.

Maintenance of our 1940 Act exception imposes limits on our operations.

We intend to conduct our operations so that neither we nor our subsidiaries are required to register as an investment company under the 1940 Act. Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.

We intend to conduct our operations so that we do not come within the definition of an investment company under Section 3(a)(1)(C) of the 1940 Act because fewer than 40% of our total assets on an unconsolidated basis will consist of “investment securities.” The securities issued to us by any wholly-owned or majority-owned subsidiary that we currently own or may form in the future that is excluded from the definition of “Investment Company” by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our total assets on an unconsolidated basis. We will monitor our holdings to ensure continuing and ongoing compliance with this test. However, qualification for exclusion from registration under the 1940 Act will limit our ability

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to make certain investments. In addition, we believe that we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, we will be primarily engaged in the non-investment company businesses of our subsidiaries, and thus the type of businesses in which we may engage through our subsidiaries is limited.

In connection with the Section 3(a)(1)(c) analysis, the determination of whether an entity is a majority-owned subsidiary of our Company is made by us. The 1940 Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We will treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test. We will also treat securitization trusts as majority-owned subsidiaries for purposes of this analysis even where the securities issued by such trusts do not meet the definition of voting securities under the 1940 Act only in cases where this conclusion is supported by an opinion of counsel that the trust certificates or other interests issued by such securitization trusts are the functional equivalent of voting securities and that, in any event, such securitization trusts should be considered to be majority-owned subsidiaries for purposes of this analysis. We have not requested the SEC, or its staff, to concur or approve our treatment of any securitization trust or other company as a majority-owned subsidiary and neither the SEC nor its staff has done so. If the SEC, or its staff, were to disagree with our treatment of one of more companies as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to pass the 40% test. Any such adjustment in our strategy could have a material adverse effect on us.

We believe that certain of our subsidiaries qualify to be excluded from the definition of investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exception generally requires that at least 55% of such subsidiaries’ assets must be comprised of qualifying assets and at least 80% of their total assets must be comprised of qualifying assets and real estate-related assets under the 1940 Act. We will treat as qualifying assets for this purpose SBC loans and other mortgages, in each case meeting certain other qualifications based upon SEC staff no-action letters. Although SEC staff no-action letters have not specifically addressed the categorization of these types of assets, we will also treat as qualifying assets for this purpose transitional loans wholly-secured by first priority liens on real estate that provide interim financing to borrowers seeking short-term capital (with terms of generally up to three years), MBS representing ownership of an entire pool of mortgage loans, and real estate-owned properties that may be acquired in connection with mortgage loan foreclosures. We expect each of our subsidiaries relying on Section 3(c)(5)(C) may invest an additional 25% of its assets in either qualifying assets or in other types of mortgages, interests in MBS or other securitizations, securities of REITs, and other real estate-related assets. We expect each of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC, or its staff, or if such guidance has not been published, on our own analyses to determine which assets are qualifying real estate assets and real estate-related assets. To the extent that the SEC, or its staff, publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. Although we intend to monitor our portfolio periodically and prior to each investment acquisition, there can be no assurance that we will be able to maintain an exclusion for these subsidiaries. In addition, we may be limited in our ability to make certain investments and these limitations could result in the subsidiary holding assets we might wish to sell or selling assets we might wish to hold.

In 2011, the SEC solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the 1940 Act, including the nature of the assets that qualify for purposes of the exclusion and whether mortgage REITs should be regulated in a manner similar to registered investment companies. There can be no assurance that the laws and regulations governing the 1940 Act status of REITs, including the SEC, or its staff, providing more specific or different guidance regarding this exclusion, will not change in a manner that adversely affects our operations. If our Company or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (i) change the manner in which we conduct our operations to avoid being required to register as an investment company, (ii) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (iii) register as an investment company, any of which would negatively affect the value of our shares of common stock, the sustainability of our business model, and our ability to make distributions which would have an adverse effect on our business and the value of our shares of common stock.

Certain of our subsidiaries may rely on the exclusion from the definition of investment company provided by Section 3(c)(6) to the extent that they hold mortgage assets through majority-owned subsidiaries that rely on Section 3(c)(5)(C).

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Little interpretive guidance has been issued by the SEC, or its staff, with respect to Section 3(c)(6) and any guidance published by the SEC, or its staff, could require us to adjust our strategy accordingly. Although little interpretive guidance has been issued with respect to Section 3(c)(6), we believe that each of our subsidiaries may rely on Section 3(c)(6) if, among other things, 55% of the assets of such subsidiaries consist of, and at least 55% of the income of such subsidiaries are derived from, qualifying real estate investment assets owned by wholly-owned or majority-owned subsidiaries of such subsidiaries.

Qualification for exemption from registration under the 1940 Act will limit our ability to make certain investments. For example, these restrictions will limit the ability of our subsidiaries to invest directly in MBS that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations and MBS, and real estate companies or in assets not related to real estate.

No assurance can be given that the SEC, or its staff, will concur with our classification of our Company or our subsidiaries’ assets or that the SEC, or its staff, will not, in the future, issue further guidance that may require us to reclassify those assets for purposes of qualifying for an exclusion from regulation under the 1940 Act. To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly. Additional guidance from the SEC, or its staff, could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen. If the SEC, or its staff takes a position contrary to our analysis with respect to the characterization of any of the assets or securities we invest in, we may be deemed an unregistered investment company. Therefore, in order not to be required to register as an investment company, we may need to dispose of a significant portion of our assets or securities or acquire significant other additional assets which may have lower returns than our expected portfolio, or we may need to modify our business plan to register as an investment company, which would result in significantly increased operating expenses and would likely entail significantly reducing our indebtedness, which could also require us to sell a significant portion of our assets. We cannot assure you that we would be able to complete these dispositions or acquisitions of assets, or deleveraging, on favorable terms, or at all. Consequently, any modification of our business plan could have a material adverse effect on us. Further, if the SEC determined that we were an unregistered investment company, we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, we would potentially be unable to enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period for which it was established that we were an unregistered investment company. Any of these results would have a material adverse effect on us.

Since we are not expected to be subject to the 1940 Act, we will not be subject to its substantive provisions, including provisions requiring diversification of investments, limiting leverage and restricting investments in illiquid assets.

Rapid changes in the values of our target assets may make it more difficult for us to maintain our qualification as a REIT or our exclusion from the 1940 Act.

If the fair market value or income potential of our target assets declines as a result of increased interest rates, prepayment rates, general market conditions, government actions or other factors, we may need to increase our real estate assets and income or liquidate our non-qualifying assets to maintain our REIT qualification or our exclusion from the 1940 Act. If the decline in real estate asset values or income occurs quickly, this may be especially difficult to accomplish. We may have to make decisions that we otherwise would not make absent the REIT and 1940 Act considerations.

Risks Relating to an Investment in Our Common Stock

Future offerings of debt or equity securities, which may rank senior to our common stock, may adversely affect the market price of the common stock.

If we decide to issue additional debt securities in the future, which would rank senior to our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of

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our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in the Company.

We cannot assure you of our ability to pay distributions in the future.

To maintain our qualification as a REIT and generally not be subject to U.S. federal income tax, we intend to make regular quarterly distributions to holders of our common stock out of legally available funds. Our current policy is to distribute our net taxable income to our stockholders in a manner intended to satisfy the 90% distribution requirement and to avoid corporate income tax. We expect to continue our current distribution practices following the ORM merger, if completed, but our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this annual report on Form 10-K. All distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, debt covenants, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future, and our board of directors may change our distribution policy in the future. We believe that a change in any one of the following factors, among others, could adversely affect our results of operations and impair our ability to pay distributions to our stockholders:

· the profitability of the assets we hold or acquire;

· our ability to make profitable acquisitions;

· margin calls or other expenses that reduce our cash flow;

· defaults in our asset portfolio or decreases in the value of our portfolio; and

· the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.

We cannot assure you that we will achieve results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions in the future. In addition, some of our distributions may include a return of capital.

Tax Risks

Our failure to qualify as a REIT, or the failure of our predecessor to qualify as a REIT, would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our stockholders.

We have been organized and operated and intend to continue to operate in a manner that will enable us to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2011. We have not requested and do not intend to request a ruling from the Internal Revenue Service (the “IRS”), that we qualify as a REIT. The U.S. federal income tax laws governing REITs are complex, and judicial and administrative interpretations of the U.S. federal income tax laws governing REIT qualification are limited. The complexity of these provisions and of applicable Treasury Regulations is greater in the case of a REIT that, like us, holds our assets through a partnership. To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature of our assets and our income, the ownership of our outstanding shares, and the amount of our distributions. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we may not obtain independent appraisals. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes. Furthermore, we hold certain assets through our ownership interest in Ready Capital Subsidiary REIT I, LLC, which we refer to as our subsidiary REIT. Our ability to qualify as a REIT is dependent in part on the REIT qualification of our subsidiary REIT, which is required to separately satisfy each of the REIT requirements in order to qualify as a REIT. Thus, while we intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual

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determinations, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. These considerations also might restrict the types of assets that we can acquire in the future.

If we fail to qualify as a REIT in any taxable year, and do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income, and distributions to our stockholders would not be deductible by us in determining our taxable income. In such a case, we might need to borrow money or sell assets in order to pay our taxes. Our payment of income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required to distribute substantially all of our net taxable income to our stockholders. In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify.

As further described above, on October 31, 2016, our predecessor entity merged with and into a subsidiary of ZAIS Financial, with ZAIS Financial surviving the merger and changing its name to Sutherland Asset Management Corporation, and, as described above, subsequently changed its name to Ready Capital Corporation. In addition, as further described above, we expect to complete our acquisition of ORM in the first half of 2019. If prior to the ZAIS Financial merger our predecessor (“Pre-Merger Sutherland”) failed to qualify as a REIT, or if prior to our acquisition of ORM, ORM failed or fails to qualify as a REIT, we could fail to qualify as a REIT as a result.  Even if we retained and continue to retain our REIT qualification, if Pre-Merger Sutherland failed to qualify as a REIT for any taxable year prior to the ZAIS Financial merger, or if ORM failed or fails to qualify as a REIT prior to our acquisition of ORM, we would face serious tax consequences that could substantially reduce the cash available for distribution to our stockholders because (i) we, as successor to Pre-Merger Sutherland in the ZAIS Financial merger, generally inherited any corporate income, excise and other tax liabilities of Pre-Merger Sutherland, including penalties and interest, and we will inherit any such liabilities of ORM if our acquisition of ORM is completed; (ii) we would be subject to tax on the built-in gain on each asset of Pre-Merger Sutherland existing at the time of the merger or each asset of ORM at the time of our acquisition of ORM, as applicable; and (iii) we could be required to employ applicable deficiency dividend procedures (which would include the payment of penalties and interest to the IRS) to eliminate any earnings and profits accumulated by Pre-Merger Sutherland or ORM for taxable periods that it did not qualify as a REIT. As a result, any failure by Pre-Merger Sutherland or ORM to qualify as a REIT could impair our ability to expand our business and raise capital, and could materially adversely affect the value of our common stock.

The percentage of our assets represented by TRSs and the amount of our income that we can receive in the form of TRS dividends and interest are subject to statutory limitations that could jeopardize our REIT qualification and could limit our ability to acquire or force us to liquidate otherwise attractive investments.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. In order to treat a subsidiary of the REIT as a TRS, both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. In order to qualify as a REIT, no more than 20% of the value of our gross assets at the end of each calendar quarter may consist of securities of one or more TRSs. A significant portion of our activities are conducted through our TRSs, and we expect that such TRSs will from time to time hold significant assets.

We have elected, together with each of ReadyCap Holdings and Ready Capital TRS I, LLC, for each such entity to be treated as a TRS, and we may make TRS elections with respect to certain other entities we may form in the future (collectively referred to herein as "our TRSs"). While we intend to manage our affairs so as to satisfy the TRS limitation, there can be no assurance that we will be able to do so in all market circumstances.

In order to satisfy the TRS limitation, we have been required to and may in the future be required to acquire assets that we otherwise would not acquire, liquidate or restructure assets that we hold through ReadyCap Holdings or any of our TRSs, or otherwise engage in transactions that we would not otherwise undertake absent the requirements for REIT qualifications. Each of these actions could reduce the distributions available to our stockholders. In addition, we and our subsidiary REIT have made loans to our TRSs that meet the requirements to be treated as qualifying investments of new capital, which is generally treated as a real estate asset under the Code. Because such loans are treated as real estate assets for purposes of the REIT requirements, we do not treat these loans as TRS securities for purposes of the TRS asset limitation, which is consistent with private rulings issued by the IRS. However, no assurance can be provided that the IRS may not successfully assert that such loans should be treated as securities of our TRSs or our subsidiary REIT's TRSs, which could adversely impact our qualification as a REIT. In addition, our TRSs have obtained financing in transactions

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in which we and our other subsidiaries have provided guaranties and similar credit support. Although we believe that these financings are properly treated as financings of our TRSs for U.S. federal income tax purposes, no assurance can be provided that the IRS would not assert that such financings should be treated as issued by other entities in our structure, which could impact our compliance with the TRS limitation and the other REIT requirements. Moreover, no assurance can be provided that we will be able to successfully manage our asset composition in a manner that causes us to satisfy the TRS limitation each quarter, and our failure to satisfy this limitation could result in our failure to qualify as a REIT.

Any distributions we receive from our TRSs are classified as dividend income to the extent of the earnings and profits of the distributing corporation. Any of our TRSs may from time to time need to make such distributions in order to keep the value of our TRSs below 20% of our total assets. However, TRS dividends will generally not constitute qualifying income for purposes of one of the tests we must satisfy to qualify as a REIT, namely, that at least 75% of our gross income must in each taxable year generally be from real estate assets. While we will continue to monitor our compliance with both this income test and the limitation on the percentage of our assets represented by securities of our TRSs, and intend to conduct our affairs so as to comply with both, the two may at times be in conflict with one another. As an example, it is possible that we may wish to distribute a dividend from a TRS in order to reduce the value of our TRSs below the required threshold of our assets, but be unable to do so without violating the requirement that 75% of our gross income in the taxable year be derived from real estate assets. Although there are other measures we can take in such circumstances in order to remain in compliance, there can be no assurance that we will be able to comply with both of these tests in all market conditions.

Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, which could reduce returns on our assets and adversely affect returns to our stockholders.

To qualify as a REIT, we must generally ensure that at least 75% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property‑related sources, and at least 95% of our gross income for each taxable year, excluding certain amounts, is derived from certain real property‑related sources and passive income such as dividends and interest. In addition, we generally must ensure that at the end of each calendar quarter at least 75% of the value of our total assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and RMBS. The remainder of our investment in securities (other than government securities and qualifying real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualifying real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by stock and securities of one or more TRSs and no more than 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments from our portfolio. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. In addition, if we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT. The REIT requirements described above may also restrict our ability to sell REIT-qualifying assets, including asset sales made in connection with a disposition of certain segments of our business or in connection with a liquidation of us, without adversely impacting our qualifications as a REIT. Furthermore, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT.

In addition, certain assets that we hold or intend to hold, including unsecured loans, loans secured by both real property and personal property where the fair market value of the personal property exceeds 15% of the total fair market value of all of the property securing the loan, and interests in ABS secured by assets other than real property or mortgages on real property or on interests in real property, are not qualified and will not be qualified real estate assets for purposes of the REIT asset tests. Accordingly, our ability to invest in such assets will be limited, and our investment in such assets could cause us to fail to qualify as a REIT if our holdings in such assets do not satisfy such limitations.

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Distributions from us or gain on the sale of our common stock may be treated as unrelated business taxable income, or “UBTI”, to U.S. tax-exempt holders of common stock.

If (i) all or a portion of our assets are subject to the rules relating to taxable mortgage pools, (ii) a tax-exempt U.S. person has incurred debt to purchase or hold our common stock, (iii) we purchase real estate mortgage investment conduit (“REMIC”) residual interests that generate “excess inclusion income,” or (iv) we are a “pension held REIT,” then a portion of the distributions with respect to our common stock and, in the case of a U.S. person described in clause (ii), gains realized on the sale of such common stock by such U.S. person, may be subject to U.S. federal income tax as UBTI under the Code. We have engaged in certain securitization transactions that are treated as taxable mortgage pools for U.S. federal income tax purposes. Although we believe that such transactions are structured in a manner so that they should not cause any portion of the distributions in our shares to be treated as excess inclusion income, no assurance can be provided that the IRS would not assert a contrary position.

The REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt, sell assets or take other actions to make such distributions.

To qualify as a REIT, we must distribute to our stockholders each calendar year 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. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. Our current policy is to pay distributions which will allow us to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax on our undistributed income.

Our taxable income may substantially exceed our net income as determined under U.S. GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, it is likely that we will acquire assets, including RMBS requiring us to accrue original issue discount (“OID”) or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets. Under the recently enacted Tax Cuts and Jobs Act (the "Tax Act"), we generally will be required to recognize certain amounts in income no later than the time such amounts are reflected on our financial statements.  The application of this rule may require the accrual of income with respect to our loans, such as original issue discount or market discount, earlier than would be the case under the otherwise applicable tax rules, although the precise application of this rule is unclear at this time.  This rule generally is effective for tax years beginning after December 31, 2018 but, for debt instruments issued with original issue discount, for tax years beginning after December 31, 2018. Also, in certain circumstances our ability to deduct interest expenses for U.S. federal income tax purposes may be limited. We may also acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt are “significant modifications” under the applicable Treasury Regulations, the modified debt may be considered to have been reissued to us at a gain in a debt-for-debt exchange with the borrower, with gain recognized by us to the extent that the principal amount of the modified debt exceeds our cost of purchasing it prior to modification.  Finally, we may be required under the terms of the indebtedness that we incur to use cash received from interest payments to make principal payments on that indebtedness, with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.

As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be used for future investment or used to repay debt, or (iv) make a taxable distribution of shares of common stock as part of a distribution in which stockholders may elect to receive shares of common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements. Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could adversely affect the value of our common stock.

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We may be required to report taxable income with respect to certain of our investments in excess of the economic income we ultimately realize from them.

We may acquire mortgage loans, RMBS or other debt instruments in the secondary market for less than their face amount. The discount at which such securities are acquired may reflect doubts about their ultimate collectability rather than current market interest rates. The amount of such discount will nevertheless generally be treated as “market discount” for U.S. federal income tax purposes. Market discount generally accrues on the basis of the constant yield to maturity of the debt instrument based generally on the assumption that all future payments on the debt instrument will be made. Accrued market discount is reported as income when, and to the extent that, any payment of principal of the debt instrument is made. In particular, payments on mortgage loans are ordinarily made monthly, and consequently accrued market discount may have to be included in income each month as if the debt instrument were assured of ultimately being collected in full. If we collect less on a debt instrument than our purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deduction in a subsequent taxable year. In addition, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt are “significant modifications” under applicable Treasury Regulations, the modified debt may be considered to have been reissued to us at a gain in a debt-for-debt exchange with the borrower. In that event, we may be required to recognize taxable gain to the extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified debt, even if the value of the debt or the payment expectations have not changed.

Similarly, some of the RMBS that we purchase will likely have been issued with OID. We will generally be required to report such OID based on a constant yield method and income will accrue based on the assumption that all future projected payments due on such MBSs will be made. If such MBSs turn out not to be fully collectible, an offsetting loss deduction will become available only in the later year in which uncollectability is provable. Finally, in the event that any mortgage loans, RMBS or other debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event a borrower with respect to a particular debt instrument acquired by us encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income as it accrues, despite doubt as to its ultimate collectability. Similarly, we may be required to accrue interest income with respect to subordinate RMBS at their stated rate regardless of whether corresponding cash payments are received or are ultimately collectible. In each case, while we would in general ultimately have an offsetting loss deduction available to us when such interest was determined to be uncollectible, the loss would likely be treated as a capital loss, and the utility of that loss would therefore depend on our having capital gain in that later year or thereafter.

We may hold excess MSRs, which means the portion of an MSR that exceeds the arm’s-length fee for services performed by the mortgage servicer. Based on IRS guidance concerning the classification of MSRs, we intend to treat any excess MSRs we acquire as ownership interests in the interest payments made on the underlying mortgage loans, akin to an “interest only” strip. Under this treatment, for purposes of determining the amount and timing of taxable income, each excess MSR is treated as a bond that was issued with OID on the date we acquired such excess MSR. In general, we will be required to accrue OID based on the constant yield to maturity of each excess MSR, and to treat such OID as taxable income in accordance with the applicable U.S. federal income tax rules. The constant yield of an excess MSR will be determined, and we will be taxed, based on a prepayment assumption regarding future payments due on the mortgage loans underlying the excess MSR. If the mortgage loans underlying an excess MSR prepay at a rate different than that under the prepayment assumption, our recognition of OID will be either increased or decreased depending on the circumstances. Thus, in a particular taxable year, we may be required to accrue an amount of income in respect of an excess MSR that exceeds the amount of cash collected in respect of that excess MSR. Furthermore, it is possible that, over the life of the investment in an excess MSR, the total amount we pay for, and accrues with respect to, the excess MSR may exceed the total amount we collect on such excess MSR. No assurance can be given that we will be entitled to a deduction for such excess, meaning that we may be required to recognize phantom income over the life of an excess MSR.

The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests.

The interest apportionment rules under Treasury Regulation Section 1.856-5(c) provide that, if a mortgage is secured by both real property and other property, a REIT is required to apportion its annual interest income to the real property security based on a fraction, the numerator of which is the value of the real property securing the loan, determined when the REIT commits to acquire the loan, and the denominator of which is the highest “principal amount” of the loan during the year. If a mortgage is secured by both real property and personal property and the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage, the mortgage is treated as secured solely by real property for this purpose. IRS Revenue Procedure 2014-51 interprets the “principal amount” of the loan to be the face

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amount of the loan, despite the Code’s requirement that taxpayers treat any market discount, which is the difference between the purchase price of the loan and its face amount, for all purposes (other than certain withholding and information reporting purposes) as interest rather than principal.

To the extent the face amount of any loan that we hold that is secured by both real property and other property exceeds the value of the real property securing such loan, the interest apportionment rules described above may apply to certain of our loan assets unless the loan is secured solely by real property and personal property and the value of the personal property does not exceed 15% of the value of the property securing the loan. Thus, depending upon the value of the real property securing our mortgage loans and their face amount, and the other sources of our gross income generally, we may fail to meet the 75% REIT gross income test. In addition, although we will endeavor to accurately determine the values of the real property securing our loans at the time we acquire or commit to acquire such loans, such values may not be susceptible to a precise determination and will be determined based on the information available to us at such time. If the IRS were to successfully challenge our valuations of such assets and such revaluations resulted in a higher portion of our interest income being apportioned to property other than real property, we could fail to meet the 75% REIT gross income test. If we do not meet this test, we could potentially lose our REIT qualification or be required to pay a penalty tax to the IRS. Furthermore, prior to 2016, the apportionment rules described above applied to any debt instrument that was secured by real and personal property if the principal amount of the loan exceeded the value of the real property securing the loan. As a result, prior to 2016, these apportionment rules applied to mortgage loans held by us even if the personal property securing the loan did not exceed 15% of the total property securing the loan. We and our predecessor have held significant mortgage loans that are secured by both real property and personal property. If the IRS were to successfully challenge the application of these rules to us, we could fail to meet the 75% REIT gross income test and potentially lose our REIT qualification or be required to pay a penalty tax to the IRS.

In addition, the Code provides that a regular or a residual interest in a REMIC is generally treated as a real estate asset for the purposes of the REIT asset tests, and any amount includible in our gross income with respect to such an interest is generally treated as interest on an obligation secured by a mortgage on real property for the purposes of the REIT gross income tests. If, however, less than 95% of the assets of a REMIC in which we hold an interest consists of real estate assets (determined as if we held such assets), we will be treated as holding our proportionate share of the assets of the REMIC for the purpose of the REIT asset tests and receiving directly our proportionate share of the income of the REMIC for the purpose of determining the amount of income from the REMIC that is treated as interest on an obligation secured by a mortgage on real property. In connection with the expanded HARP program, the IRS issued guidance providing that, among other things, if a REIT holds a regular interest in an “eligible REMIC,” or a residual interest in an “eligible REMIC” that informs the REIT that at least 80% of the REMIC’s assets constitute real estate assets, then (i) the REIT may treat 80% of the value of the interest in the REMIC as a real estate asset for the purpose of the REIT asset tests and (ii) the REIT may treat 80% of the gross income received with respect to the interest in the REMIC as interest on an obligation secured by a mortgage on real property for the purpose of the 75% REIT gross income test. For this purpose, a REMIC is an “eligible REMIC” if (i) the REMIC has received a guarantee from Fannie Mae or Freddie Mac that will allow the REMIC to make any principal and interest payments on its regular and residual interests and (ii) all of the REMIC’s mortgages and pass-through certificates are secured by interests in single-family dwellings. If we were to acquire an interest in an eligible REMIC less than 95% of the assets of which constitute real estate assets, the IRS guidance described above may generally allow us to treat 80% of our interest in such a REMIC as a qualifying real estate asset for the purpose of the REIT asset tests and 80% of the gross income derived from the interest as qualifying income for the purpose of the 75% REIT gross income test. Although the portion of the income from such a REMIC interest that does not qualify for the 75% REIT gross income test would likely be qualifying income for the purpose of the 95% REIT gross income test, the remaining 20% of the REMIC interest generally would not qualify as a real estate asset, which could adversely affect our ability to satisfy the REIT asset tests. Accordingly, owning such a REMIC interest could adversely affect our ability to qualify as a REIT.

Our ownership of and relationship with any TRS which we may form or acquire will be limited, and a failure to comply with the limits would jeopardize our REIT qualification and our transactions with our TRSs may result in the application of a 100% excise tax if such transactions are not conducted on arm’s-length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock and securities of one or more TRSs. A domestic TRS will pay U.S. federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the TRS rules impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

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We have elected and will elect to treat certain subsidiaries as TRSs. Any such TRS and any other domestic TRS that we may form would therefore be required to pay U.S. federal, state and local income tax on their taxable income, and their after-tax net income would be available for distribution to us but would not be required to be distributed to us by such TRS. We anticipate that the aggregate value of the TRS stock and securities owned by us will be less than 20% of the value of our total assets (including the TRS stock and securities). Furthermore, we will monitor the value of our investments in our TRSs to ensure compliance with the rule that no more than 20% of the value of our assets may consist of TRS stock and securities (which is applied at the end of each calendar quarter). In addition, we will scrutinize all of our transactions with TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS limitations or to avoid application of the 100% excise tax discussed above.

The ownership limits that apply to REITs, as prescribed by the Code and by our charter, may inhibit market activity in shares of our common stock and restrict our business combination opportunities.

In order for us to qualify as a REIT, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year after the first year for which we elect to qualify as a REIT. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year or during a proportionate part of a taxable year of less than twelve months (other than the first taxable year for which we elect to be taxed as a REIT). Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT. Our charter also provides that, unless exempted by our board of directors, no person may own more than 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of our common stock, or 9.8% in value or in number, whichever is more restrictive, of the outstanding shares of all classes and series of our capital stock. Our board of directors may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, prospectively or retroactively, waive the ownership limits or establish a different limit on ownership, or excepted holder limit, for a particular stockholder if the stockholder’s ownership in excess of the ownership limits would not result in us being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT. These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

Certain financing activities may subject us to U.S. federal income tax and increase the tax liability of our stockholders.

We may enter into transactions that could result in us, the operating partnership or a portion of the operating partnership’s assets being treated as a “taxable mortgage pool” for U.S. federal income tax purposes. Specifically, we may securitize residential or commercial real estate loans that we originate or acquire and such securitizations, to the extent structured in a manner other than a REMIC, would likely result in us owning interests in a “taxable mortgage pool”. We would be precluded from holding equity interests in such a taxable mortgage pool securitization through the operating partnership. Accordingly, we would likely enter into such transactions through a qualified REIT subsidiary of one or more subsidiary REITs formed by the operating partnership, and will be precluded from selling to outside investors equity interests in such securitizations or from selling any debt securities issued in connection with such securitizations that might be considered equity for U.S. federal income tax purposes. We will be taxed at the highest U.S. federal corporate income tax rate on any “excess inclusion income” arising from a taxable mortgage pool that is allocable to the percentage of our shares held in record name by “disqualified organizations,” which are generally certain cooperatives, governmental entities and tax-exempt organizations that are exempt from tax on unrelated business taxable income. To the extent that common stock owned by “disqualified organizations” is held in record name by a broker/dealer or other nominee, the broker/dealer or other nominee would be liable for the U.S. federal corporate income tax on the portion of our excess inclusion income allocable to the common stock held by the broker/dealer or other nominee on behalf of the disqualified organizations. Disqualified organizations may own our stock. Because this tax would be imposed on us, all of our investors, including investors that are not disqualified organizations, will bear a portion of the tax cost associated with the classification of us or a portion of our assets as a taxable mortgage pool. A regulated investment company, or “RIC”, or other pass-through entity owning our common stock in record name will be subject to tax at the highest corporate tax rate on any excess inclusion income allocated to their owners that are disqualified organizations. We have engaged in certain securitization transactions that are treated as taxable mortgage pools for U.S. federal income tax purposes. Although we believe that such transactions are structured in a manner so that they should not cause any portion of the distributions in our shares to be treated as excess inclusion income, no assurance can be provided that the IRS would not assert a contrary position.

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In addition, if we realize excess inclusion income and allocate it to our stockholders, this income cannot be offset by net operating losses of our stockholders. If the stockholder is a tax-exempt entity and not a disqualified organization, then this income is fully taxable as unrelated business taxable income under Section 512 of the Code. If the stockholder is a non-U.S. person, it would be subject to U.S. federal income tax withholding on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty. If the stockholder is a REIT, a Registered Investment Company, common trust fund or other pass-through entity, our allocable share of its excess inclusion income could be considered excess inclusion income of such entity. Accordingly, such investors should be aware that a portion of our income may be considered excess inclusion income.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, which would be treated as prohibited transactions for U.S. federal income tax purposes.

Net income that we derive from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (including mortgage loans, but other than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of a trade or business by us or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. We might be subject to this tax if we were to dispose of or securitize loans, directly or through a subsidiary REIT, in a manner that was treated as a prohibited transaction for U.S. federal income tax purposes. We might also be subject to this tax if we were to sell assets in connection with a disposition of certain segments of our business or in connection with a liquidation of us. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to conduct our operations so that any asset that we or a subsidiary REIT owns that could be treated as held for sale to customers in the ordinary course of our business qualifies for certain safe harbor provisions that prevent the application of this prohibited transaction tax. However, no assurance can be provided that such safe harbor provisions will apply. Moreover, as a result of the prohibited transaction tax we may choose not to engage in certain sales of loans at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us. In addition, whether property is held "primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances. No assurance can be given that any property that we sell, other than property sold through a TRS or property that satisfies the safe harbor described above, will not be treated as property held for sale to customers. As a result, no assurance can be provided that the we will not be subject to this prohibited transaction tax.

Characterization of our repurchase agreements entered into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT.

We enter into repurchase agreements with counterparties to achieve our desired amount of leverage for the assets in which we invest. Under our repurchase agreements, we generally sell assets to our counterparty to the agreement and receive cash from the counterparty. The counterparty is obligated to resell the assets back to us at the end of the term of the transaction. We believe that for U.S. federal income tax purposes we will be treated as the owner of the assets that are the subject of repurchase agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that we did not own these assets during the term of the repurchase agreements, in which case we could fail to qualify as a REIT.

The failure of excess MSRs held by us to qualify as real estate assets, or the failure of the income from excess MSRs to qualify as interest from mortgages, could adversely affect our ability to qualify as a REIT.

We may hold excess MSRs. In recent private letter rulings, the IRS ruled that excess MSRs meeting certain requirements would be treated as an interest in mortgages on real property and thus a real estate asset for purposes of the 75% REIT asset test, and interest received by a REIT from such excess MSRs will be considered interest on obligations secured by mortgages on real property for purposes of the 75% REIT gross income test. A private letter ruling may be relied upon only by the taxpayer to whom it is issued, and the IRS may revoke a private letter ruling. Consistent with the analysis adopted by the IRS in such private letter rulings and based on advice of counsel, we intend to treat any excess MSRs that we acquire that meet the requirements provided in the private letter rulings as qualifying assets for purposes of the 75% REIT gross asset test, and we intend to treat income from such excess MSRs as qualifying income for purposes of the 75% and 95% gross income tests. Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any excess MSRs that we acquire do not qualify for purposes

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of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause us to be subject to a penalty tax and could adversely impact our ability to qualify as a REIT.

If we were to make a taxable distribution of shares of our stock, stockholders may be required to sell such shares or sell other assets owned by them in order to pay any tax imposed on such distribution.

We may be able to distribute taxable dividends that are payable in shares of our stock. If we were to make such a taxable distribution of shares of our stock, stockholders would be required to include the full amount of such distribution as income. As a result, a stockholder may be required to pay tax with respect to such dividends in excess of cash received. Accordingly, stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a stockholder sells the shares it receives as a dividend in order to pay such tax, the sale proceeds may be less than the amount included in income with respect to the dividend. Moreover, in the case of a taxable distribution of shares of our stock with respect to which any withholding tax is imposed on a non-U.S. stockholder, we may have to withhold or dispose of part of the shares in such distribution and use such withheld shares or the proceeds of such disposition to satisfy the withholding tax imposed.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate risks will generally be excluded from gross income for purposes of the 75% and 95% gross income tests if (i) the instrument (A) hedges interest rate risk or foreign currency exposure on liabilities used to carry or acquire real estate assets or (B) hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income tests, or (C) hedges an instrument described in clause (A) or (B) for a period following the extinguishment of the liability or the disposition of the asset that was previously hedged by the hedged instrument, and (ii) such instrument is properly identified under applicable Treasury Regulations. Any income from other hedges would generally constitute non-qualifying income for purposes of both the 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS, which could increase the cost of our hedging activities or result in greater risks associated with interest rate or other changes than we would otherwise incur.

Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow.

Even if we qualify as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of foreclosures, and state or local income, franchise, property and transfer taxes, including mortgage-related taxes. In addition, we intend to hold a significant amount of our assets from time to time in our TRSs each of which pay U.S. federal, state and local income tax on its taxable income, and its after tax net income is available for distribution to us but is not required to be distributed to us by such TRS. In order to meet the REIT qualification requirements, or to avoid the imposition of a 100% tax that applies to certain gains derived by a REIT from sales of inventory or property held primarily for sale to customers in the ordinary course of business, we may hold some of our assets through taxable subsidiary corporations, including domestic TRSs. Any taxes paid by such subsidiary corporations would decrease the cash available for distribution to our stockholders. For example, as a result of ReadyCap Holdings’ SBA license, ReadyCap Holdings’ ability to distribute cash and other assets is subject to significant limitations, and as a result, ReadyCap Holdings is required to hold certain assets that would be qualifying real estate assets for purposes of the REIT asset tests, would generate qualifying income for purposes of the REIT 75% income tests, and would not be subject to corporate taxation if held by our operating partnership. Also, we intend that loans that we originate or buy with an intention of selling in a manner that might expose us to the 100% tax on “prohibited transactions” will be originated or bought by a TRS. Furthermore, loans that are to be modified may be held by a TRS on the date of their modification and for a period of time thereafter. Finally, some or all of the real estate properties that we may from time to time acquire by foreclosure or other procedure will likely be held in one or more TRSs. Since our TRSs do not file consolidated returns with one another, any net losses generated by one such entity will not offset net income generated by any other such entity. In addition, the TRS rules impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Furthermore, if we acquire appreciated assets from a subchapter C corporation in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the hands of the C corporation, and if we subsequently dispose of any such assets during the 5-year period following the acquisition of the

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assets from the C corporation, we will be subject to tax at the highest corporate tax rates on any gain from such assets to the extent of the excess of the fair market value of the assets on the date that they were contributed to us over the basis of such assets on such date, which we refer to as built-in gains. A portion of the assets contributed to Pre-Merger Sutherland in connection with the REIT formation transactions and contributed to ZAIS Financial in connection with its formation may be subject to the built-in gains tax. Although we expect that the built-in gains tax liability arising from any such assets should be de minimis, there is no assurance that this will be the case.

Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given, statements by the issuers of assets that we acquire, or information provided by our shareholders or other third parties, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, and also to what extent those securities constitute REIT real estate assets for purposes of the REIT asset tests and produce income which qualifies under the 75% REIT gross income test. In addition, when purchasing the equity tranche of a securitization, we may rely on opinions or advice of counsel regarding the qualification of the securitization for exemption from U.S. corporate income tax and the qualification of interests in such securitization as debt for U.S. federal income tax purposes. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

In addition, for purposes of the REIT gross income tests, rental income qualifies as rents from real property only to the extent that we do not directly or constructively own, (i) in the case of any tenant which is a corporation, stock possessing 10% or more of the total combined voting power of all classes of stock entitled to vote, or 10% or more of the total value of shares of all classes of stock of such tenant, or (ii) in the case of any tenant which is not a corporation, an interest of 10% or more in the assets or net profits of such tenant. To the extent that we acquire assets that generate rental income, we intend to monitor any such rental income in order to determine if the rent is treated as paid by an entity that is treated as related to us for purposes of these rules. However, the attribution rules that apply for purposes of the above rules are complex. In order to determine whether we are deemed to hold an interest in the tenant under these attribution rules, we may be required to rely on information that we obtain from our shareholders and other third parties regarding potential relationships that could cause us to be treated as owning an interest in such tenants. No assurance can be provided that we will have access to all information necessary to make this determination, and as a result no assurance can be provided that the rental income we receive will not be treated as received from related parties under these rules, which could adversely impact our ability to qualify as a REIT.

We may be subject to adverse legislative or regulatory tax changes that could reduce the value of our common stock.

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended, possibly with retroactive effect. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective, and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common stock.

The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, are generally not eligible for these reduced qualified dividend rates. However, for taxable years beginning after December 31, 2018 and before January 1, 2026, under the recently enacted the Tax Act, noncorporate taxpayers may deduct up to 20% of certain qualified business income, including "qualified REIT dividends" (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividends from C corporations does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends, together with the recently reduced corporate tax rate (currently, 21%), could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less

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attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. Dividends may also be subject to a 3.8% Medicare tax under certain circumstances.

The tax basis that we use to compute taxable income with respect to certain interests in loans that were held by our operating partnership at the time of the REIT formation transaction could be subject to challenge.

Prior to the REIT formation transactions, our operating partnership had accounted for its interest in certain SBC securitizations as an interest in a single debt instrument for U.S. federal income tax purposes. In connection with the REIT formation transactions, the predecessor to our operating partnership was treated as terminated for U.S. federal income tax purposes, and our operating partnership was treated as a new partnership that acquired the assets of such predecessor for U.S. federal income tax purposes. Beginning with such transactions, our operating partnership has properly accounted for our interests in these securitizations as interests in the underlying loans for U.S. federal income tax purposes. Since we did not have complete information regarding the tax basis of each of the loans held by our operating partnership at the time of the REIT formation transactions, our computation of taxable income with respect to these interests could be subject to adjustment by the IRS. If any such adjustment would be significant in amount, the resulting redetermination of our gross income for U.S. federal income tax purposes could cause us or Pre-Merger Sutherland to fail to satisfy the REIT gross income tests, which could cause us to fail to qualify as a REIT. In addition, if any such adjustment resulted in an increase to our or Pre-Merger Sutherland's REIT taxable income, we could be required to pay a deficiency dividend in order to maintain our REIT qualification.

Potential changes to the U.S. tax laws could adversely impact us.

The U.S. federal income tax laws and regulations governing REITs and their stockholders, as well as the administrative interpretations of those laws and regulations, are constantly under review and may be changed at any time, possibly with retroactive effect. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our stockholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of U.S. federal tax laws could adversely affect an investment in our common stock.

The recently enacted the Tax Act, which was signed into law on December 22, 2017, significantly changes U.S. federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, and may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation. For additional discussion, see "U.S. Federal Income Tax Legislation".

Risks Related to Our Organization and Structure 

Conflicts of interest could arise as a result of our REIT structure.

Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. Our directors and officers have duties to our Company under Maryland law in connection with their management of our Company. At the same time, we have fiduciary duties, as a general partner, to our operating partnership and to the limited partners under Delaware law in connection with the management of our operating partnership. Our duties as a general partner to our operating partnership and our partners may come into conflict with the duties of our directors and officers.

Certain provisions of Maryland law could inhibit changes in control and prevent our stockholders from realizing a premium over the then-prevailing market price of our common stock.

Certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares.

We are subject to the “business combination” provisions of the MGCL that, subject to limitations, prohibit certain business combinations (including generally, a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities) between us and an “interested stockholder”

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(defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder. After the five-year prohibition, any business combination between us and an interested stockholder generally must be recommended by our board of directors and approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding shares of our voting stock; and (ii) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if our common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that the stockholder would otherwise have become an interested stockholder. Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and (i) our operating partnership or its affiliates and (ii) any person, provided that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person). As a result, any person described above may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super majority vote requirements and the other provisions of the statute.

The “control share” provisions of the MGCL provide that holders of “control shares” of a Maryland corporation (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the stockholder or in respect of which the stockholder is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership of or the power to direct the exercise of voting power with respect to “control shares,” subject to certain exceptions) have no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our employees who are also our directors. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Our ability to issue additional shares of common and preferred stock may prevent a change in our control.

Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our board of directors may, without common stockholder approval, amend our charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have the authority to issue. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

Our rights and your rights to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.

As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and you for money damages, except for liability resulting from:

· actual receipt of an improper benefit or profit in money, property or services; or 

· a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

In addition, our charter authorizes us, to the maximum extent permitted by Maryland law, to obligate our Company, and our bylaws obligate us, to indemnify any present or former director or officer or any individual who, while a director or officer of our Company and at our request, serves or has served another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, member, manager, partner or trustee who is, or is threatened to be, made a party to, or witness in, a proceeding by reason of his or her service in any such capacity from and against any claim or liability to which that individual may become subject or

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which that individual may incur by reason of such service and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. Our charter and bylaws also permit us to indemnify and advance expenses to any individual who served a predecessor of our Company in any of the capacities described above and any employee or agent of our Company or a predecessor of our Company.

Our amended and restated bylaws designates the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for some litigation, which could limit the ability of stockholders to obtain a favorable judicial forum for disputes with our Company.

Unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our Company, (ii) any action asserting a claim of breach of any duty owed by any director or officer or other employee of our Company to our Company or to our stockholders, (iii) any action asserting a claim against our Company or any director or officer or other employee of our Company arising pursuant to any provision of the MGCL or our charter or bylaws, or (iv) any action asserting a claim against our Company or any director or officer or other employee of our Company that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit the ability of stockholders of our Company to obtain a judicial forum that they find favorable for disputes with our Company or our directors, officers, employees, if any, or other stockholders.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal executive offices are located at 1140 Avenue of the Americas, 7th Floor, New York, New York 10036, and our telephone number is (212) 257-4600. We also use the offices of ReadyCap Lending located at 420 Mountain Avenue, 3rd Floor, New Providence, New Jersey, 07974, and ReadyCap Commercial, LLC, located at 1320 Greenway Drive, Suite 560, Irving, Texas, 75038.

We also use the offices of GMFS located at 7389 Florida Blvd, Suite 200A, Baton Rouge, Louisiana, 70806 for our residential mortgage banking operations. GMFS also has various branch locations located primarily throughout the southeastern United States.

Item 3. Legal Proceedings.

From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business.

On February 8, 2019, a purported class action lawsuit was filed by an individual who claims to be a stockholder of ORM. The lawsuit, Richard Scarantino v. Owens Realty Mortgage, Inc., et al. (the “Scarantino Lawsuit”), was filed in the Circuit Court for Baltimore City, Maryland.  It names ORM, its directors and Ready Capital as defendants. The plaintiff alleges that the ORM directors breached their fiduciary duties because, according to the plaintiff, the consideration to be received by ORM’s shareholders in the merger “appears inadequate,” some financial and other disclosures to ORM’s stockholders regarding the merger are deficient, and the terms of the Merger Agreement have precluded other bidders from making competing offers for ORM. The plaintiff seeks, among other things: injunctive relief preventing the defendants from proceeding with, consummating, or closing the merger; rescission of the merger or rescissory damages if the merger is consummated prior to entry of final judgment by the court; an accounting of any damages suffered as a result of the wrongdoing he alleges; and litigation costs (including attorneys’ and expert fees and expenses). Ready Capital believes the claims asserted in the Scarantino Lawsuit are without merit. 

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Item 4.  Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is listed for trading on the NYSE under the symbol “RC”.

Holders

As of March 8, 2019, we had 43 registered holders of our common stock. The holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock. Such information was obtained through our registrar and transfer agent.

Dividends

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income, excluding net capital gains and determined without regard to the dividends paid deduction, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. Our current policy is to pay distributions, which will allow us to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax on its undistributed income. Although we may borrow funds to make distributions, cash for such distributions is expected to be largely generated from our consolidated results of operations. Dividends are declared and paid at the discretion of our board of directors and depend on cash available for distribution, financial condition, our ability to maintain our qualification as a REIT, and such other factors that our board of directors may deem relevant. See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” of this annual report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends.

Stockholder Return Performance 

The stock performance graph and table below shall not be deemed, under the Securities Act or the Exchange Act, to be (i) “soliciting material” or “filed” or (ii) incorporated by reference by any general statement into any filing made by the Company with the SEC, except to the extent that the Company specifically incorporates such stock performance graph and table by reference.

The following graph is a comparison of the cumulative total stockholder return on our shares of common stock, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and a Competitor Composite Average1, a peer group index from October 31, 2016 to December 31, 2018. As described above, on October 31, 2016, we completed our path to becoming a publicly traded company through our merger with and into a subsidiary of ZAIS Financial, with ZAIS Financial surviving the merger and changing its name to Sutherland Asset Management Corporation.

On November 1, 2016, we began trading on the NYSE under the ticker symbol “SLD”. On September 26, 2018, Sutherland Asset Management Corporation filed Articles of Amendment to its charter (the “Articles of Amendment”) with the State Department of Assessments and Taxation of Maryland, to change its name to Ready Capital Corporation (the “Company” or “Ready Capital” and together with its subsidiaries “we”, “us” and “our”), a Maryland corporation. In addition, the Company amended and restated its bylaws and the second amended and restated agreement of limited partnership, effective September 26, 2018, each solely the reflect the name change.

In connection with the name change, the Company’s trading symbol on the New York Stock Exchange changed from “SLD” to “RC” for shares of the Company’s common stock.

The following table presents the total return performance of our common stock during the two months ended December 31, 2016 and each of the fiscal years ended December 31, 2018 and 2017, reflecting the post-merger prices of our common stock. Prior to the completion of our merger with ZAIS Financial, shares of common stock of ZAIS Financial traded on the NYSE under the ticker symbol "ZFC".  As described elsewhere in this annual report on Form 10-K, prior to

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and as a condition to the merger, ZAIS Financial disposed of its seasoned re-performing mortgage loan portfolio, such that upon the completion of the merger, ZAIS Financial’s assets largely consisted of its GMFS origination subsidiary, cash, conduit loans and RMBS.  As a result, ZAIS Financial's business and financial results prior to the merger and during the period covered by the below table were significantly different from our business following the closing of the merger and the total return performance before and after the merger may not be comparable.

1The Competitor Composite Average is a measure of the total return performance of mortgage REIT competitors based on actual share prices of the following companies: Blackstone Mortgage Trust Inc. (BXMT), Starwood Property Trust, Inc. (STWD),  Ares Commercial Real Estate Corporation (ACRE), Apollo Commercial Real Estate Finance Inc. Real Estate Trust (ARI), Arbor Realty Trust, Inc. (ABR), and  Ladder Capital Corporation (LADR).

The graph assumes that $100 was invested on October 31, 2016 in shares of common stock of Ready Capital Corporation (previously Sutherland Asset Management Corporation), the S&P 500 Index, and  each of the Companies shares of common stock included in the Competitor Composite Average and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our common stock will continue in line with the same or similar trends depicted in the graph below.

Total Return performance	Period Ending
Index	10/31/2016	12/31/2016	12/31/2017	12/31/2018
RC	100.0	103.0	124.1	114.9
S&P 500	100.0	105.3	125.7	117.9
Competitor Composite Average*	100.0	105.6	118.8	121.6
* The Competitor Composite Average is a measure of the total return performance of mortgage REIT competitors based on actual share prices of the following companies: Blackstone Mortgage Trust Inc. (BXMT), Starwood Property Trust, Inc. (STWD),  Ares Commercial Real Estate Corporation (ACRE), Apollo Commercial Real Estate Finance Inc Real Estate Trust (ARI), Arbor Realty Trust, Inc. (ABR), and  Ladder Capital Corporation (LADR).

Securities Authorized For Issuance Under Equity Compensation Plans

The information required by this item is set forth under Item 12 of Part III of this annual report on Form 10‑K and is incorporated herein by reference.

Recent Sales of Unregistered Equity Securities; Use of Proceeds from Registered Securities

None.

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Recent Purchases of Equity Securities

The Company did not purchase equity securities in 2017 or 2018.

Item 6.  Selected Financial Data

We derived our selected consolidated financial data as of and for the years ended December 31, 2018 and December 31, 2017 and consolidated statements of income data for the year ended December 31, 2016 from our audited consolidated financial statements appearing in this annual report on Form 10-K. We derived our selected consolidated balance sheet data as of December 31, 2015 and December 31, 2014 from our audited consolidated financial statements not appearing elsewhere in this annual report on Form 10-K.

		For the Year Ended December 31,
(In thousands, except share data)		2018		2017		2016		2015		2014
Income Statement Data
Interest income	$	169,499	$	138,305	$	137,023	$	148,955	$	92,947
Interest expense		(109,238)		(74,646)		(57,772)		(47,806)		(19,245)
Provision for loan losses		(1,701)		(2,363)		(7,819)		(19,643)		(11,797)
Other non-interest income (expense)		4,283		(12,843)		(6,217)		(28,275)		(25,615)
Provision for income taxes		(1,386)		(1,839)		(9,651)		(7,810)		(897)
Net income from continuing operations		61,457		45,814		55,564		45,421		35,393
Loss from discontinued operations, net of tax		-		-		(2,158)		(653)		(2,671)
Net income		61,457		45,814		53,406		44,768		32,722
Net income attributable to Ready Capital Corporation		59,258		43,290		49,169		40,383		29,337
Basic earnings per share:
Continuing operations	$	1.84	$	1.38	$	1.93	$	1.62	$	1.30
Net income	$	1.84	$	1.38	$	1.85	$	1.59	$	1.19
Diluted earnings per share:
Continuing operations	$	1.84	$	1.38	$	1.93	$	1.62	$	1.30
Net income	$	1.84	$	1.38	$	1.85	$	1.59	$	1.19
Dividends declared per share of common stock	$	1.57	$	1.48	$	1.61	$	1.78	$	1.15
Weighted-average basic shares of common stock outstanding		32,085,975		31,350,102		26,647,981		25,287,277		24,595,199
Balance Sheet Data
Total assets	$	3,036,843	$	2,523,503	$	2,605,267	$	2,329,781	$	1,680,896
Total liabilities	$	2,472,768	$	1,968,036	$	2,053,165	$	1,849,568	$	1,206,205
Total Ready Capital Corporation Stockholders' equity	$	544,831	$	536,073	$	513,097	$	441,321	$	425,560
Total non-controlling interests	$	19,244	$	19,394	$	39,005	$	38,892	$	49,131

On October 31, 2016, we became a publicly traded company through our merger with and into a subsidiary of ZAIS Financial, with ZAIS Financial surviving the merger and changing its name to Sutherland Asset Management Corporation and, as described above, subsequently changed to Ready Capital Corporation.  We were designated as the accounting acquirer because of our larger pre-merger size relative to ZAIS Financial, the relative voting interests of our stockholders after consummation of the merger, and our senior management and board continuing on after the consummation of the merger.  Because we were designated as the accounting acquirer, our historical financial statements (and not those of ZAIS Financial) are the historical financial statements following the consummation of the merger and are included in this annual report on Form 10-K. Our results of operations for the year ended December 31, 2016 include for the last two months of the year the operating results related to the assets of ZAIS Financial which were not disposed of prior to the closing of the merger.

This information should be read in conjunction with Item 1, “Business,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the audited consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” included in this annual report on Form 10-K.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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 range in original principal amounts between up to $35 million and are used by businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. Our originations and acquisition platforms consist of the following four operating segments:

· SBC Originations. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial.  Additionally, as part of this segment, we originate and service multi-family loan products under the Freddie Mac program. These originated loans are generally held-for-investment or placed into securitization structures.

· SBA Originations, Acquisitions and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the SBA under the SBA Section 7(a) loan 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. In the future, we may originate SBC loans for real estate under the SBA 504 loan program, under which the SBA guarantees subordinated, long-term financing. These originated loans are either held-for-investment, placed into securitization structures, or sold.

· Loan Acquisitions.We acquire performing and non-performing SBC loans and intend to continue to acquire these loans as part of our business strategy. We hold performing SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through proprietary loan modification programs. We typically acquire non-performing loans at a discount to their UPB when we believe that resolution of the loans will provide attractive risk-adjusted returns.

· Residential Mortgage Banking.  In connection with its merger with ZAIS Financial Corp. on October 31, 2016, Ready Capital added a residential mortgage loan origination segment through its wholly-owned subsidiary, GMFS. GMFS originates residential mortgage loans eligible to be purchased, guaranteed or insured by the Fannie Mae , Freddie Mac, FHA,  USDA and VA through retail, correspondent and broker channels. These originated loans are then sold to third parties.

Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. In order to achieve this objective, we intend to continue to grow our investment portfolio and we 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 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 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 Sutherland Partners, LP, or our operating partnership, which serves as our operating partnership subsidiary. 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.

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Factors Impacting Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on, among other things, the level of the interest income from our assets, the market value of our assets and the supply of, and demand for, SBC and 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 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. Our operating results will also be impacted by our available borrowing capacity.

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 ten years. ARM loans generally have a fixed interest rate for a period of five, seven or ten years and then an adjustable interest rate equal to the sum of an index rate, such as the London Inter-bank Offered Rate (“LIBOR”), plus a margin, while FRM loans bear interest that is fixed for the term of the loan. As of December 31, 2018, approximately 51% of the loans in our portfolio were ARMs, and 49% were FRMs, based on UPB. The weighted average margin, above the floating rate, on ARMs was approximately 3.5% and the weighted average coupon on FRMs was approximately 6.2% as of December 31, 2018. We utilize derivative financial and hedging instruments in an effort to hedge the interest rate risk associated with our ARMs.

With respect to our business operations, increases in interest rates, in general, may 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.

Conversely, decreases in interest rates, in general, may over time cause:

· the interest expense associated with variable-rate borrowings to decrease;

· the value of fixed-rate loans, MBS and other real estate-related assets to increase;

· coupons on variable-rate loans and MBS to reset to lower interest rates; and

· prepayments on loans and MBS to increase.

Additionally, 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.

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Changes in Fair Value of Our Assets

Our originated loans are carried at fair value and future mortgage related assets may also be carried at fair value. Accordingly, changes in the fair value of our assets may impact the results of our operations for the period in which such change in value occurs. The expectation of changes in real estate prices is a major determinant of the value of loans and ABS. This factor is beyond our control.

Prepayment Speeds

Prepayment speeds on loans and ABS 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 on loans, and therefore, ABS tend to increase, thereby decreasing the period over which we earn interest 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 and ABS.

Spreads on ABS

Since the financial crisis that began in 2007, the spread between swap rates and ABS has been volatile. Spreads on these assets initially moved wider due to the difficult credit conditions and have only recovered a portion of that widening. As the prices of securitized assets declined, a number of investors and a number of structured investment vehicles faced margin calls from dealers and were forced to sell assets in order to reduce leverage. The price volatility of these assets also impacted lending terms in the repurchase market, as counterparties raised margin requirements to reflect the more difficult environment. 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

Waterfall 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 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.

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Size of Investment Portfolio

The size of our investment portfolio, as measured by the aggregate principal balance of our loans and ABS and the other assets we own, is also a key revenue driver. Generally, as the size of our investment portfolio grows, the amount of interest income and realized gains we receive increases. A larger investment portfolio, however, drives increased expenses, as we may incur additional interest expense to finance the purchase of our assets.

Market Conditions

With the onset of the global financial crisis, SBC origination volume fell approximately 42.5% from the 2006 peak through 2009 and the decline was accompanied by a reduction in the principal balance of outstanding SBC loans between 2008 and 2013. Based on publicly available data from Boxwood Means as of the first half of 2017, while commercial property prices have almost recovered to their 2007 peak, SBC property prices have increased only 21.5% from the 2012 trough. We believe this trend suggests continued tight credit in SBC lending and supports our belief that credit spreads in the SBC loan asset class should for the foreseeable future remain wider compared to large balance commercial mortgage loans. Since late 2008, we have seen substantial volumes of non-performing SBC loans available for purchase from U.S. banks at significant discounts to their UPBs. We believe that banks have been motivated to sell SBC loans in order to improve their regulatory capital ratios, reduce their troubled asset ratios, a key measure monitored by regulators, investors and other stakeholders in assessing bank safety and soundness, relieve the strain on their operations caused by managing distressed loan books and to demonstrate to regulators, investors and other stakeholders that they are addressing their distressed asset issues and the drag they place on operating performance through controlled sales of these assets over time. We believe that banks will continue to be motivated to divest their non-performing SBC loan assets to address these issues over the next several years. We believe that as the economic recovery continues the volume of short-term loan extensions and restructurings will be reduced, resulting in increased opportunities for us to originate first mortgage SBC loans in the market. We believe that the supply of new capital to meet this increasing demand will continue to be constrained by the historically low activity levels in the ABS market.

Critical Accounting Policies and Use of 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 a more complete discussion of 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.

Loan impairment and allowance for loan losses

We evaluate each loan classified as held‑for‑investment for impairment at least quarterly. Impairment occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. If a loan is considered to be impaired, we record an impairment through the allowance for loan losses to reduce the carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Loans that are not assessed individually for impairment are assessed on a collective basis.

Our loans are typically collateralized by real estate. As a result, we regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. These valuations require significant judgments, which include assumptions regarding LTVs, debt yield, property type, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed necessary by our Manager. In addition, we consider the overall economic environment, real estate sector, and geographic sub‑market in which the borrower operates. Such impairment analyses are completed and reviewed by asset management and finance personnel.

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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 Loan 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.

Valuation of financial assets and liabilities carried at fair value

We measure our MBS, derivative assets and liabilities, residential mortgage servicing rights, 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, and that 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 the acquired residential mortgage servicing rights, which are not subject to impairment. 

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.

Fourth Quarter Highlights

Operating results: 

· Achieved Net Income of $9.5 million during the three months ended December 31, 2018.

· Basic and diluted earnings per share of $0.30 for the three months ended December 31, 2018.  

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· Core Earnings of $11.3 million, or $0.34 per share, during the three months ended December 31, 2018.  

· Declared dividends of $0.40 per share, during the quarter ended December 31, 2018, representing a 11.6% dividend yield, based on the closing share price on December 31, 2018.

Loan originations and acquisitions:

· Loan originations totaled $767.5 million including $332.9 million in SBC loans, $65.4 million of SBA Section 7(a) Program loans and $369.2 million of residential loans (based on fully committed amounts).

· Acquired $9.0 million of SBC loans with a weighted average coupon of 7.6%.

2018 Highlights

Operating results: 

· Achieved Net Income of $61.5 million during the year ended December 31, 2018.

· Earnings per share of $1.84 for the year ended December 31, 2018.  

· Core Earnings of $58.7  million, or $1.76 per share, during the year ended December 31, 2018.  

· Declared dividends of $1.57 per share, during the year ended December 31, 2018, representing a 11.4% dividend yield, based on the closing share price on December 31, 2018.

Loan originations and acquisitions:

· Loan originations totaled $3,180.0 million including $1,188.1 million in SBC loans, $213.0 million of SBA Section 7(a) Program loans and $1,778.8 million of residential loans (based on fully committed amounts).

· Acquired $380.6 million of SBC loans. 

· Completed the securitization of $165.0 million of originated fixed-rate SBC loans and sold $148.5 million of senior bonds at a weighted average pass-through rate of 3.8%.

· Completed issuance of a Collateralized Loan Obligation (“CLO”) of $278.3 million of originated transitional loans and sold $217.1 million of senior bonds at a floating rate of LIBOR plus 121 basis points.

· Completed the securitization of $262.7 million of acquired SBC loans and sold $217.0 million of senior bonds at a weighted average pass-through rate of 4.7%.

· Robust pipeline with substantial acquisition and origination opportunities (based on fully committed amounts):

o Acquisition pipeline of $230.0 million in SBC loans

o Origination pipeline of:

§ $482.5 million SBC loans

§ $167.7 million of SBA Section 7(a) Program loans

§ $124.0 million of commitments to originate residential agency loans

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

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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.

Subsequent events:

· In January 2019, the Company completed the securitization of $399.2 million of fixed-rate SBC loans and issued $355.8 million of senior bonds at a weighted average pass-through rate of 4.1%.

Return Information

The following tables present certain information related to our SBC and SBA loan portfolio as of December 31, 2018 and per share information for the three months ended December 31, 2018, which includes core earnings per share or return information. Core earnings is not a measure calculated in accordance with GAAP and is defined further within Item 7 – Non-GAAP Financial Measures in this Annual report on Form 10-K.

The following table provides a detailed breakdown of our calculation of return on equity and core return on equity for the three and twelve months ended December 31, 2018. Core return on equity is not a measure calculated in

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accordance with GAAP and is defined further within Item 7 – Non-GAAP Financial Measures in this Annual report on Form 10-K.

Portfolio Metrics

SBC Originations

The following table includes certain portfolio metrics related to our SBC Originations segment:

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SBA Originations, Acquisitions, and Servicing

The following table includes certain portfolio metrics related to our SBA Originations, Acquisitions and Servicing segment:

Acquired Portfolio

The following table includes certain portfolio metrics related to our Loan Acquisitions segment:

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Residential Mortgage Banking

The following table includes certain portfolio metrics related to our Residential Mortgage Banking segment:

Business Outlook

Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.  In order to achieve this objective, we will continue to grow our investment portfolio by originating new SBC, SBA, and residential mortgage loans, acquiring SBC and SBA loans from third parties and growing our SBA and residential servicing portfolio.  We intend to finance these assets in a manner that is designed to deliver attractive returns across a variety of market conditions and economic cycles.  Our ability to execute our business strategy is dependent upon many factors, including our ability to access capital and financing on favorable terms.  While there can be no assurance that we will continue to have access to the equity and debt markets, we will continue to pursue these and other available market opportunities as a means to increase our liquidity and capital base.  If we were to experience a prolonged downturn in the credit markets, it could cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly.

Our business is affected by the macroeconomic conditions in the United States, including economic growth, unemployment rates, the political climate, interest rate levels and expectations. The recent economic environment has resulted in continued improvement in commercial real estate values, which has generally increased payoffs and reduced credit exposure in our loan portfolios.  Interest rates have risen recently as a result of improved labor markets, personal income growth and business investment.  We believe a modest increase in interest rates is unlikely to deter most borrowers who enjoy low loan coupons and still-rising property incomes.  Recent surveys indicate that banks remain optimistic about loan demand going forward even as they may be heading into a credit tightening cycle at this stage of market expansion.  We believe that this environment should support loan origination volumes in 2018.

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U.S. Federal Income Tax Legislation.

On December 22, 2017, the Tax Cuts and Jobs Act, H.R. 1 (the "Tax Act") was signed into law. The Tax Act made significant changes to U.S. federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, including the reduction of the tax rates applicable to individuals and subchapter C corporations, a reduction or elimination of certain deductions (including new limitations on the deductibility of interest expense), limitations on the use of net operating losses and requiring certain items of income to be recognized for U.S. federal income tax purposes no later than those items are reported on our financial statements. The effect of the significant changes made by the Tax Act is highly uncertain, and additional administrative guidance is still required in order to fully evaluate the effect of many provisions, but these changes may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation. Technical corrections or other amendments to the new rules, and additional administrative guidance interpreting these new rules, may be forthcoming at any time but may also be significantly delayed.  

Prospective investors are urged to consult with their tax advisors regarding the effects of the Tax Act or other legislative, regulatory or administrative developments on an investment in our common stock.

Changes in Financial Condition

The following table compares our consolidated balance sheets as of December 31, 2018 and 2017 (amounts in thousands):

	December 31,		December 31,		$ Change		% Change
(In Thousands)	2018		2017		Q4'18 vs. Q4'17		Q4'18 vs. Q4'17
Assets
Cash and cash equivalents	$	54,406	$	63,425	$	(9,019)	(14.2)	%
Restricted cash		28,921		11,666		17,255	147.9
Loans, net (including $22,664 and $188,150 held at fair value)		1,193,392		1,017,920		175,472	17.2
Loans, held for sale, at fair value		115,258		216,022		(100,764)	(46.6)
Mortgage backed securities, at fair value		91,937		39,922		52,015	130.3
Loans eligible for repurchase from Ginnie Mae		74,180		95,158		(20,978)	(22.0)
Investment in unconsolidated joint venture		33,438		55,369		(21,931)	(39.6)
Derivative instruments		2,070		4,725		(2,655)	(56.2)
Servicing rights (including $93,065 and $72,295 held at fair value)		120,062		94,038		26,024	27.7
Receivable from third parties		8,888		6,756		2,132	31.6
Other assets		63,234		56,840		6,394	11.2
Assets of consolidated VIEs		1,251,057		861,662		389,395	45.2
Total Assets	$	3,036,843	$	2,523,503	$	513,340	20.3	%
Liabilities
Secured borrowings	$	834,547	$	637,393	$	197,154	30.9	%
Securitized debt obligations of consolidated VIEs, net		905,367		598,148		307,219	51.4
Convertible notes, net		109,979		108,991		988	0.9
Senior secured notes, net		178,870		138,078		40,792	29.5
Corporate debt, net		48,457		—		48,457	-
Guaranteed loan financing		229,678		293,045		(63,367)	(21.6)
Contingent consideration		1,207		10,016		(8,809)	(87.9)
Liabilities for loans eligible for repurchase from Ginnie Mae		74,180		95,158		(20,978)	(22.0)
Derivative instruments		3,625		282		3,343	1185.5
Dividends payable		13,346		12,289		1,057	8.6
Accounts payable and other accrued liabilities		73,512		74,636		(1,124)	(1.5)
Total Liabilities	$	2,472,768	$	1,968,036	$	504,732	25.6	%
Stockholders’ Equity
Common stock	$	3	$	3	$	—	0.0	%
Additional paid-in capital		540,478		539,455		1,023	0.2
Retained earnings (Deficit)		5,272		(3,385)		8,657	(255.7)
Accumulated other comprehensive (loss)		(922)		—		(922)	-
Total Ready Capital Corporation equity		544,831		536,073		8,758	1.6	%
Non-controlling interests		19,244		19,394		(150)	(0.8)
Total Stockholders’ Equity	$	564,075	$	555,467	$	8,608	1.5	%
Total Liabilities and Stockholders’ Equity	$	3,036,843	$	2,523,503	$	513,340	20.3	%

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Assets - Comparison of balances at December 31, 2018 to December 31, 2017

Cash and cash equivalents decreased $9.0 million, primarily due to funding new loan originations, loan acquisitions, and other investment activity, offset by proceeds from our securitization activities and loan sales and pay-offs.

Restricted cash increased $17.3 million, primarily due to an increase in restricted cash of $7.0 million associated with the RCMF 2018-FL2 securitization and an increase in restricted cash associated with derivatives and our hedging activities.

Loans, net increased by $175.5 million as a result of new loan originations and loan acquisitions, which exceeded loan pay-offs, sales, and transfers of loans to securitizations included in consolidated VIEs. During the year ended December 31, 2018, we originated $463.0 million in transitional loans, $411.6 million in Freddie Mac loans, $313.5 million in SBC conventional loans, and $213.0 million in SBA loans, which includes additional funding on loans originated in previous years. Additionally, we acquired $380.4 million in SBC loans in our Loan Acquisitions segment.  This was offset by transfers of loans to our consolidated securitizations during the quarter, including ReadyCap Commercial Mortgage Trust 2018-4 (“RCMT 2018-4”), Ready Capital Mortgage Financing 2018-FL2 (“RCMF 2018-FL2”), and Sutherland Commercial Mortgage Trust 2018-SBC7 (“SBC7”). The increase was further offset by sales and pay-offs of $747.3 million of acquired and originated loans during the year.

Loans, held for sale, at fair value decreased by $100.8 million as a result of $2.6 billion of proceeds from sales and principal pay-downs on residential agency loans, Freddie Mac loans, and SBA loans, which exceeded new loan originations of $2.4 billion, including $1.8 billion in residential agency loans, $411.6 million in Freddie Mac loans, and $213.0 million of SBA loans.

MBS increased by $52.0 million during the year due to $73.3 million of purchases of MBS, primarily Freddie Mac issued bonds, offset by sales and pay-downs of other CMBS positions of $30.4 million. 

Our investment in unconsolidated joint venture balance decreased $21.9 million due to distributions received on our investment.  

Our servicing rights asset increased by $26.0 million, primarily due to loan sales and retention of servicing activities of $31.4 million across our SBA, Freddie Mac, and residential mortgage servicing portfolios, partially offset by loan pay-offs of $5.9 million, amortization and impairment of $5.5 million, and unrealized gains due to the changes in the fair value of our residential mortgage banking servicing rights of $5.7 million.

Assets in consolidated VIEs increased by $389.4 million, which included a net increase in loans, net of $384.8 million due to the transfer of loans into our securitizations during the year, as noted above. These increases were partially offset by a decrease in these amounts due to pay-downs on existing loans within the securitizations.

Liabilities

Secured borrowings associated with our repurchase agreements and credit facilities increased by $197.2 million due to a greater need to finance new loan origination and acquisition activities during the year as reflected in the growth of our asset balances during the year ended December 31, 2018.

During the year ended December 31, 2018, we issued an aggregate principal balance of $50.0 million in corporate debt and an additional $40.0 million in 7.5% senior secured notes.

Securitized debt obligations of consolidated VIEs, net increased $306.9 million, as a result of the completed RCMT 2018-4, RCMF 2017-FL1, and SCMT 2018-SBC7 securitizations during the year, resulting in net proceeds of $607.8 million from the debt issuances, which was partially offset by pay-downs of existing loans in securitizations of $298.3 million.

Guaranteed loan financing decreased by $63.4 million as a result of an increase in guaranteed SBA sales and scheduled and unscheduled principal payments on guaranteed SBA loans.

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Contingent consideration decreased $8.8 million as a result of payments relating to the contingent consideration arrangement during the second quarter of 2018.

Equity

Total equity attributable to Ready Capital Corporation increased by $8.8 million, primarily the result of an increase in retained earnings of $59.0 million due to net income earned by the Company, offset by dividends declared of $50.6 million.

Selected Balance Sheet Information by Business Segment and Corporate - Other

The following table presents certain selected balance sheet information by each of our four business segments, with the remaining amounts reflected in Corporate –Other, as of December 31, 2018:

(in thousands)	Loan Acquisitions		SBC Originations		SBA Originations, Acquisitions and Servicing		Residential Mortgage Banking		Corporate / Other		Total
Assets
Loans, net (1)(2)	$	550,139	$	1,464,805	$	405,843	$	1,899	$	-	$	2,422,686
Loans, held for sale, at fair value		3,008		23,322		21,153		67,775		-		115,258
Mortgage backed securities, at fair value		19,751		72,186		-		-		-		91,937
Servicing rights		-		10,248		16,749		93,065		-		120,062
Liabilities
Secured borrowings	$	214,516	$	515,080	$	27,443	$	77,508	$	-	$	834,547
Securitized debt obligations of consolidated VIEs		283,291		620,896		1,180		-		-		905,367
Guaranteed loan financing		-		-		229,678		-		-		229,678
Senior secured notes, net		42,623		129,202		7,045		-		-		178,870
Corporate debt, net		24,086		24,371		-		-		-		48,457
Convertible notes, net		53,919		50,462		5,598		-		-		109,979

(1) Includes Loan assets of consolidated VIEs.

(2) Excludes allowance for loan losses.

Results of Operations

The following table compares our summarized results of operations for the years ended December 31, 2018, 2017 and 2016 (amounts in thousands):

	For the Year Ended December 31,						$ Change
	2018		2017			2016	2018 vs. 2017		2017 vs. 2016
Interest income
Loan acquisitions	$	47,243	$	37,198	$	49,311	$	10,045	$	(12,113)
SBC originations		81,752		59,021		40,586		22,731		18,435
SBA originations, acquisitions and servicing		36,706		38,108		46,417		(1,402)		(8,309)
Residential mortgage banking		3,798		3,978		709		(180)		3,269
Total interest income	$	169,499	$	138,305	$	137,023	$	31,194	$	1,282
Interest expense
Loan acquisitions		(28,946)		(16,741)		(18,327)		(12,205)		1,586
SBC originations		(60,879)		(35,121)		(20,347)		(25,758)		(14,774)
SBA originations, acquisitions and servicing		(16,218)		(16,098)		(17,397)		(120)		1,299
Residential mortgage banking		(3,195)		(3,145)		(557)		(50)		(2,588)
Corporate - other		-		(3,541)		(1,144)		3,541		(2,397)
Total interest expense	$	(109,238)	$	(74,646)	$	(57,772)	$	(34,592)	$	(16,874)
Net interest income before provision for loan losses		60,261		63,659		79,251		(3,398)		(15,592)
Provision for loan losses		(1,701)		(2,363)		(7,819)		662		5,456
Net interest income after provision for loan losses	$	58,560	$	61,296	$	71,432	$	(2,736)	$	(10,136)
Non-interest income
Loan acquisitions		16,403		4,316		6,530		12,087		(2,214)
SBC originations		23,386		22,597		14,291		789		8,306
SBA originations, acquisitions and servicing		22,088		16,961		12,004		5,127		4,957

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Residential mortgage banking		86,015		96,934		17,094		(10,919)		79,840
Corporate - other		31		410		15,599		(379)		(15,189)
Total non-interest income	$	147,923	$	141,218	$	65,518	$	6,705	$	75,700
Non-interest expense
Loan acquisitions		(9,256)		(9,727)		(9,785)		471		58
SBC originations		(24,375)		(21,881)		(19,108)		(2,494)		(2,773)
SBA originations, acquisitions and servicing		(18,227)		(15,100)		(16,403)		(3,127)		1,303
Residential mortgage banking		(71,934)		(90,321)		(7,889)		-		-
Corporate - other		(19,848)		(17,832)		(18,550)		(2,016)		718
Total non-interest expense	$	(143,640)	$	(154,861)	$	(71,735)	$	(7,166)	$	(694)
Income from continuing operations before provision for income taxes
Loan acquisitions		23,717		13,020		21,310		10,697		(8,290)
SBC originations		19,871		24,421		15,336		(4,550)		9,085
SBA originations, acquisitions and servicing		24,388		23,729		23,307		659		422
Residential mortgage banking		14,684		7,446		9,357		-		-
Corporate - other		(19,817)		(20,963)		(4,095)		1,146		(16,868)
Total income from continuing operations before provision for income taxes	$	62,843	$	47,653	$	65,215	$	7,952	$	(15,651)
Provisions for income taxes		(1,386)		(1,839)		(9,651)		453		7,812
Net income from continuing operations		61,457		45,814		55,564		15,643		(9,750)
Loss from discontinued operations, net of tax		-		-		(2,158)		-		2,158
Net income	$	61,457	$	45,814	$	53,406	$	15,643	$	(7,592)

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 following table presents the components of realized and unrealized gains / (losses) on financial instruments:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Realized gains (losses) on financial instruments
Realized gains on loans - Freddie Mac	$	6,956	$	6,433	$	3,251
Creation of mortgage servicing rights - Freddie Mac		6,832		3,290		2,009
Realized gains on loans - SBA		12,160		7,252		4,231
Creation of mortgage servicing rights - SBA		3,569		1,996		951
Realized gain (loss) on derivatives, at fair value		3,569		(1,256)		(2,106)
Realized gain (loss) on mortgage backed securities, at fair value		5,192		621		(3,068)
Net realized gains (losses) - all other		131		993		1,646
Net realized gain on financial instruments	$	38,409	$	19,329	$	6,914
Unrealized gains (losses) on financial instruments
Unrealized gain (loss) on loans - Freddie Mac	$	(599)	$	798	$	—
Unrealized gain (loss) on loans - SBA		173		1,315		—
Unrealized gain (loss) on residential mortgage servicing rights, at fair value		5,694		(4,000)		6,917
Unrealized gain (loss) on derivatives, at fair value		(3,186)		2,000		3,141
Unrealized gain (loss) on mortgage backed securities, at fair value		3,320		1,744		3,680
Net unrealized gains (losses) - all other		(549)		5,143		4,199
Net unrealized gain on financial instruments	$	4,853	$	7,000	$	17,937

Loan Acquisition Segment Results

	For the Year Ended  December 31,						$ Change
(In Thousands)	2018		2017			2016	2018 vs. 2017		2017 vs. 2016
Interest income	$	47,243	$	37,198	$	49,311	$	10,045	$	(12,113)
Interest expense		(28,946)		(16,741)		(18,327)		(12,205)		1,586
Net interest income before provision for loan losses	$	18,297	$	20,457	$	30,984	$	(2,160)	$	(10,527)
Provision for loan losses		(1,727)		(2,026)		(6,419)		299		4,393
Net interest income after provision for loan losses	$	16,570	$	18,431	$	24,565	$	(1,861)	$	(6,134)
Non-interest income	$	16,403	$	4,316	$	6,530	$	12,087	$	(2,214)
Non-interest expense	$	(9,256)	$	(9,727)	$	(9,785)	$	471	$	58
Income from continuing operations before provision for income taxes	$	23,717	$	13,020	$	21,310	$	10,697	$	(8,290)

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Interest income

Interest income of $47.2  million for the year ended December 31, 2018 in our loan acquisitions segment represented an increase of $10.0 million from the prior year, primarily due to an increase in interest income generated on our acquired SBC loan portfolio due to a higher average carrying value of the portfolio ($548.5 million at December 31, 2018 compared to $383.3 million as of December 31, 2017) as a result of $380.4 million of acquisitions of new SBC loans, offset by pay-downs of existing acquired SBC loans.

Interest income of $37.2 million for the year ended December 31, 2017 in our loan acquisitions segment represented a decrease of $12.1 million from the prior year, primarily due to a reduction of interest income generated on our acquired SBC loan portfolio due to a lower average carrying value of the portfolio ($383.3 million during 2017 compared to $460.0 million during 2016) as a result of re-deploying capital to our origination businesses and an overall migration from high yield non-performing loans to credit stabilized performing loans in our portfolio.

Interest expense

Interest expense of $28.9 million for the year ended December 31, 2018 in our loan acquisitions segment represented an increase of $12.2 million from the prior year, reflecting an increase in borrowing needs, as a result of additional acquisitions of SBC loans and a higher average carrying value of the acquired loan portfolio.

Interest expense of $16.7 million for the year ended December 31, 2017 in our loan acquisitions segment represented a decrease of $1.6 million from the prior year, reflecting a reduction in borrowing needs, as a result of deploying capital to our origination businesses and a lower average carrying value of the acquired loan portfolio.

Provision for loan losses

Provision for loan losses of $1.7 million for the year ended December 31, 2018 in our loan acquisitions segment represented a decrease of $0.3 million from the prior year, reflecting a reduction in our credit deteriorated loan portfolio due to pay-downs and sales and our increased focus on new loan originations with better credit qualities and acquisitions of performing SBC loans. As of December 31, 2018, our purchased credit impaired portfolio of SBC loans was $66.0 million, compared to $90.6 million as of December 31, 2017.

Provision for loan losses of $2.0 million for the year ended December 31, 2017 in our loan acquisitions segment represented a decrease of $4.4 million from the prior year, reflecting a reduction in our credit deteriorated loan portfolio due to pay-downs and sales and our increased focus on new loan originations with better credit qualities. As of December 31, 2017, our purchased credit impaired portfolio of SBC loans was $90.6 million, compared to $110.1 million as of December 31, 2016.

Non-interest income

Non-interest income of $16.4 million for the year ended December 31, 2018 represented an increase of $12.1 million from the prior year, reflecting $12.1 million of income generated on our equity method investment in a joint venture, which was acquired in November 2017. The joint venture interest is in an SBC loan pool, which generates interest income and realized and unrealized gains and losses and these amounts are earned by us, based on our proportional interest. In addition, we experienced $5.3 million of additional realized gains, primarily resulting from gains on sales of MBS.

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 Non-interest income of $4.3 million for the year ended December 31, 2017 represented a decrease of $2.2 million from the prior year, driven primarily by a reduction in unrealized gains on MBS of $2.0 million due to sales during the second half of 2016, reducing the size of the MBS portfolio and average balances in 2017. This reduction was offset by $1.0 million of income generated in the fourth quarter of 2017 on our equity method investment in an SBC loan pool.

Non-interest expense

Non-interest expense of $9.3 million for the year ended December 31, 2018 in our loan acquisitions segment represented an decrease of $0.5 million compared to the year ended December 31, 2017, as a result of an decrease in professional fee expense of $0.2 million and a decrease in employee compensation expense of $0.2 million.

 Non-interest expense remained relatively flat year over year at $9.7 million and $9.8 million for the years ended December 31, 2017 and 2016, respectively.

SBC Originations Segment Results

	For the Year Ended December 31,						$ Change
(In Thousands)	2018		2017			2016	2018 vs. 2017		2017 vs. 2016
Interest income	$	81,752	$	59,021	$	40,586	$	22,731	$	18,435
Interest expense		(60,879)	$	(35,121)	$	(20,347)		(25,758)		(14,774)
Net interest income before provision for loan losses	$	20,873	$	23,900	$	20,239	$	(3,027)	$	3,661
Provision for loan losses		(13)		(195)		(86)		182		(109)
Net interest income after provision for loan losses	$	20,860	$	23,705	$	20,153	$	(2,845)	$	3,552
Non-interest income	$	23,386	$	22,597	$	14,291	$	789	$	8,306
Non-interest expense	$	(24,375)	$	(21,881)	$	(19,108)	$	(2,494)	$	(2,773)
Income from continuing operations before provision for income taxes	$	19,871	$	24,421	$	15,336	$	(4,550)	$	9,085

Interest income

Interest income of $81.8 million for the year ended December 31, 2018 in our SBC originations segment represented an increase of $22.7 million from the prior year primarily reflecting an increase in SBC loan originations, resulting in higher average loan balances. SBC loan originations increased $318.7 million in the current year, or 37%, compared to 2017, primarily driven by an increase in transitional loan originations during the year ended December 31, 2018 compared to the year ended December 31, 2017. Originated transitional loans contributed $48.5 million in interest income during the year ended December 31, 2018, representing a $23.1 million increase from the year ended December 31, 2017.

Interest income of $59.0 million for the year ended December 31, 2017 in our SBC originations segment represented an increase of $18.4 million from the prior year primarily reflecting an increase in SBC loan originations, resulting in higher average loan balances. SBC loan originations increased $295.1 million in the current year, or 51%, compared to 2016, primarily driven by an increase in Freddie Mac loan originations of $163.9 million and transitional loan originations of $96.2 million during the year ended December 31, 2017 compared to the year ended December 31, 2016. Originated transitional loans contributed $25.3 million in interest income during the year ended December 31, 2017, representing a $16.7 million increase from the year ended December 31, 2016.

Interest expense

Interest expense of $60.9 million in our SBC originations segment represented an increase of $25.8 million from the prior year ended December 31, 2017,  as a result of an increase in borrowing needs required to finance new SBC loan

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originations, which increased 37% during the year ended December 31, 2018, compared to the year ended December 31, 2017.

Interest expense of $35.1 million in our SBC originations segment represented an increase of $14.8 million from the prior year ended December 31, 2016, primarily reflecting an increase in borrowing activities under our shorter-term secured borrowings and borrowings under our senior secured notes and convertible notes allocated to the SBC originations segment, due to the need to finance a greater number of loan originations, which increased 51% during the year ended December 31, 2017, compared to the year ended December 31, 2016.

Non-interest income

Non-interest income of $23.4 million in our SBC originations segment represented an increase of $0.8 million from the prior year ended December 31, 2017 primarily reflecting an increase in servicing income of $0.4 million as a result of an increase in the Freddie Mac loan balances that are serviced by the Company.

Non-interest income of $22.6 million in our SBC originations segment represented an increase of $8.3 million from the prior year ended December 31, 2016 primarily reflecting an increase in realized gains of $7.4 million, primarily driven by sales of Freddie Mac loans, held-for-sale, resulting in additional gains of $5.6 million. The increase also represented an increase in unrealized gains of $1.7 million from the prior year ended December 31, 2016, primarily driven by overall portfolio growth during the current year, as well as changes in the fair value of the SBC conventional loans and Freddie Mac loans that are carried at fair value. The increase in average balances of our SBC loan portfolio are a result of an increase in loan originations during the current year. As noted above, SBC loan originations increased $295.1 million in the current year, or 51%, compared to 2016, primarily driven by an increase in Freddie Mac loan originations of $163.9 million, which are carried at fair value.

Non-interest expense

Non-interest expense of $24.4 million in our SBC originations segment represented an increase of $2.5 million from the prior year ended December 31, 2017, primarily reflecting an increase in loan servicing expense of $1.5 million, other operating expenses of $0.7 million, and an increase in employee compensation expense of $0.3 million. 

Non-interest expense of $21.9 million in our SBC originations segment represented an increase of $2.8 million from the prior year ended December 31, 2016, primarily reflecting an increase in other operating expenses of $1.3 million and an increase in professional fee expenses of $0.8 million.

SBA Originations, Acquisitions and Servicing Segment Results

	For the Year Ended December 31,						$ Change
(In Thousands)	2018		2017			2016	2018 vs. 2017		2017 vs. 2016
Interest income	$	36,706	$	38,108	$	46,417	$	(1,402)	$	(8,309)
Interest expense		(16,218)		(16,098)		(17,397)		(120)		1,299
Net interest income before provision for loan losses	$	20,488	$	22,010	$	29,020	$	(1,522)	$	(7,010)
Provision for loan losses		39		(142)		(1,314)		181		1,172
Net interest income after provision for loan losses	$	20,527	$	21,868	$	27,706	$	(1,341)	$	(5,838)
Non-interest income	$	22,088	$	16,961	$	12,004	$	5,127	$	4,957
Non-interest expense	$	(18,227)	$	(15,100)	$	(16,403)	$	(3,127)	$	1,303
Income from continuing operations before provision for income taxes	$	24,388	$	23,729	$	23,307	$	659	$	422

Interest income

      Interest income of $36.7 million for the year ended December 31, 2018 in our SBA originations, acquisitions, and servicing segment represented a decrease of $1.4 million from the prior year ended December 31, 2017 primarily due to a reduction of interest income generated on our acquired SBA 7(a) loan portfolio as we have shifted capital to new SBA loan originations. Although our SBA loan originations increased $81.3 million in the current year, or 62%, compared to

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the prior year, this did not result in a direct, proportional increase in interest income, but rather, resulted in a realized gain on the sale of the SBA loan and an increase in servicing income, as we typically sell a 75% pro-rata interest in the loan at a premium, while retaining 25%, and also retain the servicing rights on the loan. Thus, the reduction in interest income is offset by an increase in realized gains on sales of SBA loans and an increase in originated SBA loans servicing income, discussed further below.

Interest income of $38.1 million for the year ended December 31, 2017 in our SBA originations, acquisitions, and servicing segment represented a decrease of $8.3 million from the prior year ended December 31, 2016 primarily due to a reduction of interest income generated on our acquired SBA 7(a) loan portfolio as we have shifted capital to new SBA loan originations. Although our SBA loan originations increased $89.6 million in the current year, or 213%, compared to the prior year, this did not result in a direct, proportional increase in interest income, but rather, resulted in a realized gain on the sale of the SBA loan and an increase in servicing income, as we typically sell a 75% pro-rata interest in the loan at a premium, while retaining 25%, and also retain the servicing rights on the loan. Thus, the reduction in interest income is offset by an increase in realized gains on sales of SBA loans and an increase in originated SBA loans servicing income, discussed further below.

Interest expense

Interest expense of $16.2 million for the year ended December 31, 2018 in our SBA originations, acquisitions, and servicing segment remained relatively flat compared to the year ended December 31, 2017.

Interest expense of $16.2 million for the year ended December 31, 2017 in our SBA originations, acquisitions, and servicing segment represented a decrease of $1.3 million from the prior year ended December 31, 2016 primarily reflecting an reduction in borrowing activities under secured borrowings and guaranteed loan financing due to the reduced need to finance acquired SBA 7(a) loans on our balance sheet and originated SBA 7(a) loans, due to sales of the 75% pro-rata interest of these loans, while only 25% is retained on our consolidated balance sheet.

Provision for loan losses

There was an immaterial provision for loan losses reserve recorded during the year ended December 31, 2018 in our SBA originations, acquisitions, and servicing segment, which remained relatively flat compared to the year ended December 31, 2017.

Provision for loan losses of $0.1 million for the year ended December 31, 2017 in our SBA originations, acquisitions, and servicing segment represented a decrease of $1.2 million from the prior year, reflecting a reduction in our credit deteriorated SBA loan portfolio due to pay-downs and sales and our increased focus on new SBA loan originations with better credit qualities. As of December 31, 2017, our acquired SBA loan balance was $400.6 million, compared to $532.7 million as of December 31, 2016.

Non-interest income

Non-interest income of $22.1 million for the year ended December 31, 2018 in our SBA originations, acquisitions, and servicing segment represented an increase of $5.1 million from the prior year ended December 31, 2017 primarily reflecting an increase in realized gains of $6.4 million as a result of sales of originated SBA loans, offset by unrealized losses on SBA loans, held for sale, at fair value of $1.2 million.

Non-interest income of $17.0 million for the year ended December 31, 2017 in our SBA originations, acquisitions, and servicing segment represented an increase of $5.0 million from the prior year ended December 31, 2016 primarily reflecting an increase in realized gains of $4.9 million, which is the result of an increase in sales of SBA loans due to an increase in loan originations. 

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Non-interest expense

Non-interest expense of $18.2 million for the year ended December 31, 2018 in our SBA originations, acquisitions, and servicing segment represented an increase of $3.1 million from the prior year ended December 31, 2017 primarily reflecting an increase in employee compensation of $2.6 million and an increase in loan servicing expense of $0.7 million, offset by a reduction in professional fee expense of $0.2 million.

Non-interest expense of $15.1 million for the year ended December 31, 2017 in our SBA originations, acquisitions, and servicing segment represented a decrease of $1.3 million from the prior year ended December 31, 2016 primarily reflecting a decrease in professional fee expense of $1.7 million, partially offset by an increase in employee compensation expense of $1.1 million.

Residential Mortgage Banking Segment Results

We acquired the GMFS business as part of the ZAIS Financial merger on October 31, 2016 and, therefore, the following results relate to the years ended December 31, 2018 and 2017, and the two months ended December 31, 2016.  

	For the Year Ended December 31,						$ Change
(In Thousands)	2018		2017			2016	2018 vs. 2017		2017 vs. 2016
Interest income	$	3,798	$	3,978	$	709	$	(180)	$	3,269
Interest expense		(3,195)		(3,145)		(557)		(50)		(2,588)
Net interest income before provision for loan losses	$	603	$	833	$	152	$	(230)	$	681
Provision for loan losses		-		-		-		-		-
Net interest income after provision for loan losses	$	603	$	833	$	152	$	(230)	$	681
Non-interest income	$	86,015	$	96,934	$	17,094	$	(10,919)	$	79,840
Non-interest expense	$	(71,934)	$	(90,321)	$	(7,889)	$	18,387	$	(82,432)
Income from continuing operations before provision for income taxes	$	14,684	$	7,446	$	9,357	$	7,238	$	(1,911)

Interest income

Interest income of $3.8 million in our residential mortgage banking segment for the year ended December 31, 2018 remained relatively flat compared to the prior year ended December 31, 2017. 

Interest expense

Interest expense of $3.2 million in our residential mortgage banking segment for the year ended December 31, 2018  remained relatively flat compared to the prior year ended December 31, 2017.

Non-interest income

Non-interest income of $86.0 million in our residential mortgage banking segment for the year ended December 31, 2018 represented a decrease of $10.9 million compared to the prior year ended December 31, 2017 as a result of a decrease in gains on sales of residential mortgage loans of $23.6 million, offset by an increase in servicing fee income of $3.0 million and an increase in unrealized gains on residential mortgage servicing rights carried at fair value of $9.7 million.

Non-interest income of $96.9 million in our residential mortgage banking segment for the year ended December 31, 2017 represented gains on sales of residential mortgage loans of $83.4 million, servicing income of $17.3 million, offset by unrealized losses on residential mortgage servicing rights carried at fair value of $4.0 million.

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Non-interest expense

Non-interest expense of $71.9 million in our residential mortgage banking segment for the year ended December 31, 2018 represented a decrease of $18.4 million compared to the prior year ended December 31, 2017 as a result of a decrease in variable expenses on residential mortgage banking activities, which is the result of a reduction in loan originations during the year ended December 31, 2018.

Non-interest expense of $90.3 million in our residential mortgage banking segment for the year ended December 31, 2017 represented $41.7 million in variable expenses on residential mortgage banking activities , $34.6 million in employee compensation and benefits expense, $6.4 million in loan servicing expense, and $6.7 million in other operating expenses.

Corporate - Other

Interest expense

There was no interest expense incurred during the year ended December 31, 2018 as all borrowings from corporate debt offerings were deployed to the business segments. This represented a $3.5 million decrease from the year ended December 31, 2017, relating to borrowing costs associated with our unallocated funds generated by our senior secured notes and convertible notes, both of which were issued during 2017.

Interest expense of $3.5 million for the year ended December 31, 2017 increased $2.4 million from the year ended December 31, 2016 represented an increase in borrowing costs associated with our unallocated funds generated by our senior secured notes and convertible notes, both of which were issued during 2017.

Non-interest income

There was a $15.2 million bargain purchase gain for the year ended December 31, 2016 related to the ZAIS merger transaction. There were no other material non-interest income items during the years ended December 31, 2018, 2017, or 2016.

Non-interest expense

Non-interest expense of $19.8 million for the year ended December 31, 2018 increased $2.0 million from the year ended December 31, 2017 representing  an increase in management and incentive fees due to our Manager of $1.2 million and an increase in employee compensation of $0.4 million. 

Non-interest expense of $17.8 million for the year ended December 31, 2017 decreased $0.7 million from the year ended December 31, 2016 represented a decrease of $2.6 million in professional fee expense due to an increase in merger related costs in 2016,  partially offset by an increase in management fees due to our Manager of $0.6 million and an increase in employee compensation expense of $0.7 million as a result of business growth during 2017.

Non-GAAP Financial Measures

We believe that providing investors with Core Earnings, a non-U.S. GAAP financial measure, in addition to the related U.S. GAAP measures, gives investors greater transparency into the information used by management in our financial and operational decision-making. However, because Core 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 Core Earnings may not be comparable to other similarly-titled measures of other companies.

We calculate Core Earnings as GAAP net income (loss) excluding the following:

i) any unrealized gains or losses on certain MBS

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ii) any realized gains or losses on sales of certain MBS

iii) any unrealized gains or losses on Residential MSRs

iv) one-time non-recurring gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, or merger related expenses

In calculating Core 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 Core 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 Core Earnings, Net Income (in accordance with GAAP) is adjusted to exclude realized gains and losses on certain MBS securities considered to be non-core.  Certain MBS positions are considered to be non-core due to a variety of reasons which may include collateral type, duration, and size. In 2016, we liquidated the majority of our non-core MBS portfolio to fund our core and recurring operating segments. 

      In addition, in calculating Core 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 Core Earnings, we do not exclude realized gains or losses on either commercial MSRs or Residential MSRs, held at fair value, as servicing income is a fundamental part of our business and as an indicator of the ongoing performance.

The following table presents our summarized consolidated results of operations and reconciliation to Core Earnings for the years ended December 31, 2018, 2017, and 2016:

	Year Ended December 31,
(in thousands)	2018		2017		2016		Change 2018 vs 2017		Change 2017 vs 2016
Net Income	$	61,457	$	45,814	$	53,406	$	15,643	$	(7,592)
Reconciling items:
Unrealized (gain) loss on MBS		381		(1,077)		(3,680)		1,458		2,603
Realized (gain) loss on MBS		-		-		3,696		-		(3,696)
Unrealized (gain) loss on MSRs		(4,206)		4,000		(6,917)		(8,206)		10,917
Bargain purchase gain		-		-		(15,218)		-		15,218
Merger transaction costs		-		70		4,510		(70)		(4,440)
Employee severance		-		-		418		-		(418)
Restricted Stock Unit (RSU) grant to Independent Directors		-		290		-		(290)		290
Loss on discontinued operations		-		-		3,538		-		(3,538)
Total reconciling items	$	(3,825)	$	3,283	$	(13,653)	$	(7,108)	$	16,936
Income tax adjustments		1,059		(2,119)		1,155		3,178		(3,274)
Core earnings	$	58,690	$	46,978	$	40,908	$	11,713	$	6,070

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Consolidated Net Income increased by $15.6 million, from $45.8 million during the year ended December 31, 2017 to $61.5 million during the year ended December 31, 2018. Consolidated Core Earnings increased by $11.7 million, from $47.0 million during the year ended December 31, 2017 to $58.7 million during the year ended December 31, 2018.

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The increase in Consolidated Net Income was primarily due to an increase in SBC and SBA loan originations and SBC loan acquisitions, gains sales of Freddie Mac and SBA loans, income generated on our equity method joint venture investment, a decrease in the provision for loan losses as a result of the shift from high yield non-performing loans to credit stabilized performing loans and general growth in each of our operating segments.

The increase in Consolidated Core Earnings during the year ended December 31, 2018 as compared to the year ended December 31, 2017 was primarily due to the factors discussed above, offset by unrealized gains on our residential mortgage servicing rights held at fair value.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Consolidated Net Income decreased by $7.6 million, from $53.4 million during the year ended December 31, 2016 to $45.8 million during the year ended December 31, 2017. Consolidated Core Earnings increased by $6.1 million, from $40.9 million during the year ended December 31, 2016 to $47.0 million during the year ended December 31, 2017.

The decrease in Consolidated Net Income was primarily due to a bargain purchase gain of $15.2 million in 2016, which was partially offset by merger transaction costs of $4.5 million relating to the ZAIS Financial merger transaction. The decrease in Consolidated Net Income was also attributable to unrealized gains on our residential mortgage servicing rights that are carried at fair value of $6.9 million experienced in 2016, compared to $4.0 million of unrealized losses on these assets during the year ended December 31, 2017. The decrease was also partially offset by a loss on discontinued operations of $3.5 million during 2016.

The increase in Consolidated Core Earnings during the year ended December 31, 2017 as compared to the year ended December 31, 2016 was primarily due to an increase in SBC and SBA loan originations, sales of Freddie Mac and SBA loans, a decrease in the provision for loan losses as a result of the shift from high yield non-performing loans to credit stabilized performing loans, as well as earnings attributable to our residential mortgage banking segment as a result of a complete year of operations.

The following table presents our summarized consolidated results of operations and reconciliation to Core Earnings for the three months ended December 31, 2018 and September 30, 2018:

	Three Months Ended
(in thousands)	December 31, 2018		September 30, 2018		Change
Net Income	$	9,486	$	17,569	$	(8,083)
Reconciling items:
Unrealized (gain) loss on MBS		226		(10)		236
Unrealized (gain) loss on MSRs		2,171		(1,969)		4,140
Total reconciling items	$	2,397	$	(1,979)	$	4,376
Income tax adjustments		(547)		495		(1,042)
Core earnings	$	11,336	$	16,085	$	(4,749)

Three Months Ended December 31, 2018 Compared to the Three Months Ended September 30, 2018

Consolidated Net Income decreased by $8.1 million, from $17.6 million during the three months ended September 30, 2018 to $9.5 million during the three months ended December 31, 2018. Core Earnings decreased by $4.7 million, from $16.1 million during the three months ended September 30, 2018 to $11.3 million during the three months ended September 30, 2018.

The decreases in Consolidated Net Income and Core Earnings were primarily due to unrealized losses on derivatives utilized as part of our economic hedging of interest rate risk. Unrealized losses during the three months ended December 31, 2018 totaled $11.1 million, compared to unrealized gains of $8.5 million during the three months ended September 30, 2018. Residential mortgage banking activities was down $5.4 million during the three months ended December 31, 2018 as a result of a reduction in loan sales and lower origination volumes. Realized gains on financial instruments increased by $3.6 million during the quarter as a result of sales of loans, held-for-sale, at fair value. Non-interest expense decreased

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$9.7 million during the three months ended December 31, 2018 due to a reduction in variable expenses on residential mortgage banking activities of $4.3 million, a reduction in professional fee expenses of $1.7 million, a reduction in employee compensation of $1.0 million, and a reduction in loan servicing expenses of $1.0 million. We also experienced unrealized losses on residential MSRs of $2.2 million during the three months ended December 31, 2018 compared to unrealized gains of $2.0 million during the three months ended September 30, 2018.

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) core 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 core earnings is greater than zero for the most recently completed 12 calendar quarters, or the number of completed calendar quarters since the closing date of the ZAIS Financial merger, whichever is less.

For purposes of calculating the incentive distribution prior to the completion of a 12-month period following the closing of the ZAIS Financial merger, core earnings was calculated on an annualized basis. In addition, for purposes of calculating the incentive distribution, the shares of common stock and OP units issued as of the closing of the ZAIS Financial merger in connection with the merger agreement were deemed to be issued at the per share price equal to (i) the sum of (A) the weighted average of the issue price per share of Sutherland common stock or Sutherland OP units (without double counting) issued prior to the closing of the ZAIS Financial merger multiplied by the number of shares of Sutherland common stock outstanding and Sutherland OP units (without double counting) issued prior to the closing of the merger plus (B) the amount by which the net book value of our Company as of the closing of the merger (after giving effect to the closing of the merger agreement) exceeded the amount of the net book value of Sutherland immediately preceding the closing of the merger, divided by (ii) all of the shares of our common stock and OP units issued and outstanding as of the closing of the merger (including the date of the closing of the mergers).

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, core earnings is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of Core 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 Core Earnings described above under "Non-GAAP Financial Measures".

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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 (including term loans and revolving facilities), the net proceeds of this and future offerings of equity and debt securities, including our Senior Secured Notes and Convertible Notes, and net cash provided by operating activities.

Cash Flow Activity for the Years Ended December 31, 2018, 2017, and 2016

The following table provides a summary of the net change in our cash and cash equivalents:

	For the years ended December 31,
(in thousands)	2018		2017		2016
Cash flows provided by operating activities	$	140,297	$	352,489	$	14,763
Cash flows provided by (used in) investing activities		(580,759)		(235,728)		389,574
Cash flows provided by (used in) financing activities		444,478		(106,502)		(381,356)
Net increase in cash, cash equivalents, and restricted cash	$	4,016	$	10,259	$	22,981

Year ended December 31, 2018 compared to the year ended December 31, 2017

Cash and cash equivalents increased by $4.0 million during the year ended December 31, 2018, reflecting:

· Net cash provided by operating activities of $140.3 million for the year related primarily to:

- Proceeds on sales and principal payments of loans, held for sale, at fair value of $2.6 billion, offset by $2.4 billion of originations and purchases of loans, held for sale, at fair value.

- Cash outflows  relating to other general changes in operating assets and liabilities.

· Net cash used in investing activities of $580.8 million for the current year related primarily to:

- Cash outflows of $1.3 billion relating to originations and purchases of loans, held at fair value and held-for-investment loans, offset by cash inflows relating to repayments of loans, held at fair value and held-for-investment of $746.2 million. 

- Cash outflows of $73.3 million relating to purchases of MBS, offset by proceeds from sales and principal payments of MBS of $30.4 million.

· Net cash provided by financing activities of $444.5 million for the current quarter related primarily to:

- Proceeds from issuances of securitized debt of $607.8 million, net proceeds from secured borrowings of $197.1 million, issuance of our corporate debt of approximately $50.0 million, issuance of our senior secured notes of $41.3 million, offset by repayments of securitized debt of $297.8 million, net repayments of guaranteed loan financing of $75.0 million, and dividend payments of $51.3 million.

Year ended December 31, 2017 compared to the year ended December 31, 2016

Cash and cash equivalents increased by $10.3 million during the year ended December 31, 2017, reflecting:

· Net cash provided by operating activities of $352.5 million for the year related primarily to:

- Proceeds on sales and principal payments of loans, held for sale, at fair value of $2.6 billion, offset by $2.5 billion of originations and purchases of loans, held for sale, at fair value.

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- Proceeds from sales or maturity of short-term investments and trading securities of $1.2 billion, offset by $839.4 million of purchases of short-term investments and trading securities.

· Net cash used in investing activities of $235.7 million for the current year related primarily to:

- Cash outflows of $602.3 million relating to originations and purchases of loans, held at fair value and held-for-investment loans, offset by cash inflows relating to repayments of loans, held at fair value and held-for-investment of $422.1 million. 

- Cash outflows of $54.3 million relating to a joint venture investments and $14.4 million of cash outflows relating to purchases of MBS.

· Net cash used in financing activities of $106.5 million for the current quarter related primarily to:

- Proceeds provided by our convertible note issuance of approximately $115.0 million and proceeds provided by our senior secured notes of approximately $142.0 million, offset by net repayments of secured borrowings $296.2 million and net repayments of guaranteed loan financing of $110.0 million.

Collateralized Borrowings Under Repurchase Agreements

     The following table 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 (dollars in thousands):

Quarter End	Quarter End Balance		Average Balance in Quarter		Highest Month End Balance in Quarter
Q4 2015	$	644,137	$	706,555	$	768,972
Q1 2016		614,613		629,375		614,613
Q2 2016		568,837		591,725		568,837
Q3 2016		581,773		575,305		592,180
Q4 2016		600,852		591,313		745,573
Q1 2017		632,951		616,902		632,951
Q2 2017		520,169		576,560		520,169
Q3 2017		320,371		420,270		433,183
Q4 2017		382,612		351,492		382,612
Q1 2018		446,663		414,638		446,663
Q2 2018		443,263		444,963		447,751
Q3 2018		610,251		526,757		610,251
Q4 2018		635,233		622,742		635,233

The net decrease in the outstanding balances during 2016 was primarily due to the repayment of borrowings under repurchase facilities as a result of proceeds provided by our securitization activities during 2016 and a reduced need for short-term borrowings.

The net decrease in the outstanding balances during 2017 was primarily due to the proceeds provided by our convertible note issuance of approximately $115.0 million and proceeds provided by our senior secured notes of approximately $142.0 million, which were used to pay-down borrowings under repurchase agreements of approximately $218.2 million.

The net increase in the outstanding balances during 2018 was primarily due to the increased loan and MBS investment activity, which resulted in a greater need to finance these assets, which was accomplished using borrowings under repurchase agreements. These balances are typically paid down as we securitize our acquired and originated loan assets and issue senior bonds.

Securitization Activity

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. Four of these securitizations, including Waterfall Victoria Mortgage Trust 2011-1 (“SBC-1”), Waterfall Victoria Mortgage Trust 2011-3 (“SBC-3”), Sutherland

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Commercial Mortgage Trust 2015-4 (“SBC-4”), Sutherland Commercial Mortgage Trust 2017 (“SBC-6”), and Sutherland Commercial Mortgage Trust 2018 (“SBC-7”) are trusts, whose debt is collateralized by non-performing and re-performing acquired SBC loans and a fifth securitization Waterfall Victoria Mortgage Trust 2011-2 (“SBC-2”) is a real estate mortgage investment conduit (“REMIC”) whose debt is collateralized by performing acquired SBC loans. We have completed four securitizations of newly originated SBC loans, each a REMIC, including ReadyCap Commercial Mortgage Trust 2014-1 (“RCMT 2014-1”), ReadyCap Commercial Mortgage Trust 2015-2 (“RCMT 2015-2”), ReadyCap Commercial Mortgage Trust 2016-3 (“RCMT 2016-3”), and ReadyCap Commercial Mortgage Trust 2018-4 (“RCMT 2018-4”). We also completed Ready Capital Mortgage Financing 2017 (“RCMF 2017-FL1”) and Ready Capital Mortgage Financing 2018 – FL2 (“RCMF 2018-FL2”), securitizations whose debt is collateralized by originated transitional loans, and ReadyCap Lending Small Business Trust 2015-1 (“RCLSBL 2015-1”), a securitization collateralized by SBA Section 7(a) Program loans.

In addition, we completed several securitizations of newly originated multi-family Freddie Mac loans, including Freddie Mac Small Balance Mortgage Trust 2016-SB11 (“FRESB 2016-SB11”), Freddie Mac Small Balance Mortgage Trust 2016-SB18 (“FRESB 2016-SB18”), Freddie Mac Small Balance Mortgage Trust 2017-SB33 (“FRESB 2017-SB33”), Freddie Mac Small Balance Mortgage Trust 2018-SB45 (“FRESB 2018-SB45”), Freddie Mac Small Balance Mortgage Trust 2018-SB52 (“FRESB 2018-SB52”) and Freddie Mac Small Balance Mortgage Trust 2018-SB56 (“FRESB 2018-SB56”).

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.

The following table presents information on the securitization structures and related issued tranches of notes to investors:

Deal Name	Asset Class	Issuance	Ratings		Bonds Issued (in $ millions)
WVMT 2011-SBC1	SBC Acquired loans	February 2011	NR	$	40.5
WVMT 2011-SBC2	SBC Acquired loans	March 2011	DBRS		97.6
WVMT 2011-SBC3	SBC Acquired loans	October 2011	NR		143.4
RCMT 2014-1	SBC Originated Conventional	September 2014	MDY / DBRS		181.7
RCLSBL 2015-1	Acquired SBA 7(a) loans	June 2015	S&P		189.5
SCML 2015-SBC4	SBC Acquired loans	August 2015	NR		125.4
RCMT 2015-2	SBC Originated Conventional	November 2015	MDY / Kroll		218.8
FRESB 2016-SB11	Originated Agency Multi-family	January 2016	GSE Wrap		110.0
FRESB 2016-SB18	Originated Agency Multi-family	July 2016	GSE Wrap		118.0
RCMT 2016-3	SBC Originated Conventional	November 2016	MDY / Kroll		162.1
FRESB 2017-SB33	Originated Agency Multi-family	June 2017	GSE Wrap		197.9
RCMF 2017-FL1	SBC Originated Transitional	August 2017	MDY / Kroll		198.8
SCMT 2017-SBC6	SBC Acquired loans	August 2017	NR		139.4
FRESB 2018-SB45	Originated Agency Multi-family	January 2018	GSE Wrap		362.0
RCMT 2018-4	SBC Originated Conventional	March 2018	MDY / DBRS		165.0
RCMF 2018-FL2	SBC Originated Transitional	June 2018	MDY / Kroll		217.1
FRESB 2018-SB52	Originated Agency Multi-family	September 2018	GSE Wrap		505.0
SCMT 2018-SBC7	SBC Acquired Loans	November 2018	DBRS		217.0
FRESB 2018-SB56	Originated Agency Multi-family	December 2018	GSE Wrap		507.3
Cumulative loan securitizations (inception to date)				$	3,896.5

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 SBC-1, SBC-2, SBC-3, RCMT 2014-1, RCMT 2015-2, RCMT 2016-3, RCMT 2018-4, RCMF 2017-FL1, RCMF 2018-FL2, RCLSBL 2015-1, SBC-4, SBC-6, and SBC-7, therefore they are consolidated in our financial statements.

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Deutsche Bank Loan Repurchase Facility

Our subsidiaries, ReadyCap Commercial, Sutherland Asset I, and Sutherland Warehouse Trust II renewed their master repurchase agreement on February 14, 2018, pursuant to which ReadyCap Commercial, Sutherland Asset I and Sutherland Warehouse Trust II may be advanced an aggregate principal amount of up to $300 million on originated mortgage loans (the “DB Loan Repurchase Facility”). As of December 31, 2018, we had $240.0 million outstanding under the DB Loan Repurchase Facility. The DB Loan Repurchase Facility is used to finance SBC loans, and the interest rate is LIBOR plus a spread, which varies depending on the type and age of the loan. The DB Loan Repurchase Facility has been extended through February 2020 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, and Sutherland Warehouse Trust II’s obligations are fully guaranteed by us.

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, 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, which include (i) an adjusted tangible net worth that does not decline by more than 25% in a quarter, 35% in a year or 50% from the highest adjusted tangible net worth, (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, (iii) a debt-to-assets ratio no greater than 80% and (iv) a tangible net worth at least equal to the sum of (a) the product of 1/9 and the amount of all non-recourse indebtedness (excluding the aggregate repurchase price) and other securitization indebtedness and (b) the product of 1/3 and the sum of the aggregate repurchase price and all recourse indebtedness.

JPMorgan Loan Repurchase Facility

Our subsidiaries, ReadyCap Warehouse Financing LLC (“ReadyCap Warehouse Financing”) and Sutherland Warehouse Trust entered into 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 $200 million. Our subsidiaries renewed their master repurchase agreement with JPMorgan on December 8, 2017 (the “JPM Loan Repurchase Facility”). As of December 31, 2018, we had $96.3 million outstanding under the JPM Loan Repurchase Facility. 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 December 10, 2020, and ReadyCap Warehouse Financing’s and Sutherland Warehouse Trust’s obligations are fully guaranteed by us.

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) 60% of total stockholders equity as of the closing date of the facility plus (b) 50% of the net proceeds of any equity issuance after the closing date (ii) maximum leverage of 3:1 and (iii) liquidity equal to at least the lesser of (a) 4% of the sum of (without duplication) (1) any outstanding indebtedness plus (2) amounts due under the repurchase agreement and (b) $15,000,000.

Citibank Loan Repurchase Agreement

Our subsidiaries, Waterfall Commercial Depositor,  Sutherland Asset I, and ReadyCap Commercial, LLC renewed a master repurchase agreement in June 2018 with Citibank, N.A. (the "Citi Loan Repurchase Facility" and, together with the DB Loan Repurchase Facility and the JPM Loan Repurchase Facility, the "Loan Repurchase Facilities"), pursuant to which Waterfall Commercial Depositor and Sutherland Asset I may sell, and later repurchase, a trust certificate (the “Trust

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Certificate”), representing interests in mortgage loans in an aggregate principal amount of up to $500 million. As of December 31, 2018, we had $194.1 million outstanding under the Citi Loan Repurchase Facility. The Citi Loan Repurchase Facility is used to finance SBC loans, and the interest rate is one month LIBOR plus 2.125 to 2.50% per annum, depending on asset vintage. The Citi Loan Repurchase Facility is committed for a period of 364 days, and Waterfall Commercial Depositor’s,  Sutherland Asset I’s, and ReadyCap Commercial, LLC’s obligations are fully guaranteed by us.

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, and ReadyCap Commercial, LLC  are also 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 also includes financial maintenance covenants, which include (i) our operating partnership’s net asset value not (A) declining more than 15% in any calendar 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; 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.

Securities Repurchase Agreements

As of December 31, 2018,  we had $863.8 million of secured borrowings related to SBC ABS and pledged Trust Certificates, respectively, with two counterparties (lenders).

General Statements Regarding Loan and Security Repurchase Facilities

At December 31, 2018, we had $751.3 million in fair value of Trust Certificates and loans pledged against our borrowings under the Loan Repurchase Facilities and $112.6 million in fair value of SBC ABS and short term investments 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. Further, at December 31, 2018, the average haircut provisions associated with our repurchase agreements was 33.0% for pledged Trust Certificates and loans and was 26.0% and 30.9% for pledged SBC ABS and short-term investments, respectively.

If the estimated fair value of the assets increases due to changes in market interest rates or 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 is 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

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maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction, and cross default and setoff provisions.

JPMorgan Credit Facility

We renewed our master loan and security agreement with JPMorgan in June 2018 providing for a credit facility of up to $175 million. As of December 31, 2018, we had $68.0 million outstanding under this credit facility. The credit facility is structured as a secured loan facility in which ReadyCap Lending and Sutherland 2016‑1 JPM Grantor Trust act as borrowers. Under this facility, ReadyCap 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 which were part of the CIT loan acquisition. 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 closing date of the facility plus (b) 50% of the net proceeds of any equity issuance after the closing date (ii) maximum leverage of 3:1 and (iii) liquidity equal to at least the lesser of (a) 4% of the sum of (without duplication) (1) any outstanding indebtedness plus (2) amounts due under the repurchase agreement and (b) $25,000,000. The amended terms have an interest rate based on loan type ranging from one month LIBOR (reset daily), plus 2.50% per annum. The term of the facility is one year, with an option to extend for an additional year.

At December 31, 2018, we had a leverage ratio of 2.1x on a recourse debt-to-equity basis.

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. At December 31, 2018, we were in compliance with all debt covenants.

East West Bank Credit Facility

Our subsidiary, ReadyCap Lending, LLC entered into a senior secured revolving credit facility with East West Bank on July 13, 2018, which provides financing of up to $30.0 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 0.029% on unguaranteed loans.

Other credit facilities

GMFS funds its origination platform through warehouse lines of credit with three counterparties with total borrowings outstanding of $69.0 million at December 31, 2018. GMFS utilizes a $125 million committed warehouse line of credit agreement which expires on March 11, 2019, a $40 million committed warehouse line of credit expiring in August 2019, and a $40 million committed warehouse line of credit expiring in July 2019. The lines are collateralized by the underlying mortgages and 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. We were in compliance with all significant debt covenants as of and for the twelve months ended December 31, 2018.

ReadyCap Holdings’ 7.50% Senior Secured Notes due 2022

During 2017, ReadyCap Holdings LLC, 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 and issue price) to the notes issued during 2017 (collectively “the Senior Secured Notes”). The additional $40.0 million in Senior Secured Notes were priced with a yield to par call date of 6.5%. Payments of the amounts due on the Senior Secured Notes are fully and

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unconditionally guaranteed by the Company and its subsidiaries: Sutherland Partners LP, Sutherland Asset I, LLC, and RCC. The funds were used to fund new SBC and SBA loan originations and new SBC loan acquisitions.

The Senior Secured Notes bear interest at 7.50% per annum payable semiannually on each February 15 and August 15, beginning on August 15, 2017. The Senior Secured Notes will mature on February 15, 2022, unless redeemed or repurchased prior to such date. ReadyCap Holdings may redeem the 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 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 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 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) 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 Senior Secured Notes and our Company's consolidated unencumbered assets to aggregate principal amount of the outstanding 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's Holdings ability to create or incur any lien on the collateral and (2) unless the Senior Secured Notes are equally and ratably secured, (a) ReadyCap's Holdings ability to create or incur any lien on the capital stock of its wholly-owned subsidiary, ReadyCap Lending and (b) ReadyCap's 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 Holding's 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 Senior Secured Notes outstanding as of the last day of each of our Company's fiscal quarters.

As of December 31, 2018, we were in compliance with all covenants with respect to the Senior Secured Notes.

Convertible Notes

On August 9, 2017, the Company closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023. The Convertible Notes will mature on August 15, 2023, unless earlier repurchased, redeemed or converted. During certain periods and subject to certain conditions, the notes will be convertible by holders into shares of the Company's common stock at an initial conversion rate of 1.4997 shares of common stock per $25 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $16.67 per share of common stock. Upon conversion, holders will receive, at the Company's discretion, cash, shares of the Company's common stock or a combination thereof.

The Company may, upon the satisfaction of certain conditions, redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, 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 the Company 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.

As of December 31, 2018, we were in compliance with all covenants with respect to the Convertible notes.

Corporate Debt

On April 27, 2018, the Company completed the public offer and sale of $50,000,000 aggregate principal amount of its 6.50% Senior Notes due 2021 (“Corporate debt” or the “Notes”). The Company issued the Notes under a base indenture,

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dated August 9, 2017, as supplemented by the second supplemental indenture, dated as of April 27, 2018, between the Company and U.S. Bank National Association, as trustee. The Notes bear 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, beginning on July 30, 2018. The Notes will mature on April 30, 2021, unless earlier redeemed or repurchased.

Prior to April 30, 2019, the Notes will not be redeemable by the Company. The Company may redeem for cash all or any portion of the Notes, at its option, on or after April 30, 2019 and before April 30, 2020 at a redemption price equal to 101% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. On or after April 30, 2020, the Company may redeem for cash all or any portion of the Notes, at its option, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a change of control repurchase event, holders may require it to purchase the Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 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 Indenture.

The Notes are the Company’s senior direct 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 Notes rank equal in right of payment to any of the Company’s existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its 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 the Company) preferred stock, if any, of its subsidiaries.

As of December 31, 2018, we were in compliance with all covenants with respect to the Corporate Debt.

Contractual Obligations

The following table provides a summary of our contractual obligations as of December 31, 2018:

(in thousands)	Total		<  1 year		1 to 3 years		3 to 5 years		>  5 years
Borrowings under credit facilities	$	199,315	$	187,842	$	2,973	$	8,500	$	—
Borrowings under repurchase agreements		635,232		298,917		336,315		—		—
Guaranteed loan financing		229,678		864		4,108		7,994		216,712
Senior secured notes		180,000		—		—		180,000		—
Convertible notes		115,000		—		—		115,000		—
Corporate debt		50,000		—		50,000		—		—
Future operating lease commitments		2,550		1,267		1,125		158		—
Total	$	1,411,775	$	488,890	$	394,521	$	311,652	$	216,712

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.

Off-Balance Sheet Arrangements

As of the date of this annual report on Form 10-K, we had no off-balance sheet arrangements.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, we enter into transactions in various financial instruments that expose us to various types of risk, both on and off balance sheet, which are associated with such financial instruments and markets for which we invest. These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off balance sheet risk and prepayment risk.

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Market Risk

Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments. We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest bearing securities and equity securities.

Credit Risk

We are subject to credit risk in connection with our investments in SBC loans and SBC ABS and other target assets we may acquire in the future. The credit risk related to these investments pertains to the ability and willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed throughout the loan or security term. We believe that loan credit quality is primarily determined by the borrowers’ credit profiles and loan characteristics. We seek to mitigate this 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.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, subject to a floor, as determined by the particular financing arrangement. The general impact of changing interest rates are discussed above under “— Factors Impacting Operating Results —  Changes in Market Interest Rates.” In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects. Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and interest-bearing liabilities.

Additionally, non-performing SBC 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 SBC 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 SBC financing.

The following table projects the impact on our interest income and expense for the twelve month period following December 31, 2018, assuming an immediate increase or decrease of 25, 50, 75 and 100 basis points in LIBOR:

		12-month pretax net interest income sensitivity profiles
		Instantaneous change in rates
(in thousands)		25 basis point increase		50 basis point increase		75 basis point increase		100 basis point increase		25 basis point decrease		50 basis point decrease		75 basis point decrease		100 basis point decrease
Assets:
Loans held for investment	$	2,068	$	4,335	$	6,467	$	8,398	$	(2,124)	$	(4,061)	$	(5,697)	$	(7,185)
Interest rate swap hedges		953		1,907		2,860		3,813		(953)		(1,907)		(2,860)		(3,813)
Total	$	3,021	$	6,242	$	9,327	$	12,212	$	(3,077)	$	(5,967)	$	(8,557)	$	(10,999)
Liabilities

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Recourse debt	$	(1,566)	$	(3,131)	$	(4,697)	$	(6,263)	$	1,513	$	3,010	$	4,507	$	6,004
Non-recourse debt		(886)		(1,773)		(2,659)		(3,546)		886		1,773		2,659		3,546
Total	$	(2,452)	$	(4,904)	$	(7,356)	$	(9,809)	$	2,399	$	4,783	$	7,166	$	9,550
Total Net Impact to Net Interest Income (Expense)	$	569	$	1,338	$	1,970	$	2,403	$	(678)	$	(1,185)	$	(1,390)	$	(1,449)

      Such hypothetical impact of interest rates on our variable rate debt does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment. Further, in the event of such a change in interest rates, we may take actions to further mitigate our exposure to such a change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.

Liquidity Risk

Liquidity risk arises in our investments and the general financing of our investing activities. It includes the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate positions in a timely manner at a reasonable price, in addition to potential increases in collateral requirements during times of heightened market volatility. If we were forced to dispose of an illiquid investment at an inopportune time, we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in SBC loans, ABS and other financial instruments. Factors such as our expected exit strategy for, the bid to offer spread of, and the number of broker dealers making an active market in a particular strategy and the availability of long-term funding, are considered in analyzing liquidity risk. To reduce any perceived disparity between the liquidity and the terms of the debt instruments in which we invest, we attempt to minimize our reliance on short-term financing arrangements. While we may finance certain investment in security positions using traditional margin arrangements and reverse repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer-term financing vehicles may be utilized to attempt to provide us with sources of long-term financing.

Prepayment Risk

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

SBC Loan and ABS Extension Risk

Our Manager computes the projected weighted‑average life of our assets based on assumptions regarding the rate at which the borrowers will prepay the mortgages or extend. If prepayment rates decrease in a rising interest rate environment or extension options are exercised, the life of the fixed‑rate assets could extend beyond the term of the secured debt agreements. This could have a negative impact on our results of operations. In some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

Real Estate Risk

The market values of commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

Fair Value Risk

The estimated fair value of our investments fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of the fixed‑rate investments would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of the fixed‑rate investments

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would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our assets recorded and/or disclosed may be adversely impacted. Our economic exposure is generally limited to our net investment position as we seek to fund fixed rate investments with fixed rate financing or variable rate financing hedged with interest rate swaps.

Counterparty Risk

We finance the acquisition of a significant portion of our commercial and residential mortgage loans, MBS and other assets with our repurchase agreements and credit facilities. In connection with these financing arrangements, we pledge our mortgage loans and securities as collateral to secure the borrowings. The amount of collateral pledged will typically exceed the amount of the borrowings (i.e. the haircut) such that the borrowings will be over-collateralized. As a result, we are exposed to the counterparty if, during the term of the financing, a lender should default on its obligation and we are not able to recover our pledged assets. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral.

We are exposed to changing interest rates and market conditions, which affects cash flows associated with borrowings. We enter into derivative instruments, such as interest rate swaps and credit default swaps (“CDS”), to mitigate these risks. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for us making payments based on a fixed interest rate over the life of the swap contract. CDSs are executed in order to mitigate the risk of deterioration in the current credit health of the commercial mortgage market.

Certain of our subsidiaries have entered into over-the-counter interest rate swap agreements to hedge risks associated with movements in interest rates. Because certain interest rate swaps were not cleared through a central counterparty, we remain exposed to the counterparty's ability to perform its obligations under each such swap and cannot look to the creditworthiness of a central counterparty for performance. As a result, if an over-the-counter swap counterparty cannot perform under the terms of an interest rate swap, our subsidiary would not receive payments due under that agreement, we may lose any unrealized gain associated with the interest rate swap and the hedged liability would cease to be hedged by the interest rate swap. While we would seek to terminate the relevant over-the-counter swap transaction and may have a claim against the defaulting counterparty for any losses, including unrealized gains, there is no assurance that we would be able to recover such amounts or to replace the relevant swap on economically viable terms or at all. In such case, we could be forced to cover our unhedged liabilities at the then current market price. We may also be at risk for any collateral we have pledged to secure our obligations under the over-the-counter interest rate swap if the counterparty becomes insolvent or files for bankruptcy. Therefore, upon a default by an interest rate swap agreement counterparty, the interest rate swap would no longer mitigate the impact of changes in interest rates as intended.

The following table summarizes the Company’s exposure to its repurchase agreements and credit facilities counterparties at December 31, 2018:

(in thousands)	Borrowings under repurchase agreements and credit facilities (1)	Assets pledged on borrowings under repurchase agreements and credit facilities	Net Exposure (2)	Exposure as a Percentage of Total Assets
Total Counterparty Exposure	$ 834,547	$ 1,112,522	$ 277,975	9.2	%
(1) The exposure reflects the difference between (a) the amount loaned to the Company through repurchase agreements and credit facilities, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such assets

The following table presents information with respect to any counterparty for repurchase agreements for which our Company had greater than 5% of stockholders’ equity at risk in the aggregate at December 31, 2018:

(in thousands)	Counterparty Rating (1)	Amount of Risk (2)	Weighted Average Months to Maturity for Agreement	Percentage of Stockholders’ Equity
Deutsche Bank AG	BBB+ / A3	$ 70,825	12	17.9	%
JPMorgan Chase Bank, N.A.	A- / A2	$ 62,994	11	11.2	%
Citibank, N.A.	A+/Aa3	$ 36,023	3	6.4	%
(1) The counterparty rating presented is the long-term issuer credit rating as rated at December 31, 2018 by S&P and Moody’s, respectively.

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(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through repurchase agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such securities

Capital Market Risk

We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other financing arrangements. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise.

Off Balance Sheet Risk

Off balance sheet risk refers to situations where the maximum potential loss resulting from changes in the level or volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of the reported amounts of such assets and liabilities currently reflected in the accompanying consolidated balance sheets.

Inflation Risk

Most of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. Changes in interest rates may correlate with inflation rates and/or changes in inflation rates. Our consolidated financial statements are prepared in accordance with U.S. GAAP and our distributions are determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair value without considering inflation.

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Item 8.  Financial Statements and Supplementary Data.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Ready Capital Corporation:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ready Capital Corporation and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 13, 2019

We have served as the Company's auditor since 2012.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Stockholders and the Board of Directors of Ready Capital Corporation:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Ready Capital Corporation and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated March 13, 2019 expressed an unqualified opinion on those financial statements.

Basis for Opinion 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 13, 2019

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
CONSOLIDATED BALANCE SHEETS	113
CONSOLIDATED STATEMENTS OF INCOME	114
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY	116
CONSOLIDATED STATEMENTS OF CASH FLOWS	117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	118
SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE	176

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READY CAPITAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In Thousands)	December 31, 2018		December 31, 2017
Assets
Cash and cash equivalents	$	54,406	$	63,425
Restricted cash		28,921		11,666
Loans, net (including $22,664 and $188,150 held at fair value)		1,193,392		1,017,920
Loans, held for sale, at fair value		115,258		216,022
Mortgage backed securities, at fair value		91,937		39,922
Loans eligible for repurchase from Ginnie Mae		74,180		95,158
Investment in unconsolidated joint venture		33,438		55,369
Derivative instruments		2,070		4,725
Servicing rights (including $93,065 and $72,295 held at fair value)		120,062		94,038
Receivable from third parties		8,888		6,756
Other assets		63,234		56,840
Assets of consolidated VIEs		1,251,057		861,662
Total Assets	$	3,036,843	$	2,523,503
Liabilities
Secured borrowings		834,547		637,393
Securitized debt obligations of consolidated VIEs, net		905,367		598,148
Convertible notes, net		109,979		108,991
Senior secured notes, net		178,870		138,078
Corporate debt, net		48,457		—
Guaranteed loan financing		229,678		293,045
Contingent consideration		1,207		10,016
Liabilities for loans eligible for repurchase from Ginnie Mae		74,180		95,158
Derivative instruments		3,625		282
Dividends payable		13,346		12,289
Accounts payable and other accrued liabilities		73,512		74,636
Total Liabilities	$	2,472,768	$	1,968,036
Stockholders’ Equity
Common stock, $0.0001 par value, 500,000,000 shares authorized, 32,105,112 and 31,996,440 shares issued and outstanding, respectively		3		3
Additional paid-in capital		540,478		539,455
Retained earnings (deficit)		5,272		(3,385)
Accumulated other comprehensive income/ (loss)		(922)		—
Total Ready Capital Corporation equity		544,831		536,073
Non-controlling interests		19,244		19,394
Total Stockholders’ Equity	$	564,075	$	555,467
Total Liabilities and Stockholders’ Equity	$	3,036,843	$	2,523,503

See Notes To Consolidated Financial Statements

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READY CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	For the Year Ended December 31,
(In Thousands, except share data)	2018		2017		2016
Interest income	$	169,499	$	138,305	$	137,023
Interest expense		(109,238)		(74,646)		(57,772)
Net interest income before provision for loan losses	$	60,261	$	63,659	$	79,251
Provision for loan losses		(1,701)		(2,363)		(7,819)
Net interest income after provision for loan losses	$	58,560	$	61,296	$	71,432
Non-interest income
Residential mortgage banking activities	$	59,852	$	83,437	$	7,630
Net realized gain on financial instruments		38,409		19,329		6,914
Net unrealized gain on financial instruments		4,853		7,000		17,937
Other income		5,586		7,410		9,161
Servicing income, net of amortization and impairment of $5,509,  $6,020 and $7,732		27,075		22,994		8,658
Income on unconsolidated joint venture		12,148		1,048		—
Gain on bargain purchase		—		—		15,218
Total non-interest income	$	147,923	$	141,218	$	65,518
Non-interest expense
Employee compensation and benefits	$	(56,602)	$	(55,039)	$	(24,827)
Allocated employee compensation and benefits from related party		(4,200)		(3,843)		(3,668)
Variable expenses on residential mortgage banking activities		(22,228)		(41,737)		(597)
Professional fees		(6,999)		(8,921)		(13,420)
Management fees – related party		(8,176)		(8,059)		(7,432)
Incentive fees – related party		(1,143)		—		—
Loan servicing expense		(15,545)		(10,323)		(4,611)
Other operating expenses		(28,747)		(26,939)		(17,180)
Total non-interest expense	$	(143,640)	$	(154,861)	$	(71,735)
Income from continuing operations before provision for income taxes	$	62,843	$	47,653	$	65,215
Provision for income taxes		(1,386)		(1,839)		(9,651)
Net income from continuing operations	$	61,457	$	45,814	$	55,564
Discontinued operations
Loss from discontinued operations (including loss on disposal of $2,695 in 2016)	$	—	$	—	$	(3,538)
Income tax benefit		—		—		1,380
Loss from discontinued operations	$	—	$	—	$	(2,158)
Net income	$	61,457	$	45,814	$	53,406
Less: Net income attributable to non-controlling interest		2,199		2,524		4,237
Net income attributable to Ready Capital Corporation	$	59,258	$	43,290	$	49,169
Earnings (loss) per basic common share
Continuing operations	$	1.84	$	1.38	$	1.93
Discontinued operations	$	—	$	—	$	(0.08)
Earnings per common share - basic	$	1.84	$	1.38	$	1.85
Earnings (loss) per diluted common share
Continuing operations	$	1.84	$	1.38	$	1.93
Discontinued operations	$	—	$	—	$	(0.08)
Earnings per common share - diluted	$	1.84	$	1.38	$	1.85
Weighted-average shares outstanding
Basic		32,085,975		31,350,102		26,647,981
Diluted		32,102,184		31,351,611		26,647,981
Dividends declared per share of common stock	$	1.57	$	1.48	$	1.61

See Notes To Consolidated Financial Statements

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READY CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)	2018		2017		2016
Net Income	$	61,457	$	45,814	$	53,406
Other comprehensive income (loss) - net change by component
Net change in hedging derivatives (cash flow hedges)	$	(954)	$	—	$	—
Other comprehensive income (loss)	$	(954)	$	—	$	—
Comprehensive income (loss)	$	60,503	$	45,814	$	53,406
Less: Comprehensive income attributable to non-controlling interests		(2,167)		(2,524)		(4,237)
Comprehensive income attributable to Ready Capital Corporation	$	58,336	$	43,290	$	49,169

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READY CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

									Retained			Accumulated Other	Total
	Common Stock			Preferred Stock			Additional Paid-		Earnings			Comprehensive	Ready Capital		Non-controlling
(In thousands, except share data)	Shares	Par Value		Shares	Par Value		In Capital		(Deficit)			Loss	Corporation equity		Interests		Total
Balance at January 1, 2016	25,739,847	$	2	125	$	125	$	447,093	$	(5,899)	$	—	$	441,321	$	38,892	$	480,213
Shares issued pursuant to reverse merger transaction	4,651,424		1	—		—		62,328		—		—		62,329		—		62,329
Shares redeemed pursuant to reverse merger transaction	(66)		—	—		—		(1)		—		—		(1)		—		(1)
Dividend declared on common stock ($1.61 per share)	—		—	—		—		—		(43,463)		—		(43,463)		—		(43,463)
Dividend reinvestment in common stock	103,440		—	—		—		1,806		—		—		1,806		—		1,806
Incentive shares issued	27,199		—	—		—		482		—		—		482		—		482
Conversion of OP units into common stock	27,240		—	—		—		458		—		—		458		(458)		—
Transfer of Additional Paid-In Capital	—		—	—		—		1,134		—		—		1,134		(1,134)		—
Dividend declared on preferred stock	—		—	—		—		—		(8)		—		(8)		—		(8)
Redemption of preferred stock	—		—	(125)		(125)		(5)		—		—		(130)		—		(130)
OP units issued pursuant to reverse merger transaction	—		—	—		—		—		—		—		—		816		816
Dividend declared on OP units	—		—	—		—		—		—		—		—		(3,707)		(3,707)
Dividend reinvestment in OP units	—		—	—		—		—		—		—		—		359		359
Net Income	—		—	—		—		—		49,169		—		49,169		4,237		53,406
Balance at December 31, 2016	30,549,084	$	3	—	$	—	$	513,295	$	(201)	$	—	$	513,097	$	39,005	$	552,102
Dividend declared on common stock ($1.48 per share)	—		—	—		—		—		(46,474)		—		(46,474)		—		(46,474)
Dividend declared on OP units	—		—	—		—		—		—		—		—		(2,570)		(2,570)
Shares issued in exchange of litigation settlement	275,862		—	—		—		4,000		—		—		4,000		—		4,000
Equity component of 2017 convertible note issuance	—		—	—		—		2,065		—		—		2,065		74		2,139
Offering costs allocated to Additional Paid-In Capital	—		—	—		—		(68)		—		—		(68)		(2)		(70)
Distributions, net	—		—	—		—		—		—		—		—		(56)		(56)
Stock-based compensation	—		—	—		—		582		—		—		582		—		582
Conversion of OP units into common stock	1,171,494		—	—		—		19,581		—		—		19,581		(19,581)		—
Net Income	—		—	—		—		—		43,290		—		43,290		2,524		45,814
Balance at December 31, 2017	31,996,440	$	3	—	$	—	$	539,455	$	(3,385)	$	—	$	536,073	$	19,394	$	555,467
Dividend declared on common stock ($1.57 per share)	—		—	—		—		—		(50,601)		—		(50,601)		—		(50,601)
Dividend declared on OP units	—		—	—		—		—		—		—		—		(1,766)		(1,766)
Equity issuances	5,000		—	—		—		86		—		—		86		—		86
Offering costs	—		—	—		—		(103)		—		—		(103)		—		(103)
Contributions, net	—		—	—		—		—		—		—		—		38		38
Equity component of 2017 convertible note issuance	—		—	—		—		(322)		—		—		(322)		(12)		(334)
Stock-based compensation	—		—	—		—		320		—		—		320		—		320
Vesting of stock-based compensation	48,617		—	—		—		127		—		—		127		—		127
Conversion of OP units into common stock	33,658		—	—		—		577		—		—		577		(577)		—
Manager incentive fee paid in stock	21,397		—	—		—		338		—		—		338		—		338
Net Income	—		—	—		—		—		59,258		—		59,258		2,199		61,457
Unrealized losses on cash flow hedges	—		—	—		—		—		—		(922)		(922)		(32)		(954)
Balance at December 31, 2018	32,105,112	$	3	—	$	—	$	540,478	$	5,272	$	(922)	$	544,831	$	19,244	$	564,075

See Notes To Consolidated Financial Statements

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READY CAPITAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the Year Ended December 31,
(In Thousands, except share information)	2018		2017		2016
Cash Flows From Operating Activities:
Net income	$	61,457	$	45,814	$	53,406
Less: Loss from discontinued operations		—		—		(2,158)
Net income from continuing operations		61,457		45,814		55,564
Adjustments to reconcile net income to net cash provided  (used in) operating activities:
Discount accretion and premium amortization of financial instruments, net		(9,505)		(7,553)		(17,978)
Amortization of guaranteed loan financing, deferred financing costs, and intangible assets		24,975		22,078		19,457
Provision for loan losses		1,701		2,363		7,819
Charge off of real estate acquired in settlement of loans		1,086		756		1,833
Decrease in repair and denial reserve		(163)		—		—
Purchase of short-term investments		—		(839,425)		(1,569,614)
Proceeds from sale or maturity of short-term investments		—		1,159,819		1,569,992
Net settlement of derivative instruments		4,272		(1,256)		(2,058)
Purchase of loans, held for sale, at fair value		(17,481)		(11,195)		—
Origination of loans, held for sale, at fair value		(2,407,492)		(2,508,153)		(621,343)
Proceeds from disposition and principal payments of loans, held for sale, at fair value		2,586,724		2,571,583		645,954
Income on unconsolidated joint venture		1,047		(1,048)		—
Gain on sale of mortgages held for sale included in Residential mortgage banking activities		(36,240)		(63,024)		(2,943)
Gain (loss) on derivatives included in Residential mortgage banking activities		834		2,699		(126)
Creation of servicing rights, net of payoffs		(15,075)		(14,919)		(3,157)
Gain on bargain purchase		—		—		(15,218)
Net realized gains on financial instruments		(38,409)		(19,329)		(6,914)
Net unrealized gains on financial instruments		(4,853)		(7,000)		(17,937)
Net changes in operating assets and liabilities
Assets of consolidated VIEs (excluding loans, net), accrued interest and due from servicers		(12,088)		24,319		(21,817)
Receivable from third parties		(2,132)		464		(2,328)
Other assets		1,448		(13,898)		(12,284)
Accounts payable and other accrued liabilities		191		9,394		9,580
Net cash provided by operating activities		140,297		352,489		16,482
Net cash (used in) provided by operating activities of discontinued operations		—		—		(1,719)
Cash Flow From Investing Activities:
Origination of loans		(934,607)		(454,975)		(315,339)
Purchase of loans		(369,418)		(147,327)		(98,683)
Purchase of mortgage backed securities, at fair value		(73,305)		(14,448)		(17,388)
Purchase of real estate		(1,570)		—		—
Funding of unconsolidated joint venture		—		(54,321)		—
Purchase of servicing rights		(362)		—		—
Proceeds on unconsolidated joint venture in excess of earnings recognized		20,884		—		—
Payment of liability under participation agreements, net of proceeds received		(555)		(1,100)		(2,318)
Proceeds from disposition and principal payment of loans		746,162		422,064		479,965
Proceeds from sale and principal payment of mortgage backed securities, at fair value		30,381		9,577		297,250
Proceeds from sale of real estate		1,631		4,802		6,633
Cash and restricted cash acquired in connection with the reverse merger with ZFC		—		—		39,454
Net cash (used in) provided by investing activities		(580,759)		(235,728)		389,574
Cash Flows From Financing Activities:
Proceeds from secured borrowings		3,603,933		4,555,957		4,469,816
Proceeds from issuance of securitized debt obligations of consolidated VIEs		607,837		338,043		150,367
Proceeds from senior secured note offering		41,328		141,917		—
Proceeds from convertible note issuance		—		115,000		—
Proceeds from corporate debt		50,000		—		—
Payment of contingent consideration		(8,967)		—		—
Payment of secured borrowings		(3,406,779)		(4,853,403)		(4,649,987)
Payment of securitized debt obligations of consolidated VIEs		(297,774)		(227,800)		(122,988)
Payment of guaranteed loan financing		(74,980)		(110,945)		(122,603)
Payment of senior exchangeable note		—		—		(57,500)
Payment of deferred financing costs		(18,831)		(16,885)		(1,456)
Payment of offering costs		—		(70)		—
Redemption of preferred stock		(103)		—		(130)
Contributions, net		45		(56)		—
Equity issuance		86		—		—
Dividend payments		(51,317)		(48,260)		(46,874)
Shares redeemed pursuant to reverse merger transaction		—		—		(1)
Net cash (used in) provided by financing activities		444,478		(106,502)		(381,356)
Net increase (decrease) in cash, cash equivalents, and restricted cash		4,016		10,259		22,981
Cash, cash equivalents, and restricted cash at beginning of period		90,954		80,695		57,714
Cash, cash equivalents, and restricted cash at end of period	$	94,970	$	90,954	$	80,695
Supplemental disclosure of operating cash flow
Cash paid for interest	$	95,946	$	62,106	$	54,686
Cash paid (received) for income taxes	$	898	$	3,773	$	6,161
Stock-based compensation	$	447	$	582	$	—
Supplemental disclosure of non-cash investing activities
Loans transferred from Loans, held for sale, at fair value to Loans, net	$	644	$	366	$	482
Loans transferred from Loans, net to Loans, held for sale, at fair value	$	1,147	$	4,493	$	11,499
Supplemental disclosure of non-cash financing activities
Shares issued in exchange of litigation settlement	$	—	$	4,000	$	—
Dividend reinvestment in common stock		—		—		1,806
Dividend reinvestment in operating partnership units		—		—		359
Common stock issued in connection with the reverse merger with ZAIS Financial Corp		—		—		62,329
Incentive shares issued to investment manager pursuant to management agreement	$	338	$	—	$	482
Cash and restricted cash reconciliation
Cash and cash equivalents	$	54,406	$	63,425	$	59,566
Restricted cash		28,921		11,666		20,190
Cash, cash equivalents, and restricted cash in Assets of consolidated VIEs		11,643		15,863		939
Cash, cash equivalents, and restricted cash at end of period	$	94,970	$	90,954	$	80,695

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READY CAPITAL CORPORATION

NOTES TO the CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization

On September 26, 2018, Sutherland Asset Management Corporation filed Articles of Amendment to its charter (the “Articles of Amendment”) with the State Department of Assessments and Taxation of Maryland, to change its name to Ready Capital Corporation (the “Company” or “Ready Capital” and together with its subsidiaries “we”, “us” and “our”), a Maryland corporation. In connection with the name change, the Company’s trading symbol on the New York Stock Exchange changed from “SLD” to “RC” for shares of the Company’s common stock.

Sutherland Partners, LP (the “Operating Partnership”) holds substantially all of our assets and conducts substantially all of our business. As of December 31, 2018 and 2017, the Company owned approximately 96.6% and 96.5%, of the operating partnership units (“OP units”) of the Operating Partnership, respectively. The Company, as sole general partner of the Operating Partnership, has responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of the Operating Partnership, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Therefore, the Company consolidates the Operating Partnership.

The Company is a specialty-finance company which acquires, originates, manages, services and finances small to medium balance commercial (“SBC”) loans, Small Business Administration (“SBA”) loans, residential mortgage loans, and to a lesser extent, mortgage backed securities (“MBS”) collateralized primarily by SBC loans, or other real estate-related investments.

SBC loans represent a special category of commercial loans, sharing both commercial and residential loan characteristics. SBC loans are generally secured by first mortgages on commercial properties, but because SBC loans are also often accompanied by collateralization of personal assets and subordinate lien positions, aspects of residential mortgage credit analysis are utilized in the underwriting process.

The Company reports its results of operations through the following four business segments: i) Loan Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking, with the remaining amounts recorded in Corporate-Other. Our acquisition and origination platforms consist of the following four operating segments:

· Loan Acquisitions.  We acquire performing and non-performing SBC loans as part of our business strategy. We hold performing SBC loans to term, and we 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 (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns.

· SBC Originations. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial, LLC (“RCC”). Additionally, as part of this segment, we originate and service multi-family loan products under the Federal Home Loan Mortgage Corporation (“Freddie Mac” and the “Freddie Mac program”). Originated stabilized and transitional loans are generally held-for-investment or placed into securitization structures, while originated Freddie Mac loans are held-for-sale and sold to Freddie Mac.

· SBA Originations, Acquisitions, and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the SBA under its Section 7(a) loan program (the “SBA Section 7(a) Program”) through our wholly-owned subsidiary, ReadyCap Lending (“RCL”). We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA. We will generally hold 25% of the originated loan as held-for-investment, while the 75% portion of the loan is held-for-sale.

· Residential Mortgage Banking. In connection with our merger with ZAIS Financial on October 31, 2016, we added a residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS, LLC ("GMFS"). GMFS originates residential mortgage loans eligible to be purchased, guaranteed or insured by the

118

Federal National Mortgage Association (“Fannie Mae”), Freddie Mac, Federal Housing Administration (“FHA”), U.S. Department of Agriculture (“USDA”) and U.S. Department of Veterans Affairs (“VA”) through retail, correspondent and broker channels. These originated loans are then sold to third parties.

On November 7, 2018, the Company entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Owens Realty Mortgage, Inc. (“ORM”), a specialty finance company that focuses on the origination, investment, and management of commercial real estate loans, primarily in the Western U.S. Pursuant to the Merger Agreement, the Company will acquire ORM in a stock-for-stock transaction, whereby each outstanding share of ORM common stock will be converted into the right to receive 1.441 shares of Company common stock, based on a fixed exchange ratio. The estimated total consideration transferred of $182.6 million, represents the current value of the Company’s common stock, adjusted for the exchange ratio, based on a November 7, 2018 closing price. Upon the closing of the transaction, which is conditioned on shareholder approval, Ready Capital stockholders will own approximately 72.4% of the combined company’s stock, while Owens Realty Mortgage stockholders will own approximately 27.6%  of the combined company’s stock. The transaction is expected to close during the first quarter of 2019 and is subject to regulatory approvals and customary closing conditions. The stockholder base resulting from the acquisition of ORM is expected to enhance the trading volume and liquidity for our stockholders.

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with its first taxable year ended December 31, 2011. To maintain its tax status as a REIT, the Company distributes at least 90% of its taxable income in the form of distributions to shareholders.

Note 2 – Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”)—as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the U.S. Securities and Exchange Commission.

Note 3 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Consolidation

The accompanying consolidated financial statements of the Company include the accounts and results of operations of the Operating Partnership and other consolidated subsidiaries and VIEs in which we are the primary beneficiary. The consolidated financial statements are prepared in accordance with ASC 810, Consolidations. Intercompany accounts and transactions have been eliminated.

Reclassifications

Certain amounts reported for the prior periods in the accompanying consolidated financial statements have been reclassified in order to conform to the current period’s presentation.

As described in Note 4, the impact of the retrospective adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash, resulted in revisions to prior period numbers to conform with the updated accounting standard and our current period’s presentation.

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As described in further below, effective during the fourth quarter of 2018, the Company revised its presentation of residential mortgage banking activities and variable expenses on residential mortgage banking activities within our Consolidated Statements of Income and Note 9, which no longer presents these amounts as a net amount. Prior period numbers were revised to conform to the new presentation and to be consistent with our current period’s presentation.

As described in Note 25, effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. These organizational changes resulted in securitization activities on originated SBC and SBA loans being transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on the loan type. These organizational changes also resulted in the Company presenting Corporate- Other amounts separately and no longer reflecting these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

Cash and Cash Equivalents

The Company has accounted for cash and cash equivalents in accordance with ASC 305, Cash and Cash Equivalents.The Company defines cash and cash equivalents as cash, demand deposits, and short-term, highly liquid investments with original maturities of 90 days or less when purchased. Cash and cash equivalents are exposed to concentrations of credit risk. We deposit our cash with institutions that we believe to have highly valuable and defensible business franchises, strong financial fundamentals, and predictable and stable operating environments.

As of December 31, 2018 and 2017, the Company had $0.6 million and $0.6 million, respectively, in money market mutual funds, and substantially all of the Company’s cash and cash equivalents not held in money market funds were comprised of cash balances with banks that are in excess of the Federal Deposit Insurance Corporation insurance limits.

Restricted Cash

Restricted cash represents cash held by the Company as collateral against its derivatives, borrowings under repurchase agreements, borrowings under credit facilities with counterparties, construction and mortgage escrows, as well as cash held for remittance on loans serviced for third parties. Restricted cash is not available for general corporate purposes, but may be applied against amounts due to counterparties under existing swaps and repurchase agreement borrowings, or returned to the Company when the restriction requirements no longer exist or at the maturity of the swap or repurchase agreement.

Short term investments

The Company accounts for short-term investments as trading securities under ASC 320, Investments-Debt and Equity Securities. Short-term investments consist of U.S. Treasury Bills with original maturities of less than a year but greater than three months. The Company holds short-term investments at fair value. Interest received and accrued as well as the accretion of purchase discount in connection with short-term investments is recorded as interest income on the consolidated statements of income. Changes in the fair value of short-term investments are recorded as net unrealized gain (loss) on the consolidated statements of income.

Loans, net

Loans, net consists of loans, held-for-investment, net of allowance for loan losses, and loans, held at fair value.

Loans, held-for-investment

Loans, held-for-investment are loans acquired from third parties (“acquired loans”), loans originated by ReadyCap that we do not intend to sell, or securitized loans that were previously originated by ReadyCap. Securitized loans remain on the Company’s balance sheet because the securitization vehicles are consolidated under ASC 810.

Acquired loans are recorded at cost at the time they are acquired. Acquired loans are accounted for in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) and referred to as “purchased credit impaired loans” (PCI loans) if both of the following conditions are met as of the acquisition

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date: (i) there is evidence of deterioration in credit quality of the loan since its origination and (ii) it is probable that we will not collect all contractual cash flows on the loan.

Acquired loans without evidence of these conditions, securitized loans, and loans originated by ReadyCap that we do not intend to sell are accounted for under ASC 310-10, Receivables-Overall, (“ASC 310-10”) and are referred to as “Non-purchased credit impaired loans” (non-PCI loans).

Purchased Credit Impaired (PCI) Loans

The estimated cash flow expected for each loan is estimated at the time the loan is acquired. The excess of the cash flows expected to be collected on PCI loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected is referred to as the non-accretable difference and is not accreted over time.

The Company estimates expected cash flows to be collected over the life of individual PCI loans on a quarterly basis. If the Company determines that discounted expected cash flows have decreased, the PCI loans would be considered impaired, which would result in a provision for loan loss and a corresponding increase in the allowance for loan losses.

If discounted expected cash flows have increased, or improved, in subsequent evaluations, the increase in cash flows is first used to reverse the amount of any related allowance for loan losses before the yield is adjusted. Additionally, the Company will increase the accretable yield to account for the increase in expected cash flows.

The estimate of the amount and timing of cash flows for our PCI loans is based on historical information available and expected future performance of the loans, and may include the timing of expected future cash flows, prepayment speed, default rates, loss severities, delinquency rates, percentage of non-performing loans, extent of credit support available, Fair Isaac Corporation scores at loan origination, year of origination, loan-to-value ratios, geographic concentrations, as well as reports by credit rating agencies, such as Moody’s, Standard & Poor’s Corporation, or Fitch, general market assessments and dialogue with market participants. As a result, substantial judgment is used in the analysis to determine the expected cash flows.

Non-PCI Loans

The Company uses the interest method to recognize, as a constant effective yield adjustment, the difference between the initial recorded investment in the loan and the principal amount of the loan. The calculation of the constant effective yield necessary to apply the interest method uses the payment terms required by the loan contract, and prepayments of principal are not anticipated to shorten the loan term.

For non-PCI loans, recognition of interest income is suspended when any loans are placed on non-accrual status. Generally, all classes of loans are placed on non-accrual status when principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Interest income accrued, but not collected, at the date loans are placed on non-accrual status is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.

Loans, held at fair value

Loans, held at fair value represent certain loans originated by ReadyCap for which the Company has elected the fair value option. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. Changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income.

Allowance for loan losses

The allowance for loan losses is intended to provide for credit losses inherent in the loans, held-for-investment portfolio and is reviewed quarterly for adequacy considering credit quality indicators, including probable and historical

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losses, collateral values, loan-to-value ratio and economic conditions. The allowance for loan losses is increased through provisions for loan losses charged to earnings and reduced by charge-offs, net of recoveries.

We determine the allowance for loan losses by measuring credit impairment on (1) an individual basis for non-accrual status loans, and (2) on a collective basis for all other loans with similar risk characteristics. The allowance for loan losses on an individual basis is assessed when a loan is on non-accrual and the recoverability of the loan is less than its carrying value. The Company considers the loans to be collateral dependent and relies on the current fair value of the collateral as the basis for determining impairment. Loans that are not assessed individually for impairment are assessed on a collective basis. For the acquired loans we perform a historical analysis on both cumulative defaults and severity upon default for all loans that were current as of November 4, 2013 when the Company was formed or acquired thereafter. We calculated the cumulative default and loss severity on the acquired loans with delinquency statuses of 90+ days and applied those factors to the current acquired loan population. For the originated loans, our historical data shows a minimal number of defaults, therefore we used an analysis performed on the latest ReadyCap securitization to determine the likelihood of default and to determine loss severity we stressed collateral value to the current principal balance based on the total valuation decline of SBC properties from the peak valuation in 2007 through their post-crisis low in 2010.

The determination of allowances for SBA loans is based upon the assignment of a probability of default on a rating scale. Each loan rating is re-evaluated at least annually for loan performance, underlying borrower financial performance or data from third party credit bureaus. The probability of default is compared to the underlying collateral value securing each loan and compared to each loan carrying value to calculate a loss estimate. Collectively the estimated probability of default and recovery value is compared to actual portfolio default and recovery rates as well as economic factors and adjusted when needed.

The determination of whether an allowance for loan loss is necessary is based on whether or not there is a decrease in cash flows based on consideration of factual information available at the time of assessment as well as management’s estimates of the future performance and projected amount and timing of cash flows expected to be collected on the loan.

While we have a formal methodology to determine the adequate and appropriate level of the allowance for loan 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 loan 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 loan losses.

Non-accrual loans

Non-accrual loans are the loans for which we are not accruing or accreting interest income. Non-accrual loans include non-PCI loans when principal or interest has been delinquent for 90 days or more or when it is determined that full collection of contractual cash flows is not probable. Additionally, PCI loans for which the Company is unable to reasonably estimate the timing and amount of expected cash flows are considered to be non-accrual loans.

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, we grant concessions for a period of time to the borrower that we would not otherwise consider, the related loans are classified as troubled debt restructurings (“TDR”). These modified terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of collateral. For modifications where we forgive principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs, are considered impaired loans. Other than resolutions such as foreclosures and sales, we may remove loans held-for-investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.

Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.

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Impaired loans

The Company considers a loan to be impaired when the Company does not expect to collect all of the contractual interest and principal payments as scheduled in the loan agreements. This includes certain non-PCI loans where we do not expect to collect all of the contractual interest and principal payments, as well as PCI loans, which experienced credit deterioration prior to acquisition.

Loans, held for sale, at fair value

Loans, held for sale, at fair value are loans that are expected to be sold to third parties in the near term. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. For loans originated by our SBC originations and SBA originations segments, changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income. For originated SBA loans, the guaranteed portion is held for sale, at fair value. For loans originated by GMFS, changes in fair value are reported as residential mortgage banking activities on the consolidated statements of income.

Mortgage backed securities, at fair value

The Company accounts for MBS as trading securities and are carried at fair value under ASC 320, Investments-Debt and Equity Securities. Our MBS portfolio is comprised of asset-backed securities collateralized by interest in or obligations backed by pools of SBC loans.

Purchases and sales of MBS are recorded on the trade date. Our MBS securities pledged as collateral against borrowings under repurchase agreements are included in mortgage backed securities, at fair value on our consolidated balance sheets.

MBS are recorded at fair value as determined by market prices provided by independent broker dealers or other independent valuation service providers. The fair values assigned to these investments are based upon available information and may not reflect amounts that may be realized. We generally intend to hold our investment in MBS to generate interest income; however, we have and may continue to sell certain of our investment securities as part of the overall management of our assets and liabilities and operating our business.

Loans eligible for repurchase from Ginnie Mae

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company then records the right to repurchase the loan as an asset and liability in its consolidated balance sheets. Such amounts reflect the unpaid principal balance of the loans.

Derivative instruments, at fair value

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we utilize derivative financial instruments, currently comprised of credit default swaps (“CDSs”), interest rate swaps, and interest rate lock commitments (“IRLCs”) as part of our risk management. The Company accounts for derivative instruments under ASC 815, Derivatives and Hedges.

All derivatives are reported as either assets or liabilities on the consolidated balance sheets at the estimated fair value with the changes in the fair value recorded in earnings unless hedge accounting is elected.

Although permitted under certain circumstances, generally the Company does not offset cash collateral receivable or payables against our gross derivative positions. As of December 31, 2018 and 2017, the cash collateral receivable held for derivatives is $11.6 million and $0.8 million, respectively, and is included in restricted cash on the consolidated balance sheets.

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Interest Rate Swap Agreements

An interest rate swap is an agreement between two counterparties to exchange periodic interest payments where one party to the contract makes a fixed-rate payment in exchange for a floating-rate payment from the other party. The dollar amount each party pays is an agreed-upon periodic interest rate multiplied by some pre-determined dollar principal (notional amount). No principal (notional amount) is exchanged between the two parties at trade initiation date. Only interest payments are exchanged. Interest rate swaps are classified as Level 2 in the fair value hierarchy. The fair value adjustments, along with the related interest income or interest expense, are reported as net gain/(loss) on financial instruments.

Interest Rate Lock Commitments (“IRLCs”)

IRLCs are agreements under which GMFS agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Unrealized gains and losses on the IRLCs, reflected as derivative assets and derivative liabilities, respectively, are measured based on the value of the underlying mortgage loan, quoted government-sponsored enterprise (Fannie Mae, Freddie Mac, and the Government National Mortgage Association ((“Ginnie Mae”), collectively, “GSEs”) or MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The realized and unrealized gains or losses are reported on the consolidated statements of income as residential mortgage banking activities. IRLCs are classified as Level 3 in the fair value hierarchy.

CDS

CDS are contracts between two parties, a protection buyer who makes fixed periodic payments, and a protection seller, who collects the premium in exchange for making the protection buyer whole in the case of default. The fair value adjustments, along with the related interest income or interest expense, are reported as gain/(loss) on financial instruments. CDS are classified as Level 2 in the fair value hierarchy.

Hedge Accounting

      We account for our hedging activities in accordance with ASC 815, Derivatives and Hedging. As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk, such as interest rate risk, that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability, or forecasted transaction that may affect earnings.

     To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged. We use cash flow hedges to hedge the exposure to variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations. ASC 815-20-25-15(a) defines a forecasted transaction as: 1) a single transaction, or 2) a group of individual transactions that share the same risk exposures for which they are designated as being hedged. Hedges of forecasted transactions are considered cash flow hedges since the price is not fixed, hence involve variability of cash flows.

     For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income/(loss) ("OCI") and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income / (loss) ("AOCI") is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast (including an additional two month window), any related derivative values recorded in AOCI are immediately recognized in earnings. Hedge accounting is generally terminated at the debt issuance date because we are no longer exposed to cash flow variability subsequent to issuance. Accumulated amounts recorded in AOCI at that date are then released to earnings in future periods to reflect the difference in 1) the fixed rates economically locked in at the inception of the hedge and 2) the actual fixed rates established in the debt instrument at issuance. Because of the effects of the time value of money, the actual interest expense reported in earnings will not equal the effective yield locked in at

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hedge inception multiplied by the par value. Similarly, this hedging strategy does not actually fix the interest payments associated with the forecasted debt issuance.

Servicing rights

Servicing rights initially represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the servicing right asset against contractual servicing and ancillary fee income.

Servicing rights are recognized upon sale of loans, including a securitization of loans accounted for as a sale in accordance with GAAP, if servicing is retained. For servicing rights, gains related to servicing rights retained is included in net realized gain/(loss) on the consolidated statements of income. For residential mortgage servicing rights, gains on servicing rights retained upon sale of a loan are included in residential mortgage banking activities on the consolidated statements of income.

The Company treats its servicing rights and residential mortgage servicing rights as two separate classes of servicing assets based on the class of the underlying mortgages and it treats these assets as two separate pools for risk management purposes. Servicing rights relating to the Company’s servicing of loans guaranteed by the SBA under its Section 7(a) loan program and servicing rights related to the Freddie Mac program are accounted for under ASC 860, Transfers and Servicing, while the Company’s residential mortgage servicing rights are accounted for under the fair value option under ASC 825, Financial Instruments.

Servicing rights – SBA and Freddie Mac

SBA and Freddie Mac servicing rights are initially recorded at fair value and subsequently carried at amortized cost. We capitalize the value expected to be realized from performing specified servicing activities for others. Servicing rights are amortized in proportion to and over the period of estimated servicing income, and are evaluated for potential impairment quarterly.

For purposes of testing our servicing rights 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 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 leverage all available relevant market data to determine the fair value of our recognized servicing assets. Since quoted market prices for servicing rights are not readily available, we estimate the fair value of servicing rights by determining the present value of future expected servicing cash flows using modeling techniques that incorporate management's best estimates of key variables including estimates regarding future net servicing cash flows, forecasted loan prepayment rates, delinquency rates, and return requirements commensurate with the risks involved. Cash flow assumptions are modeled using our internally forecasted revenue and expenses, and where possible, the reasonableness of assumptions is periodically validated through comparisons to market data. Prepayment speed estimates are determined from historical prepayment rates or obtained from third-party industry data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread. We also consider other factors that can impact the value of the servicing rights, such as surety provider termination clauses and servicer terminations that could result if we failed to materially comply with the covenants or conditions of our servicing agreements and did not remedy the failure. Since many factors can affect the estimate of the fair value of servicing rights, we regularly evaluate the major assumptions and modeling techniques used in our estimate and review these assumptions against market comparables, if available. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and prepayment experience to modeled estimates.

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Servicing rights - Residential (carried at fair value)

The Company’s residential mortgage servicing rights consist of conforming conventional residential loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Government insured loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veterans Affairs.

The Company has elected to account for its portfolio of residential MSRs at fair value. For these assets, the Company uses a third-party vendor to assist management in estimating the fair value. The third-party vendor uses a discounted cash flow approach which consists of projecting servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment rates, discount rates, default rates, and cost of servicing rates. Residential MSRs are classified as Level 3 in the fair value hierarchy.

Intangible assets

Intangible assets are accounted for under ASC 350, Intangibles-Goodwill and Other. As of December 31, 2018 and 2017, the Company’s identifiable intangible assets include SBA license for our lending operations as well as a trade name, a favorable lease, and other licenses relating to our residential mortgage banking segment, obtained as part of the ZAIS Financial merger transaction. The Company determined that its SBA license has an indefinite life, while the other intangibles acquired as part of the ZAIS Financial merger transaction are finite-lived. The Company amortizes intangible assets with identified estimated useful lives on a straight-line basis over their estimated useful lives. The Company initially records its intangible assets at cost and subsequently tests for impairment on an annual basis. Intangible assets are included within other assets on the consolidated balance sheets.

Investment in unconsolidated joint venture

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, which the Company has a 50% interest. According to ASC 323, Equity Method and Joint Ventures, investors in unincorporated entities such as partnerships and unincorporated joint ventures generally shall account for their investments using the equity method of accounting if the investor has the ability to exercise significant influence over the investee. Under the equity method, we recognize our share of the earnings or losses of the investment monthly in earnings and adjust the carrying amount for our share of the distributions that exceed our earnings.

Pursuant to the consolidation guidance, we determined our interest in the entity is a VIE, however, we do not consolidate the entity as we determined that we are not the primary beneficiary. The Company is determined to be the primary beneficiary only when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Deferred financing costs

Costs incurred in connection with our secured borrowings are accounted for under ASC 340, Other Assets and Deferred Costs. Deferred costs are capitalized and amortized using the effective interest method over the respective financing term with such amortization reflected on our consolidated statements of income as a component of interest expense. Our deferred financing costs may include legal, accounting and other related fees. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Pursuant to the adoption of ASU 2015-03, unamortized deferred financing costs related to securitizations and note issuances are presented on the consolidated balance sheets as a direct deduction from the associated liability.

Due from Servicers

The loan-servicing activities of the Company’s SBC Loan Acquisitions and SBC Originations reportable segments are performed primarily by third-party servicers. SBA loans originated by and held at RCL are internally serviced. Residential mortgage loans originated by and held at GMFS are both serviced by third-party servicers and internally

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serviced. The Company’s servicers hold substantially all of the cash owned by the Company related to loan servicing activities. These amounts include principal and interest payments made by borrowers, net of advances and servicing fees. Cash is generally received within thirty days of recording the receivable.

The Company is subject to credit risk to the extent any servicer with whom the Company conducts business is unable to deliver cash balances or process loan-related transactions on the Company’s behalf. The Company monitors the financial condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

Secured borrowings

Secured borrowings include borrowings under credit facilities, borrowings under repurchase agreements, and promissory notes.

Borrowings under credit facilities

The Company accounts for borrowings under credit facilities under ASC 470, Debt. The Company partially finances its loans, net through credit agreements with various counterparties. These borrowings are collateralized by loans, held-for-investment, and loans, held for sale, at fair value and have maturity dates within two years from the consolidated balance sheet date. If the fair value (as determined by the applicable counterparty) of the collateral securing these borrowings decreases, we may be subject to margin calls during the period the borrowings are outstanding. In instances where we do not satisfy the margin calls within the required time frame, the counterparty may retain the collateral and pursue collection of any outstanding debt amount from us. Interest paid and accrued in connection with credit facilities is recorded as interest expense on the consolidated statements of income.

Borrowing under repurchase agreements

Borrowings under repurchase agreements are accounted for under ASC 860, Transfers and Servicing. Investment securities financed under repurchase agreements are treated as collateralized borrowings, unless they meet sale treatment or are deemed to be linked transactions. Through December 31, 2018, none of our repurchase agreements have been accounted for as components of linked transactions. All securities financed through a repurchase agreement have remained on our consolidated balance sheets as an asset and cash received from the lender was recorded on our consolidated balance sheets as a liability. Interest paid and accrued in connection with our repurchase agreements is recorded as interest expense on the consolidated statements of income.

Securitized debt obligations of consolidated VIEs, net

Since 2011, we have engaged in several securitization transactions, which the Company accounts for under ASC 810. Securitization involves transferring assets to an SPE, or securitization trust, to convert all or a portion of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt instruments. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The consolidation of the SPE includes the issuance of senior securities to third parties, which are shown as securitized debt obligations of consolidated VIEs on the consolidated balance sheets.

Debt issuance costs related to securitizations are presented as a direct deduction from the carrying value of the related debt liability. Debt issuance costs are amortized using the effective interest method and are included in interest expense on the consolidated financial statements.

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the

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convertible senior notes have been reflected within additional paid-in capital in our consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our consolidated balance sheets.

Senior secured notes, net

The Company accounts for secured debt offerings under ASC 470, Debt. Pursuant to the adoption of ASU 2015-03, the Company’s senior secured notes are is presented net of debt issuance costs. These senior secured notes are collateralized by loans, MBS, and retained interests of consolidated VIE’s. Interest paid and accrued in connection with senior secured notes is recorded as interest expense on the consolidated statements of income.

Corporate debt, net

The Company accounts for corporate debt offerings under ASC 470, Debt. The Company’s corporate debt is presented net of debt issuance costs. Interest paid and accrued in connection with corporate debt is recorded as interest expense on the consolidated statements of income.

Guaranteed loan financing

Certain partial loan sales do not qualify for sale accounting under ASC 860, Transfers and Servicing because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated balance sheets and the proceeds from the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

Contingent consideration

Contingent consideration represents future payments of cash or equity interests to the former owners of GMFS, which was acquired on October 31, 2016. The contingent consideration was initially recorded on the date of acquisition at fair value in the consolidated balance sheet and is subsequently remeasured each reporting period at fair value with the change in the fair value recorded in earnings in the accompanying consolidated statements of income.

Repair and denial reserve

The repair and denial reserve represents the potential liability to the SBA in the event that we are required to make the SBA whole for reimbursement of the guaranteed portion of SBA loans. We may be responsible for the guaranteed portion of SBA loans if there are lien and collateral issues, unauthorized use of proceeds, liquidation deficiencies, undocumented servicing actions or denial of SBA eligibility. This reserve is calculated using an estimated frequency of a repair and denial event upon default, as well as an estimate of the severity of the repair and denial as a percentage of the guaranteed balance.

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The entity that has a financial

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interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. An entity is deemed to be the primary beneficiary of a VIE if the entity has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

In determining whether we are the primary beneficiary of a VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE, such as our role establishing the VIE and our ongoing rights and responsibilities, the design of the VIE, our economic interests, servicing fees and servicing responsibilities, and other factors.

We perform ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of our involvement with the entity result in a change to the VIE designation or a change to our consolidation conclusion.

Non-controlling Interests

Non-controlling interests, which are presented on the consolidated balance sheets and the consolidated statements of income, represent direct investment in the Operating Partnership by Sutherland OP Holdings II, Ltd., which is managed by our Manager, and third parties.

Fair Value Option

The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.

We have elected the fair value option for certain loans held-for-sale originated by ReadyCap that the Company intends to sell in the near term. The fair value elections for loans, held for sale, at fair value originated by ReadyCap were made due to the short-term nature of these instruments.

We have elected the fair value option for loans held-for-sale originated by GMFS that the Company intends to sell in the near term. We have elected the fair value option for certain residential mortgage servicing rights acquired as part of the merger transaction.

Earnings per Share

We present both basic and diluted earnings per share (“EPS”) amounts in our consolidated financial statements of income. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted stock awards (“RSAs”), as well as “in-the-money” conversion options associated with our outstanding convertible senior notes. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

All of the Company’s unvested RSUs and unvested RSAs contain rights to receive non-forfeitable dividends and, thus, are participating securities. Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities.

Income Taxes

GAAP establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s consolidated

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financial statements or tax returns. We assess the recoverability of deferred tax assets through evaluation of carryback availability, projected taxable income and other factors as applicable. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns as well as the recoverability of amounts we record, including deferred tax assets.

We provide for exposure in connection with uncertain tax positions, which requires significant judgment by management including determination, based on the weight of the tax law and available evidence, that it is more-likely-than-not that a tax result will be realized. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense on our consolidated statements of income. As of December 31, 2018 and 2017, we accrued no taxes, interest or penalties related to uncertain tax positions. In addition, we do not anticipate a change in this position in the next 12 months.

Revenue Recognition

On January 1, 2018, new accounting rules regarding revenue recognition became effective for public companies with a calendar fiscal year.  Under the new accounting rules regarding revenue, revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized through the following five-step process:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Since the updated guidance does not apply to revenue associated with financial instruments, including interest income, realized or unrealized gains on financial instruments, loan servicing fees, loan origination fees, among other revenue streams, the adoption of this standard did not have a material impact on our consolidated financial statements. The revenue recognition guidance also included revisions to existing accounting rules regarding the determination of whether a company is acting as a principal or agent in an arrangement and accounting for sales of nonfinancial assets where the seller has continuing involvement.  These additional revisions also did not materially impact the Company.

Interest Income

Interest income on non-PCI loans, held-for-investment, loans, held at fair value, loans, held for sale, at fair value, and MBS, at fair value is accrued based on the outstanding principal amount and contractual terms of the instrument. Discounts or premiums associated with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on contractual cash flows through the maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to the accrual status of the asset. If the asset has been delinquent for the previous 90 days, the asset status will turn to non-accrual, and recognition of interest income will be suspended until the asset resumes contractual payments for three consecutive months. For PCI loans, the excess of the cash flows expected to be collected on these loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion.

Realized Gains (Losses)

Upon the sale or disposition (not including the prepayment of outstanding principal balance) of loans or securities, the excess (or deficiency) of net proceeds over the net carrying value or cost basis of such loans or securities is recognized as a realized gain/loss.

Origination Income and Expense

Origination income represents fees received for origination of either loans, held at fair value, loans, held for sale, at fair value, or loans, held-for-investment. For loans held, at fair value, and loans, held for sale, at fair value, pursuant to ASC 825, the Company reports origination fee income as revenue and fees charged and costs incurred as expenses. These fees and costs are excluded from the fair value. For originated loans, held-for-investment, under ASC 310-10, the Company

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defers these origination fees and costs at origination and amortizes them under the effective interest method over the life of the loan. Origination fees and expenses for ReadyCap loans, held at fair value and loans, held for sale, at fair value, are presented in the consolidated statements of income in other income and operating expenses. Origination fees for residential mortgage loans originated by GMFS are presented in the consolidated statements of income in residential mortgage banking activities, while origination expenses are presented within variable expenses on residential mortgage banking activities. The amortization of net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of income in interest income.

Residential Mortgage Banking Activities

Residential mortgage banking activities, reflects revenue within our residential mortgage banking business directly related to loan origination and sale activity. This primarily consists of the realized gains on sales of residential loans held for sale and loan origination fee income, Residential mortgage banking activities also consists of unrealized gains and losses associated with the changes in fair value of the loans held for sale, the fair value of retained MSR additions, and the realized and unrealized gains and losses from derivative instruments.

Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and is included in residential mortgage banking activities, in the consolidated statements of income. Sales proceeds reflect the cash received from investors from the sale of a loan plus the servicing release premium if the related MSR is sold. Gains and losses also includes the unrealized gains and losses associated with the mortgage loans held for sale and the realized and unrealized gains and losses from IRLCs.

Loan origination fee income represents revenue earned from originating mortgage loans held for sale and are reflected in residential mortgage banking activities, when loans are sold.

Variable Expenses on Residential Mortgage Banking Activities

Loan expenses include indirect costs related to loan origination activities, such as correspondent fees, and are expensed as incurred and are included within variable expenses on residential mortgage banking activities on the Company’s consolidated statements of income. The provision for loan indemnification includes the fair value of the incurred liability for mortgage repurchases and indemnifications recognized at the time of loan sale and any other provisions recorded against the loan indemnification reserve. Loan origination costs directly attributable to the processing, underwriting, and closing of a loan are included in the gain on sale of mortgage loans held for sale when loans are sold.

Note 4 – Recently Issued Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Standards adopted during 2018

Standard	Summary of guidance		Effects on financial statements
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)		Outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.		Since the guidance does not apply to revenue associated with financial instruments, including loans and securities, and other contractual rights or obligations within the scope of ASC 860, Transfers and Servicing, the adoption of this standard on a modified retrospective basis on January 1, 2018 did not have a material impact on our consolidated financial statements.
Issued May 2014			
ASU 2017-09, Compensation—Stock Compensation (Topic 718) Scope of Modification Accounting		Provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.		The adoption of this standard had no impact on our consolidated financial statements since there were no modifications. This ASU required prospective adoption, therefore, any future award changes will be evaluated under the amended guidance.
Issued May 2017			

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ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments		Provides guidance on the disclosure and classification of certain items within the statement of cash flows, including beneficial interests obtained in a securitization of financial assets, debt prepayment or extinguishment costs, and distributions received from equity-method investees.		The retrospective adoption of this standard did not have a material impact on our consolidated financial statements.  We chose the cumulative earnings approach for distributions received from equity method investees, which did not result in any changes in the way we account for such distributions since there were no equity method investments held prior to Q4 of 2017.
Issued August 2016			
ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory		Requires that an entity recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of the transfer instead of deferring the tax consequences until the asset has been sold to an outside party, as current GAAP requires.		The modified retrospective adoption of this standard did not have a material impact on our consolidated financial statements.
Issued October 2016			
ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business		This ASU results in most real estate acquisitions no longer being considered business combinations and instead being accounted for as asset acquisitions.		The adoption of this standard did not have a material impact on our consolidated financial statements. This ASU required prospective adoption, therefore, any future acquisitions will be evaluated under the amended guidance.
Issued January 2017			
ASU 2017-05, Other Income – Gains and Losses from the De-recognition of Nonfinancial Assets		Requires that all entities account for the de-recognition of a business in accordance with ASC 810, including instances in which the business is considered in substance real estate.		The retrospective adoption of this standard did not have a material impact on our consolidated financial statements.
Issued February 2017			
ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash		Requires that restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.		The adoption of this standard on a retrospective basis resulted in reclassifying restricted cash out of investing activities (and financing activities for restricted cash within consolidated variable interest entities) and is now included within cash and cash equivalents on the consolidated statement of cash flows. The following table shows the impact of the adoption of this guidance.
Issued November 2016			

On January 1, 2018, Ready Capital adopted Accounting Standard Update No. 2016-18: Statement of Cash Flows—Restricted Cash ("ASU 2016-18"). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of the ASU 2016-18 amendments resulted in a change to the consolidated statement of cash flows for the years ended December 31, 2017 and 2016. The following table provides information regarding Ready Capital's cash flows for the years ended December 31, 2017 and 2016, adjusted to reflect ASU 2016-18 (in thousands):

(In Thousands)	Year Ended December 31, 2017		Year Ended December 31, 2016
Net cash provided by operating activities	$	352,489	$	16,482
Net cash (used in) provided by operating activities of discontinued operations		-		(1,719)
Net cash (used in) provided by investing activities		(235,728)		389,574
Net cash (used in) provided by financing activities		(106,502)		(381,356)
Net increase (decrease) in cash, cash equivalents and restricted cash		10,259		22,981
Cash, cash equivalents and restricted cash - beginning of year		80,695		57,714
Cash, cash equivalents and restricted cash - end of year	$	90,954	$	80,695

FASB Standards issued, but not yet adopted

Standard Summary of guidance Effects on financial statements

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ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments		Requires the use of an “expected loss” credit model for estimating future credit losses of certain financial instruments instead of the “incurred loss” credit model that existing GAAP currently requires.		Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018.
Issued June 2016		The “expected loss” model requires the consideration of possible credit losses over the life of an instrument compared to only estimating credit losses upon the occurrence of a discrete loss event in accordance with the current “incurred loss” methodology.		The Company is evaluating the impact ASU 2016-13 will have on our consolidated financial statements.
ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)—Accounting for Certain Financial Instruments with Down Round Features		Provides guidance which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.		Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2018. Early adoption is permitted.
Issued July 2017		When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock.		This standard currently would not have an impact on our consolidated financial statements. None of our issued equity or debt (in particular our convertible notes), contain down round features.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities		Provides guidance on simplifying the accounting and presentation for hedging activities.		Required effective date: For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
Issued August 2017				This standard currently would have a minimal impact on our financial statements, as the change would simplify hedge documentation requirements and presentation associated with hedging activities, but would not affect the financial statement impact of hedge accounting.
ASU 2018-11, Leases (Topic 842): Targeted Improvements to Accounting for Leases		Provides guidance on increasing the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.		Required effective date: The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842.
Issued July 2018				Based on the implementation efforts to date, the Company expects a gross up of approximately $2.1 million its consolidated balance sheet upon recognition of the right-of-use assets and lease liabilities.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement		Provides guidance on increasing the transparency and comparability of the disclosure requirements for fair value measurement.		Required effective date: The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
Issued August 2018				The Company is evaluating the impact ASU 2018-13 will have on our consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract		Provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.		Required effective date: The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and interim periods within those fiscal years.
		An intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred.		The Company is evaluating the impact ASU 2018-15 will have on our consolidated financial statements. Based on our implementation efforts to date, we do not believe this update will have a material impact on our consolidated financial statements.

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Note 5 – Loans and Allowance for Loan Losses

The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Company accounts for loans based on the following loan program categories:

· Originated or purchased loans held-for-investment, other than PCI loans – originated transitional loans, originated conventional SBC and SBA loans that have been securitized, or acquired loans with no signs of credit deterioration at time of purchase.

· Loans at fair value – certain originated conventional SBC loans for which the Company has elected the fair value option

· Loans, held-for-sale, at fair value – originated or acquired that we intend to sell in the near term

· PCI loans held-for-investment – acquired loans with signs of credit deterioration at time of purchase

Loan Portfolio

The following table summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs:

	December 31, 2018				December 31, 2017
Loans (In Thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Acquired SBA 7(a) loans	$	264,308	$	283,423	$	331,083	$	353,556
Acquired loans		206,983		215,213		191,327		209,694
Originated Transitional loans		272,981		275,237		246,076		248,190
Originated SBC loans, at fair value		22,664		22,325		188,150		182,045
Originated SBC loans		345,100		342,751		27,610		27,349
Originated SBA 7(a) loans		85,569		89,733		41,208		43,439
Originated Residential Agency loans		1,899		1,900		2,013		2,014
Total Loans, before allowance for loan losses	$	1,199,504	$	1,230,582	$	1,027,467	$	1,066,287
Allowance for loan losses	$	(6,112)		—	$	(9,547)		—
Total Loans, net	$	1,193,392	$	1,230,582	$	1,017,920	$	1,066,287
Loans in consolidated VIEs
Loans
Originated SBC loans	$	432,308	$	422,897	$	382,873	$	373,996
Acquired loans		343,156		354,794		189,545		204,497
Acquired SBA 7(a) loans		55,966		74,554		69,523		95,605
Originated Transitional loans		391,752		393,116		196,438		196,070
Total Loans, in consolidated VIEs, before allowance for loan losses	$	1,223,182	$	1,245,361	$	838,379	$	870,168
Allowance for loan losses on loans in consolidated VIEs	$	(2,208)		—	$	(2,199)		—
Total Loans, net, in consolidated VIEs	$	1,220,974	$	1,245,361	$	836,180	$	870,168
Total Loans, net, and Loans, net in consolidated VIEs	$	2,414,366	$	2,475,943	$	1,854,100	$	1,936,455
Loans, held for sale, at fair value
Originated Residential Agency loans	$	67,775	$	65,586	$	129,096	$	124,758
Originated Freddie Mac loans		23,322		22,973		67,591		66,642
Originated SBA 7(a) loans		21,153		19,669		16,791		15,472
Acquired loans		3,008		2,935		2,544		2,662
Total Loans, held for sale, at fair value	$	115,258	$	111,163	$	216,022	$	209,534
Total Loan portfolio	$	2,529,624	$	2,587,106	$	2,070,122	$	2,145,989

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Credit Quality Indicators

The Company monitors credit quality of our loan portfolio based on primary credit quality indicators. Delinquency rates are a primary credit quality indicator for our types of loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear that the borrower is likely either unable or unwilling to pay.

The following tables display delinquency information on loans, net as of the consolidated balance sheet dates:

	December 31, 2018
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	299,080	$	14,943	$	4,465	$	318,488	$	17,916	$	1,043
Acquired loans		524,930		7,213		13,552		545,695		11,447		3,811
Originated Transitional loans		659,103		5,630		—		664,733		—		—
Originated SBC loans, at fair value		22,664		—		—		22,664		—		—
Originated SBC loans		748,146		12,367		16,895		777,408		16,895		—
Originated SBA 7(a) loans		83,076		2,178		162		85,416		1,666		—
Originated Residential Agency loans		337		—		1,562		1,899		1,562		—
Total Loans, before general allowance for loans losses	$	2,337,336	$	42,331	$	36,636	$	2,416,303	$	49,486	$	4,854
General allowance for loan losses							$	(1,937)
Total Loans, net							$	2,414,366
Percentage of outstanding		96.7%		1.8%		1.5%		100%		2.0%		0.2%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

	December 31, 2017
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	376,102	$	15,953	$	5,542	$	397,597	$	16,782	$	176
Acquired loans		348,271		6,891		19,263		374,425		16,405		4,090
Originated Transitional loans		435,252		7,263		—		442,515		—		—
Originated SBC loans, at fair value		188,150		—		—		188,150		—		—
Originated SBC loans		402,004		7,702		608		410,314		608		—
Originated SBA 7(a) loans		40,871		311		—		41,182		671		—
Originated Residential Agency loans		1,226		—		787		2,013		289		498
Total Loans, before allowance for loans losses	$	1,791,876	$	38,120	$	26,200	$	1,856,196	$	34,755	$	4,764
General allowance for loan losses							$	(2,096)
Total Loans, net							$	1,854,100
Percentage of outstanding		96.5%		2.1%		1.4%		100%		1.9%		0.3%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

      In addition to delinquency rates, the current estimated LTV ratio is another indicator that can provide insight into a borrower’s continued willingness to pay, as the delinquency rate of high LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, property price changes and specific events such as natural disasters, will affect credit quality. The Company monitors the loan-to-value ratio and associated risks on a monthly basis.

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      The following tables presents quantitative information on the credit quality of loans, net as of December 31, 2018 and December 31, 2017:

	Loan-to-Value  (a)
(In Thousands)	0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total
December 31, 2018
Loans(1) (2)
Acquired SBA 7(a) loans	$	6,337	$	38,150	$	100,578	$	93,411	$	33,750	$	46,262	$	318,488
Acquired loans		118,198		165,567		136,206		70,017		40,003		15,704		545,695
Originated Transitional loans		—		29,245		178,861		348,967		101,513		6,147		664,733
Originated SBC loans, at fair value		—		8,600		—		6,328		7,736		—		22,664
Originated SBC loans		—		48,259		271,311		457,838		—		—		777,408
Originated SBA 7(a) loans		393		3,200		10,642		24,387		16,473		30,321		85,416
Originated Residential Agency loans		—		—		111		952		734		102		1,899
Total Loans, before general allowance for loans losses	$	124,928	$	293,021	$	697,709	$	1,001,900	$	200,209	$	98,536	$	2,416,303
General allowance for loan losses													$	(1,937)
Total Loans, net													$	2,414,366
December 31, 2017
Loans(1) (2)
Acquired SBA 7(a) loans	$	8,978	$	37,880	$	125,234	$	106,199	$	56,676	$	62,630	$	397,597
Acquired loans		54,463		102,498		114,010		67,037		18,745		17,672		374,425
Originated Transitional loans		—		26,735		171,227		212,830		21,639		10,084		442,515
Originated SBC loans, at fair value		—		17,294		31,245		115,653		21,245		2,713		188,150
Originated SBC loans		2,661		49,281		192,796		158,047		7,529		—		410,314
Originated SBA 7(a) loans		52		954		5,227		15,583		5,766		13,600		41,182
Originated Residential Agency loans		—		60		166		609		823		355		2,013
Total Loans, before allowance for loans losses	$	66,154	$	234,702	$	639,905	$	675,958	$	132,423	$	107,054	$	1,856,196
General allowance for loan losses													$	(2,096)
Total Loans, net													$	1,854,100
(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value
(1) Loan balances include specific allowance for loan loss reserves.
(2) Includes Loans, net in consolidated VIEs

As of December 31, 2018 and 2017, the Company’s total carrying amount of loans in the foreclosure process was $1.4 million and $0.4 million, respectively.

The following table displays the geographic concentration of the Company’s loans, net, secured by real estate recorded on our consolidated balance sheets.

Geographic Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
California	14.1	%	13.5	%
Texas	11.3		12.4
Florida	10.8		11.7
New York	6.3		6.8
Georgia	5.3		6.2
Arizona	5.0		5.1
Illinois	3.8		3.9
Pennsylvania	3.8		2.1
North Carolina	3.7		3.7
Ohio	2.8		2.7
Other	33.1		31.9
Total	100.0	%	100.0	%

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The following table displays the collateral type concentration of the Company’s loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Multi-family	23.3	%	21.1	%
Retail	18.5		17.6
SBA(1)	18.1		25.4
Office	15.1		15.6
Mixed Use	9.6		6.3
Industrial	8.2		6.9
Lodging/Residential	2.4		2.9
Other	4.8		4.2
Total	100.0	%	100.0	%
(1) Further detail provided on SBA collateral concentration is included in table below.

The following table displays the collateral type concentration of the Company’s SBA loans within loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Offices of Physicians	17.7	%	16.0	%
Lodging	10.1		10.5
Child Day Care Services	9.9		12.3
Veterinarians	6.8		7.0
Eating Places	5.4		5.5
Grocery Stores	3.8		4.7
Hotels, Motels & Tourist Courts	3.8		0.9
Auto	2.7		3.2
Funeral Service & Crematories	2.3		2.2
Gasoline Service Stations	2.3		1.9
Other	35.2		35.8
Total	100.0	%	100.0	%

Allowance for Loan Losses

The allowance for loan losses represents the Company’s estimate of probable credit losses inherent in the Company’s held-for-investment loan portfolio. This is assessed by considering credit quality indicators, including probable and historical losses, collateral values, loan-to-value (“LTV”) ratios, and economic conditions. The allowance for loan losses includes an asset-specific component, a general formula-based component, and a component related to PCI loans.

The following tables detail the allowance for loan losses by loan product and impairment methodology as of the consolidated balance sheet dates:

	December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	11	$	353	$	608	$	532	$	433	$	1,937
Specific		-		-		1,012		823		153		1,988
PCI		-		-		3,432		963		-		4,395
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	468	$	-	$	819	$	518	$	291	$	2,096
Specific		169		-		586		1,564		27		2,346
PCI		-		-		5,859		1,445		-		7,304
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

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The following tables detail the activity of the allowance for loan losses for loans:

	Year ended December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746
Provision for (Recoveries of) loan losses		(457)		353		1,843		(306)		268		1,701
Charge-offs and sales		(169)		-		(1,380)		(903)		-		(2,452)
Recoveries		-		-		(2,675)		-		-		(2,675)
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	Year ended December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	804	$	-	$	10,150	$	5,004	$	172	$	16,130
Provision for loan losses		(166)		-		2,387		(4)		146		2,363
Charge-offs and sales		-		-		(1,356)		(1,473)		-		(2,829)
Recoveries		(1)		-		(3,917)		-		-		(3,918)
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

Impaired Loans - Non-PCI loans

The Company considers a loan to be impaired when the Company does not expect to collect all the contractual and principal payments as scheduled in the loan agreements. Impaired loans include loans that have been modified in a TDR or loans that are placed on non-accrual status. All impaired loans are evaluated for an asset-specific allowance as described in Note 3.

(In Thousands)	December 31, 2018		December 31, 2017
Impaired loans
With an allowance	$	9,734	$	9,222
Without an allowance		33,082		12,659
Total recorded carrying value of impaired loans	$	42,816	$	21,881
Allowance for loan losses related to impaired loans	$	(1,989)	$	(2,346)
Unpaid principal balance of impaired loans	$	49,128	$	29,853
Impaired loans on non-accrual status	$	42,816	$	21,881
Average carrying value of impaired loans	$	36,675	$	28,693
	December 31, 2018		December 31, 2017
Interest income on impaired loans for the year ended	$	966	$	610

Troubled Debt Restructurings

If the borrower is determined to be in financial difficulty, then the Company will determine whether a financial concession has been granted to the borrower by analyzing the value of the loan as compared to the recorded investment, modifications of the interest rate as compared to market rates, modification of the stated maturity date, modification of the timing of principal and interest payments and the partial forgiveness of the loan. Modified loans that are classified as TDRs are individually evaluated and measured for impairment.

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The following table summarizes the recorded investment of TDRs on the consolidated balance sheet dates by loan type.

	December 31, 2018						December 31, 2017
(In Thousands)	SBC		SBA		Total		SBC		SBA		Total
Recorded carrying value modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125
Allowance for loan losses on loans classified as TDRs	$	321	$	278	$	599	$	883	$	695	$	1,578
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	$	1,696	$	7,375	$	9,071	$	1,804	$	4,791	$	6,595
Carrying value of modified loans classified as TDRs on non-accrual status		129		9,969		10,098		1,923		7,607		9,530
Total carrying value of modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125

The following table summarizes the TDR activity that occurred during the years ended December 31, 2018 and 2017 and the financial effects of these modifications.

	Year Ended December 31, 2018							Year Ended December 31, 2017
(In Thousands, except number of loans)	SBC		SBA		Total			SBC		SBA		Total
Number of loans permanently modified		1		38		39			14		47		61
Pre-modification recorded balance (a)	$	3,444	$	7,214	$	10,658		$	3,518	$	6,187	$	9,705
Post-modification recorded balance (a)		3,444		7,266		10,710			3,041		6,132		9,173
Number of loans that remain in default as of December 31, 2018 (b)		1		11		12			10		18		28
Balance of loans that remain in default as of December 31, 2018 (b)	$	3,444	$	534	$	3,978		$	1,590	$	672	$	2,262
Concession granted (a):							PY
Term extension	$	-	$	6,844	$	6,844		$	413	$	4,931	$	5,344
Interest rate reduction		-		-		-			100		239		339
Principal reduction		-		7		7			601		286		887
Foreclosure		3,444		181		3,625			920		554		1,474
Total	$	3,444	$	7,032	$	10,476		$	2,034	$	6,010	$	8,044
(a) Represents carrying value.
(b) Represents the December 31, 2018 carrying values of the TDRs that occurred during the year ended December 31, 2018 and 2017 that remained in default as of December 31, 2018. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.  For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.

The Company does not believe the financial impact of the presented TDRs to be material. The other elements of the Company’s modification programs do not have a significant impact on financial results given their relative size, or do not have a direct financial impact as in the case of covenant changes.

Loans, held-for-investment are accounted for under ASC 310-10 or ASC 310-30 depending on whether there is evidence of credit deterioration at the time of acquisition. The outstanding carrying amount of our held-for-investment loan portfolio broken down by ASC 310-10 (non-PCI loans) and ASC 310-30 (PCI loans) is as follows:

	December 31, 2018				December 31, 2017
	Non-PCI		PCI		Non-PCI		PCI
(In Thousands)	Loans		Loans		Loans		Loans
Unpaid principal balance	$	2,361,155	$	92,463	$	1,624,395	$	130,015
Non-accretable discount		-		(6,040)		—		(8,336)
Accretable discount		(31,533)		(16,023)		(44,629)		(23,749)
Loans, held-for-investment		2,329,622		70,400		1,579,766		97,930
Allowance for loan losses		(3,925)		(4,395)		(4,442)		(7,304)
Loans, held-for-investment	$	2,325,697	$	66,005	$	1,575,324	$	90,626

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PCI Loans

The following table details the activity of the accretable yield on PCI loans, held-for-investment. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable loans.

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning accretable discount- PCI loans	$	23,749	$	26,978
Purchases/Originations		514		1,234
Sales		(2,554)		(2,835)
Accretion		(5,123)		(4,735)
Other		726		1,466
Transfers		(1,289)		1,641
Ending accretable discount- PCI loans	$	16,023	$	23,749

In 2017, the Company acquired credit impaired loans with contractually required principal and interest payments receivable of $12.5 million; expected cash flows of $8.9 million; and a fair value (initial carrying amount) of $6.2 million. In 2018, the Company acquired credit impaired loans with contractually required principal and interest payments receivable of $4.1 million; expected cash flows of $1.8 million; and a fair value (initial carrying amount) of $1.4 million.

Note 6 – Fair Value Measurements

The Company adopted the provisions of ASC 820 Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

140

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2018:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	586	$	—	$	—	$	586
Loans, held for sale, at fair value		—		115,258		—		115,258
Loans, net, at fair value		—		—		22,664		22,664
Mortgage backed securities, at fair value		—		79,789		12,148		91,937
Derivative instruments, at fair value		—		294		1,776		2,070
Residential mortgage servicing rights, at fair value		—		—		93,065		93,065
Total assets	$	586	$	195,341	$	129,653	$	325,580
Liabilities:
Derivative instruments, at fair value	$	—	$	3,625	$	—	$	3,625
Contingent consideration		—		—		1,207		1,207
Total liabilities	$	—	$	3,625	$	1,207	$	4,832

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2017:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	632	$	—	$	—	$	632
Loans, held for sale, at fair value		—		216,022		—		216,022
Loans, net, at fair value		—		—		188,150		188,150
Mortgage backed securities, at fair value		—		31,859		8,063		39,922
Derivative instruments, at fair value		—		2,898		1,827		4,725
Residential mortgage servicing rights, at fair value		—		—		72,295		72,295
Total assets	$	632	$	250,779	$	270,335	$	521,746
Liabilities:
Derivative instruments, at fair value	$	—	$	282	$	—	$	282
Contingent consideration		—		—		10,016		10,016
Total liabilities	$	—	$	282	$	10,016	$	10,298

The following table presents a summary of changes in the fair value of loans, held at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	188,150	$	81,592
Realized gains (losses), net		46		(90)
Unrealized gains (losses), net		(720)		5,328
Originations		150		152,339
Sales		—		—
Principal payments		(19,188)		(10,114)
Transfer to loans, held for sale, at fair value		—		—
Transfer to loans, held-for-investment		(145,774)		(40,905)
Ending Balance	$	22,664	$	188,150

Unrealized gains on loans, held at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $0.3 million and $6.0 million, respectively.

141

The following table presents a summary of changes in the fair value of loans, held for sale, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	—	$	17,312
Realized gains, net		—		9,005
Unrealized gains, net		—		2,595
Originations		—		352,975
Sales		—		(284,707)
Principal payments		—		(10,429)
Transfer from Level 3		—		(86,751)
Ending Balance	$	—	$	—

Unrealized gains on loans, held for sale at fair value held on December 31, 2017 and classified as Level 3 were $0.1 million. There were no loans, held for sale classified as Level 3 on December 31, 2018.

The following table presents a summary of changes in the fair value of MBS, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	8,063	$	32,391
Accreted discount, net		84		224
Realized gains, net		271		522
Unrealized gains (losses), net		2,866		1,344
Purchases		—		14,448
Sales / Principal payments		(977)		(7,785)
Transfer to (from) Level 3		1,841		(33,081)
Ending Balance	$	12,148	$	8,063

Unrealized losses on MBS, at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $0.1 million and $0.3 million, respectively.

Refer to “Note 8 – Servicing rights” for activity relating to the changes in the fair value of the Company’s residential mortgage servicing rights. Unrealized gains (losses) on residential mortgage servicing rights, at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $8.6 million and $(8.5) million, respectively.

The following table presents a summary of changes in the fair value of derivatives instruments, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	1,827	$	2,690
Unrealized gains (losses)		(51)		(863)
Ending Balance	$	1,776	$	1,827

Unrealized gains (losses) on derivatives held on December 31, 2018 and 2017 and classified as Level 3 were $1.8 million and $(1.7) million, respectively.

The following table presents a summary of changes in the fair value of contingent consideration classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	10,016	$	14,487
Adjustment for legal settlement		—		(5,744)
Earn-out payments		(8,967)		—
Amortization and adjustment for earn-out payments		158		1,273
Ending Balance	$	1,207	$	10,016

As of December 31, 2018 and 2017, there was no unrealized gain (loss) on contingent consideration.

142

The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of the change in circumstances that caused the transfer. Transfers between Level 2 and Level 3 generally relate to whether there were changes in the significant relevant observable and unobservable inputs that are available for the fair value measurements of such financial instruments. Transfers into or out of Level 3 of the fair value hierarchy are recorded at the end of the reporting period.

Valuation Process for Fair Value Measurements

The Company establishes valuation processes and procedures designed so that fair value measurements are appropriate and reliable, that they are based on observable inputs where possible, and that valuation approaches are consistently applied and the assumptions and inputs are reasonable. The Company has also established processes to provide that the valuation methodologies, techniques and approaches for investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent and verifiable. The Company’s processes provide a framework that ensures the oversight of the Company’s fair value methodologies, techniques, validation procedures, and results.

The Company designates a valuation committee (the “Committee”) to oversee the entire valuation process of the Company’s Level 3 investments. The Committee is comprised of various personnel who are responsible for developing the Company’s written valuation policies, processes and procedures, conducting periodic reviews of the valuation policies, and performing validation procedures on the overall fairness and consistent application of the valuation policies and processes and that the assumptions and inputs used in valuation are reasonable.

The validation procedures overseen by the Committee are also intended to provide that the values received from external third-party pricing sources are consistent with the Company’s Valuation Policy and are carried at fair value. To the extent that there is no exchange pricing, vendor marks or broker quotes readily available, the Company may use an internal valuation model or other valuation methodology that may be based on unobservable market inputs to fair value the investment.

The values provided by a third-party pricing service are calculated based on key inputs provided by the Company including collateral values, unpaid principal balances, cash flow velocity, contractual status and anticipated disposition timelines. In addition, the Company performs an internal valuation used to assess and review the reasonableness and validity of the fair values provided by a third party. The Company also performs analytical procedures, which include automated checks consisting of prior-period variance analysis, comparisons of actual prices to internally calculate expected prices based on observable market changes, analysis of changes in pricing ranges, and relative value and yield comparisons using the Company’s proprietary valuation models.

Upon completion of the review process described above, the Company may provide additional quantitative and qualitative data to the third-party pricing service to consider in valuing certain financial assets and liabilities, as applicable. Such data may include deal specific information not included in the data tape provided to the third party, outliers when compared to the unpaid principal balance and collateral value and knowledge of any impending liquidation of an investment. If deemed necessary by the third party and management, the investments are re-valued by the third party to account for the updated information.

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 using third party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	22,664	SingleExternal Source	Third Party Mark	$	99.41 – 105.21	$	101.52
Mortgage backed securities, at fair value		12,033	Broker Quotes	Third Party Mark		44.65 – 97.50		80.17
Mortgage backed securities, at fair value		115	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		93,065	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		1,207	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

143

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2017 using third-party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	188,150	Single External Source	Third Party Mark	$	101.05 – 104.00	$	103.35
Mortgage backed securities, at fair value (b)		7,937	Broker Quotes	Third Party Mark		70.92 – 70.92		70.92
Mortgage backed securities, at fair value		126	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		72,295	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		10,016	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

(b)Price ranges and weighted averages exclude interest-only strips with a fair value of $1.5 million as of December 31, 2017.

The fair value measurements of these assets are sensitive to changes in assumptions regarding prepayment, probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or developments in the real estate market. Significant changes in any of those inputs in isolation may result in significantly higher or lower fair value measurements. Generally, an increase in the probability of default and loss severity in the event of default would result in a lower fair value measurement. A decrease in these assumptions would have the opposite effect. Conversely, an assumption that the home prices will increase would result in a higher fair value measurement. A decrease in the assumption for home prices would have the opposite effect.

Financial instruments not carried at fair value

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the consolidated balance sheets and are classified as Level 3:

	December 31, 2018				December 31, 2017
(In Thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Loans, net	$	2,391,702	$	2,434,185	$	1,665,950	$	1,737,361
Servicing rights		26,997		28,441		21,743		23,432
Total assets	$	2,418,699	$	2,462,626	$	1,687,693	$	1,760,793
Liabilities:
Secured borrowings	$	834,547	$	834,547	$	637,393	$	637,393
Securitized debt obligations of consolidated VIEs, net		905,367		918,536		598,148		613,676
Senior secured note, net		178,870		176,981		138,078		144,376
Guaranteed loan financing		229,678		236,804		293,045		306,964
Convertible notes, net		109,979		101,581		108,991		108,301
Total liabilities	$	2,258,441	$	2,268,449	$	1,775,655	$	1,810,710

Other assets totaling $14.5 million at December 31, 2018 and $16.5 million at December 31, 2017 are not carried at fair value and include Due from servicers and Accrued interest, which are reflected in Note 17. Receivable from third parties totaling $8.9 million at December 31, 2018 and $6.8 million at December 31, 2017 are not carried at fair value. For these instruments, carrying value approximates fair value and are classified as Level 3.

Accounts payable and other accrued liabilities totaling $16.8 million at December 31, 2018 and $12.4 million at December 31, 2017 are not carried at fair value and include Payable to related parties and Accrued interest payable which are included in Note 17. For these instruments, carrying value approximates fair value and are classified as Level 3.

144

Note 7 – Mortgage Backed Securities

The following table presents certain information about the Company’s MBS portfolio, which are classified as trading securities and carried at fair value, as of December 31, 2018 and 2017.

		Weighted
	Weighted	Average								Gross		Gross
	Average	Interest		Principal		Amortized				Unrealized		Unrealized
(In Thousands)	Maturity (a)	Rate (a)		Balance		Cost		Fair Value		Gains		Losses
December 31, 2018
Mortgage backed securities, at fair value
Freddie Mac Loans	05/2037	4.5	%	$	97,066	$	70,819	$	75,591	$	4,826	$	(54)
Commercial Loans	11/2049	5.5			20,666		16,228		16,231		30		(27)
Tax Liens	09/2026	6.0			116		116		115		—		(1)
Total Mortgage backed securities, at fair value	07/2039	4.7	%	$	117,848	$	87,163	$	91,937	$	4,856	$	(82)
December 31, 2017
Mortgage backed securities, at fair value
Freddie Mac Loans	12/2034	5.3	%	$	49,767	$	37,287	$	38,568	$	2,529	$	(1,248)
Commercial Loans	06/2043	5.5			4,513		1,054		1,228		174		—
Tax Liens	09/2026	6.0			127		127		126		—		(1)
Total Mortgage backed securities, at fair value	08/2035	5.3	%	$	54,407	$	38,468	$	39,922	$	2,703	$	(1,249)

(a) Weighted based on current principal balance

The following table presents certain information about the maturity of the Company’s MBS portfolio as of December 31, 2018 and 2017.

	Weighted
	Average
	Interest		Principal		Amortized
(In Thousands)	Rate (a)		Balance		Cost		Fair Value
December 31, 2018
Mortgage backed securities, at fair value
After five years through ten years	10.6	%	$	3,406	$	3,103	$	3,520
After ten years	4.5			114,442		84,060		88,417
Total Mortgage backed securities, at fair value	4.7	%	$	117,848	$	87,163	$	91,937
December 31, 2017
Mortgage backed securities, at fair value
After five years through ten years	8.9	%	$	8,919	$	8,205	$	8,904
After ten years	4.6			45,488		30,263		31,018
Total	5.3	%	$	54,407	$	38,468	$	39,922

(a) Weighted based on current principal balance

Note 8 – Servicing rights

The Company performs servicing activities for third parties, which primarily include collecting principal, interest and other payments from borrowers, remitting the corresponding payments to investors and monitoring delinquencies. The Company’s servicing fees are specified by pooling and servicing agreements.

145

The following table presents information about the Company’s portfolios of servicing rights:

	Year Ended December 31,
(In Thousands)	2018		2017
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	16,684	$	20,276
Additions due to loans sold, servicing retained		3,569		1,996
Acquisitions		362		—
Amortization		(3,418)		(4,034)
(Impairment)		(448)		(1,554)
Ending net carrying value of SBA servicing rights	$	16,749	$	16,684
Freddie Mac multi-family servicing rights, at amortized cost
Beginning net carrying amount	$	5,059	$	2,202
Additions due to loans sold, servicing retained		6,832		3,290
Amortization		(1,643)		(610)
Recovery		—		177
Ending net carrying value of Freddie Mac multi-family servicing rights	$	10,248	$	5,059
Ending net carrying value of SBA and Freddie Mac multi-family servicing rights, at amortized cost	$	26,997	$	21,743
Residential mortgage servicing rights, at fair value
Beginning Balance	$	72,295	$	61,376
Additions due to loans sold, servicing retained		20,974		20,565
Loan pay-offs		(5,899)		(5,646)
Unrealized gains (losses)		5,695		(4,000)
Ending fair value of residential mortgage servicing rights	$	93,065	$	72,295
Total servicing rights	$	120,062	$	94,038

Servicing rights – SBA and Freddie Mac multi-family

The Company’s SBA and Freddie Mac multi-family servicing rights are carried at the lower of cost or amortized cost. The Company estimates the fair value of the SBA and Freddie Mac multi-family servicing rights carried at amortized cost using a combination of internal models and data provided by third-party valuation experts. The assumptions used in our internal models include forward prepayment rates, forward default rates, discount rates, and servicing expenses.

The Company’s models calculate the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. We derive forward prepayment rates, forward default rates and discount rates from historical experience adjusted for prevailing market conditions. Components of the estimated future cash flows include servicing fees, late fees, other ancillary fees and cost of servicing.

The following table presents additional information about the Company’s SBA and Freddie Mac multi-family servicing rights:

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Carrying Value		Amount		Carrying Value
SBA	$	506,155	$	16,749	$	427,623	$	16,684
Freddie Mac multi-family		964,377		10,248		559,823		5,059
Total	$	1,470,532	$	26,997	$	987,446	$	21,743

The significant assumptions used in the December 31, 2018 and 2017 estimated valuation of the Company’s SBA and Freddie Mac multi-family servicing rights carried at amortized cost include:

December 31, 2018 December 31, 2017

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		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights (at amortized cost)
	• Forward prepayment rate	3.8	-	20.2	%	9.2	%	2.4	-	20.5	%	11.5	%
	• Forward default rate	0.0	-	12.2	%	6.4	%	0.0	-	9.5	%	2.7	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.4	-	0.4	%	0.4	%	0.4	-	0.4	%	0.4	%
Freddie Mac multi-family servicing rights (at amortized cost)
	• Forward prepayment rate	0.0	-	35.0	%	5.0	%	0.0	-	13.0	%	4.2	%
	• Forward default rate	0.0	-	2.0	%	1.3	%	0.0	-	2.0	%	2.0	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.2	-	0.2	%	0.2	%	0.2	-	0.2	%	0.2	%

These assumptions can change between and at each reporting period as market conditions and projected interest rates change.

The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the carrying amount of the Company’s SBA and Freddie Mac multi-family servicing rights.

(In Thousands)	December 31, 2018		December 31, 2017
SBA servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(470)	$	(514)
20% adverse change		(915)		(998)
• Default rate
10% adverse change	$	(63)	$	(24)
20% adverse change		(125)		(48)
• Discount rate
10% adverse change	$	(579)	$	(520)
20% adverse change		(1,118)		(1,008)
Freddie Mac multi-family servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(63)	$	(43)
20% adverse change		(124)		(84)
• Default rate
10% adverse change	$	(11)	$	(6)
20% adverse change		(22)		(12)
• Discount rate
10% adverse change	$	(490)	$	(270)
20% adverse change		(791)		(518)

The estimated future amortization expense for the servicing rights is expected to be as follows:

(In Thousands)	December 31, 2018
2019	$	5,054
2020		4,324
2021		3,684
2022		3,126
2023		2,629
Thereafter		8,180
Total	$	26,997

Residential mortgage servicing rights

The Company's residential mortgage servicing rights consist of conforming conventional loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Similarly, the government loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veteran Affairs.

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The following table presents additional information about the Company’s residential mortgage servicing rights carried at fair value:

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Fair Value		Amount		Fair Value
Fannie Mae	$	2,848,435	$	34,562	$	2,524,897	$	26,929
Ginnie Mae		2,350,301		29,586		2,134,772		24,135
Freddie Mac		2,267,943		28,917		1,898,786		21,231
Total	$	7,466,679	$	93,065	$	6,558,455	$	72,295

The significant assumptions used in the valuation of the Company’s residential mortgage servicing rights carried at fair include:

		December 31, 2018						December 31, 2017
		Range of input values				Weighted Average		Range of input values				Weighted Average
Residential mortgage servicing rights (at fair value)
	• Forward prepayment rate	6.1	-	13.9	%	8.4	%	7.0	-	29.2	%	8.8	%
	• Discount rate	9.0	-	11.1	%	9.7	%	10.5	-	13.0	%	10.9	%
	• Servicing expense	$ 70	-	$ 85		$ 75		$ 65	-	$ 75		$ 70

The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the fair value of the Company’s residential mortgage servicing rights.

(In Thousands)	December 31, 2018		December 31, 2017
Prepayment rate
10% adverse change	$	(3,281)	$	(2,721)
20% adverse change		(6,330)		(4,928)
Discount rate
10% adverse change	$	(3,716)	$	(3,029)
20% adverse change		(7,159)		(5,823)
Cost of servicing
10% adverse change	$	(1,683)	$	(1,230)
20% adverse change		(3,365)		(2,460)

Note 9 – Residential mortgage banking activities and variable expenses on residential mortgage banking activities

Residential mortgage banking activities, reflects revenue within our residential mortgage banking business directly related to loan origination and sale activity. This primarily consists of the realized gains on sales of residential loans held for sale and loan origination fee income. Residential mortgage banking activities also consists of unrealized gains and losses associated with the changes in fair value of the loans held for sale, the fair value of retained MSR additions, and the realized and unrealized gains and losses from derivative instruments.

Variable expenses include correspondent fee expenses and other direct expenses relating to these loans, which vary based on loan origination volumes.

The following table presents the components of residential mortgage banking activities and variable expenses on residential mortgage banking activities recorded in the Company’s consolidated statements of operations.

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Realized and unrealized gains and losses of residential mortgage loans held for sale, at fair value	$	36,240	$	63,024	$	2,943
Creation of new mortgage servicing rights, net of payoffs		15,075		14,919		3,157
Loan origination fee income on residential mortgage loans		9,371		8,193		1,404
Unrealized gains (loss) on IRLCs and other derivatives		(834)		(2,699)		126
Residential mortgage banking activities	$	59,852	$	83,437	$	7,630
Variable expenses on residential mortgage banking activities	$	(22,228)	$	(41,737)	$	(597)

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Note 10 – Secured Borrowings

The following tables present certain characteristics of our secured borrowings:

					Pledged Assets Carrying Value at				Carrying Value of Borrowing at
(In Thousands)	Maturity	Pricing	Facility Size		December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
Borrowings under credit facilities
JPMorgan - Commercial (1)	May 2019	1M L + 2.50%	$	225,000	$	85,393	$	107,697	$	68,417	$	60,459
Keybank - Commercial (2)	February 2019	1M L + 1.75%		125,000		23,322		67,589		22,973		66,642
East West - Commercial (3)	July 2020	Prime - 0.821 to + 0.029%		30,000		37,255		—		27,443		—
Comerica - Residential (4)	March 2019	1M L + 1.625 to 2.125%		125,000		35,860		71,035		40,231		67,336
Associated Bank - Residential (4)	August 2019	1M L + 1.75%		40,000		13,653		29,242		15,907		27,699
Origin Bank - Residential (4)	July 2019	1M L + 2.00%		40,000		16,831		27,891		12,870		26,538
East West - Residential (4)	September 2023	1M L + 2.50%		50,000		63,479		—		8,500		—
FCB - Commercial (5)	June 2021	2.75%		2,974		3,219		7,752		2,974		6,107
Total borrowings under credit facilities (10)			$	637,974	$	279,012	$	311,206	$	199,315	$	254,781
Borrowings under repurchase agreements
Deutsche Bank- Commercial (6)	February 2020	3M L + 2.30 to 2.80%	$	300,000	$	310,797	$	252,499	$	239,972	$	173,811
JPMorgan - Commercial (7)	December 2020	1M L + 2.25 to 4.00%		200,000		144,337		90,829		96,343		55,355
Citibank - Commercial (8)	June 2019	1M L + 2.125 to 2.50%		500,000		230,140		150,707		194,117		88,095
JPMorgan - MBS (9)	March 2019	3.63 to 5.22%		24,881		39,882		80,690		24,881		53,325
Deutsche Bank - MBS (8)	February 2019	4.36%		17,425		24,536		—		17,425		—
Citibank - MBS (9)	-	-		—		—		11,496		—		5,957
RBC - MBS (9)	April 2019	3.97 to 4.42%		62,494		83,818		8,778		62,494		6,069
Total borrowings under repurchase agreements (11)			$	1,104,800	$	833,510	$	594,999	$	635,232	$	382,612
Total secured borrowings			$	1,742,774	$	1,112,522	$	906,205	$	834,547	$	637,393

(1) Borrowings are used to finance SBC and SBA loan acquisitions, and SBA loan originations.

(2) Borrowings are used to finance Freddie Mac SBC loan originations.

(3) Borrowings are used to finance SBA loan acquisitions and loan originations.

(4) Borrowings are used to finance Residential Agency loan originations.

(5) Borrowings are used to finance SBC loan acquisitions.

(6) Borrowings are used to finance SBC loan originations.

(7) Borrowings are used to finance SBC loan originations, Transitional loan originations, and SBC loan acquisitions.

(8) Borrowings are used to finance SBC loan originations and SBC loan acquisitions.

(9) Borrowings are used to finance Mortgage backed securities and Retained interests in consolidated VIE's.

(10) The weighted average interest rate of borrowings under credit facilities was 4.6% and 3.9% as of December 31, 2018 and 2017, respectively.

(11) The weighted average interest rate of borrowings under repurchase agreements was 4.0% and 4.1% as of December 31, 2018 and 2017, respectively.

The following table presents the carrying value of the Company’s collateral pledged with respect to secured borrowings and promissory note payable outstanding with our lenders:

	Pledged Assets Carrying Value at
(In Thousands)	December 31, 2018		December 31,  2017
Collateral pledged - borrowings under credit facilities
Loans, net	$	215,533	$	310,885
Mortgage servicing rights		63,479		—
Real estate acquired in settlement of loans		—		321
Total collateral pledged on borrowings under credit facilities	$	279,012	$	311,206
Collateral pledged - borrowings under repurchase agreements
Loans, net	$	685,274	$	494,035
Mortgage backed securities		112,552		37,397
Retained interest in assets of consolidated VIEs		35,684		63,567
Total collateral pledged on borrowings under repurchase agreements	$	833,510	$	594,999
Total collateral pledged on secured borrowings	$	1,112,522	$	906,205

The agreements governing the Company’s secured borrowings and promissory note require the Company to maintain certain financial and debt covenants. The Company was in compliance with all debt and financial covenants as of December 31, 2018 and 2017.

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Note 11 – Senior secured notes, Convertible notes, and Corporate debt, net

Senior secured notes, net

During 2017, ReadyCap Holdings LLC, 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 and issue price) to the notes issued during 2017 (collectively “the Senior Secured Notes”). The additional $40.0 million in Senior Secured Notes were priced with a yield to par call date of 6.5%. Payments of the amounts due on the Senior Secured Notes are fully and unconditionally guaranteed by the Company and its subsidiaries: Sutherland Partners LP, Sutherland Asset I, LLC, and ReadyCap Commercial, LLC. The funds were used to fund new SBC and SBA loan originations and new SBC loan acquisitions.

As of December 31, 2018, we were in compliance with all covenants with respect to the Senior Secured Notes.

Convertible notes, net

On August 9, 2017, the Company closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023 (“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 notes will be convertible by holders into shares of the Company's common stock at an initial conversion rate of 1.4997 shares of common stock per $25 principal amount of the notes, which is equivalent to an initial conversion price of approximately $16.67 per share of common stock. Upon conversion, holders will receive, at the Company's discretion, cash, shares of the Company's common stock or a combination thereof.

The Company may redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, 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 the Company 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.

The Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occur.

At issuance, we allocated $112.7 million and $2.3 million of the carrying value of the Convertible Notes to its debt and equity components, respectively, before the allocation of deferred financing costs. As of December 31, 2018, we were in compliance with all covenants with respect to the Convertible Notes.

Corporate debt, net

On April 27, 2018, the Company completed the public offer and sale of $50,000,000 aggregate principal amount of its 6.50% Senior Notes due 2021 (“Corporate debt” or “Notes”). The Company issued the Notes under a base indenture, dated August 9, 2017, as supplemented by the second supplemental indenture, dated as of April 27, 2018, between the Company and U.S. Bank National Association, as trustee. The Notes bear 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, beginning on July 30, 2018. The Notes will mature on April 30, 2021, unless earlier redeemed or repurchased.

Prior to April 30, 2019, the Notes will not be redeemable by the Company. The Company may redeem for cash all or any portion of the Notes, at its option, on or after April 30, 2019 and before April 30, 2020 at a redemption price equal to 101% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the

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redemption date. On or after April 30, 2020, the Company may redeem for cash all or any portion of the Notes, at its option, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a change of control repurchase event, holders may require it to purchase the Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 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 Indenture.

The Notes are the Company’s senior direct 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 Notes rank equal in right of payment to any of the Company’s existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its 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 the Company) preferred stock, if any, of its subsidiaries.

As of December 31, 2018, we were in compliance with all covenants with respect to the corporate debt.

The following table presents the components of the Senior Secured Notes, Convertible Notes, and Corporate debt, including the carrying value for the aggregate contractual maturities, on the consolidated balance sheet:

(in thousands, except rates)	Coupon Rate		Maturity Date	December 31, 2018
Senior secured notes principal amount(1)	7.50	%	2/15/2022	$	180,000
Unamortized premium - Senior secured notes					2,389
Unamortized deferred financing costs - Senior secured notes					(3,519)
Total Senior secured notes, net				$	178,870
Convertible notes - principal amount (2)	7.00	%	8/15/2023		115,000
Unamortized discount - Convertible notes (3)					(1,805)
Unamortized deferred financing costs - Convertible notes					(3,216)
Total Convertible notes, net				$	109,979
Corporate debt principal amount(4)	6.50	%	4/30/2021	$	50,000
Unamortized deferred financing costs - Corporate debt					(1,543)
Total Corporate debt, net				$	48,457
Total carrying amount of debt components				$	337,306
Total carrying amount of conversion option of equity components recorded in equity				$	1,805

(1) Interest on the Senior Secured Notes is payable semiannually on each February 15 and August 15, beginning on August 15, 2017.

(2) Interest on the Convertible Notes is payable quarterly on February 15, May 15, August 15, and November 15 of each year, beginning on November 15, 2017.

(3) Represents the discount created by separating the conversion option from the debt host instrument. 

(4) Interest on the corporate debt is payable January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018.

The following table presents the contractual maturities of the Senior Secured Notes, Convertible Notes, and Corporate debt:

(In Thousands)	December 31, 2018
2019	$	—
2020		—
2021		48,457
2022		178,870
2023		109,979
Thereafter		—
Total	$	337,306

Note 12 – Guaranteed loan financing

Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated balance sheets and the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is

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recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

The following table presents guaranteed loan financing and the related interest rates and maturity dates:

	Weighted		Range of
	Average		Interest	Range of
(In Thousands)	Interest Rate		Rates	Maturities (Years)	Ending Balance
December 31, 2018	4.46	%	1.70 – 8.00 %	2019 - 2038	$	229,678
December 31, 2017	3.51	%	1.62 – 7.00 %	2018 - 2038	$	293,045

The following table summarizes contractual maturities of total guaranteed loan financing outstanding:

(In Thousands)	December 31, 2018
2019	$	864
2020		1,412
2021		2,696
2022		3,444
2023		4,550
Thereafter		216,712
Total	$	229,678

Our guaranteed loan financings are secured by loans of $232.4 million and $296.9 million as of December 31, 2018 and 2017, respectively.

Note 13 – Variable Interest Entities and Securitization Activities

In the normal course of business, we enter into certain types of transactions with entities that are considered to be VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transfer assets to securitization trusts. We primarily securitize acquired SBC loans, originated transitional loans, and acquired SBA loans, which provides a source of funding for us and has enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

We also transfer originated loans to securitization trusts sponsored by third parties, most notably Freddie Mac. Third-party securitizations are securitization entities in which we maintain an economic interest but do not sponsor.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we have been involved in are consolidated in our financial statements. See Note 3 for a discussion of our accounting policies applied to the consolidation of the VIE and transfer of the loans in connection with the securitization.

Securitization-Related VIEs

Company sponsored securitizations

In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. Our primary securitization activity is in the form of SBC and SBA loan securitizations, conducted through securitization trusts which we consolidate, as we determined that we are the primary beneficiary.

For financial statement reporting purposes, since the underlying trust is consolidated, the securitization is effectively viewed as a financing of the loans that were securitized to enable the senior security to be created and sold to a third-party investor. As such, the senior security is presented on the consolidated balance sheets as securitized debt obligations of consolidated VIEs. The third-party beneficial interest holders in the VIE have no recourse against the Company, except that the Company has an obligation to repurchase assets from the VIE in the event that certain representations and warranties in relation to the loans sold to the VIE are breached. In the absence of such a breach, the Company has no obligation to provide any other explicit or implicit support to any VIE.

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The securitization trust receives principal and interest on the underlying loans and distributes those payments to the certificate holders. The assets and other instruments held by the securitization trust are restricted in that they can only be used to fulfill the obligations of the securitization trust. The risks associated with the Company’s involvement with the VIE is limited to the risks and rights as a certificate holder of the securities retained by the Company.

The consolidation of the securitization transactions includes the senior securities issued to third parties which are shown as securitized debt obligations of consolidated VIEs on the consolidated balance sheets. The following table presents additional information on the Company’s securitized debt obligations:

	December 31, 2018						December 31, 2017
	Current				Weighted		Current				Weighted
	Principal		Carrying		Average		Principal		Carrying		Average
(In Thousands)	Balance		value		Interest Rate		Balance		value		Interest Rate
Waterfall Victoria Mortgage Trust 2011-SBC2	$	12,226	$	12,226	5.4	%	$	16,010	$	16,010	5.3	%
ReadyCap Lending Small Business Trust 2015-1		3,397		1,180	3.4			25,057		22,733	2.5
Sutherland Commercial Mortgage Loans 2015-SBC4		—		—	—			10,049		9,687	4.0
Sutherland Commercial Mortgage Trust 2017-SBC6		69,764		68,574	3.3			119,784		117,868	3.3
Sutherland Commercial Mortgage Trust 2018-SBC7		205,451		202,491	4.7			—		—	—
ReadyCap Commercial Mortgage Trust 2014-1		36,108		36,129	4.5			33,953		33,951	3.6
ReadyCap Commercial Mortgage Trust 2015-2		110,497		106,755	4.2			151,993		147,271	4.1
ReadyCap Commercial Mortgage Trust 2016-3		63,945		62,053	3.7			98,733		95,907	3.5
ReadyCap Commercial Mortgage Trust 2018-4		144,701		140,314	3.9			—		—	—
Ready Capital Mortgage Financing 2017-FL1		63,615		61,902	3.7			158,978		154,721	2.8
Ready Capital Mortgage Financing 2018-FL2		217,057		213,743	3.4			—		—	—
Total	$	926,761	$	905,367	4.0	%	$	614,557	$	598,148	3.4	%

Repayment of our securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust that collateralize such debt. The actual cash flows from the securitized loans are comprised of coupon interest, scheduled principal payments, prepayments and liquidations of the underlying loans. The actual term of the securitized debt may differ significantly from our estimate given that actual interest collections, mortgage prepayments and/or losses on liquidation of mortgages may differ significantly from those expected.

Third-party sponsored securitizations

For Freddie Mac sponsored securitizations, we determined that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not manage these entities or otherwise solely hold decision making powers that are significant, which include special servicing decisions. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these trusts, we only account for our specific interests in them.

Other VIEs

Other VIEs include a variable interest that we hold in an acquired joint venture investment that we account for as an equity method investment. We do not consolidate these entities because we do not have the power to direct the activities that most significantly impact their economic performance, we only account for our specific interest in them.

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Assets and Liabilities of Consolidated VIEs

The following table reflects the securitized assets and liabilities for VIEs that we consolidate on our consolidated balance sheets:

(In Thousands)	December 31, 2018		December 31, 2017
Assets:
Cash and cash equivalents	$	—	$	25
Restricted cash		11,643		15,838
Loans, net		1,220,974		836,180
Real estate acquired in settlement of loans		176		3,443
Accrued interest		6,750		4,261
Due from servicers		11,514		1,915
Total assets	$	1,251,057	$	861,662
Liabilities:
Securitized debt obligations of consolidated VIEs, net		905,367		598,148
Total liabilities	$	905,367	$	598,148

Assets of Unconsolidated VIEs

The following table reflects our variable interests in identified VIEs, of which we are not the primary beneficiary, as of December 31, 2018:

	Carrying Amount				Maximum Exposure to Loss (1)
(In Thousands)	December 31,  2018		December 31,  2017		December 31,  2018		December 31,  2017
Assets:
Mortgage backed securities, at fair value(2)	$	75,591	$	38,568	$	75,591	$	38,568
Investment in unconsolidated joint venture		33,438		55,369		33,438		55,369
Total assets in unconsolidated VIEs	$	109,029	$	93,937	$	109,029	$	93,937
(1) Maximum exposure to loss is limited to the greater of the fair value or carrying value of the assets as of the consolidated balance sheet date.
(2) Retained interest in Freddie Mac sponsored securitizations.

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Note 14 – Interest Income and Interest Expense

Interest income and interest expense are recorded in the consolidated statements of income and classified based on the nature of the underlying asset or liability.

The following table presents the components of interest income and expense:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Interest income
Loans
Acquired SBA 7(a) loans	$	32,278	$	37,110	$	46,417
Acquired loans		46,154		34,720		44,122
Originated Transitional loans		48,499		25,323		8,608
Originated SBC loans, at fair value		3,599		7,769		13,457
Originated SBC loans		24,948		22,564		17,902
Originated SBA 7(a) loans		4,428		998		—
Originated Residential Agency loans		51		255		—
Total loans (1)	$	159,957	$	128,739	$	130,506
Held for sale, at fair value, loans
Originated Residential Agency loans	$	3,747	$	3,723	$	709
Originated Freddie loans		1,428		1,507		619
Originated SBA 7(a) loans		—		—		—
Acquired loans		153		993		299
Total loans, held for sale, at fair value	$	5,328	$	6,223	$	1,627
Mortgage backed securities, at fair value		4,214		3,343		4,890
Total interest income	$	169,499	$	138,305	$	137,023
Interest expense
Secured borrowings	$	(35,331)	$	(26,092)	$	(25,839)
Securitized debt obligations of consolidated VIEs		(36,988)		(23,387)		(17,619)
Guaranteed loan financing		(11,613)		(13,435)		(13,971)
Senior secured note		(13,702)		(8,069)		—
Convertible note		(8,748)		(3,427)		—
Corporate debt		(2,706)		—		—
Promissory note		(150)		(236)		(164)
Exchangeable senior notes		—		—		(179)
Total interest expense	$	(109,238)	$	(74,646)	$	(57,772)
Net interest income before provision for loan losses	$	60,261	$	63,659	$	79,251
(1) Includes interest income on loans in consolidated VIEs.

Note 15 – Derivative Instruments

The Company is exposed to changing interest rates and market conditions, which affect cash flows associated with borrowings. The Company uses derivative instruments to manage interest rate risk and conditions in the commercial mortgage market and, as such, views them as economic hedges. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for making payments based on a fixed interest rate over the life of the swap contract. CDS are executed in order to mitigate the risk of deterioration in the current credit health of the commercial mortgage market. IRLCs are entered into with customers who have applied for residential mortgage loans and meet certain underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and if the loan is not economically hedged or committed to an investor.

For derivative instruments that the Company has not elected hedge accounting, the fair value adjustments on such instruments are recorded in earnings. The fair value adjustments for interest rate swaps and CDS, along with the related interest income, interest expense and gains/(losses) on termination of such instruments, are reported as a net realized gain on financial instruments on the consolidated statements of income. The fair value adjustments for IRLCs, along with the related interest income, interest expense and gains/(losses) on termination of such instruments, are reported in residential mortgage banking activities on the consolidated statements of income.

As described in Note 3, for qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income/(loss) ("OCI") and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with

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the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings.

The following tables summarize the Company’s use of derivatives and their effect on the consolidated financial statements. Notional amounts included in the table are the average notional amounts on the consolidated balance sheet dates. We believe these are the most relevant measure of volume or derivative activity as they best represent the Company’s exposure to underlying instruments.

As of December 31, 2018 the Company had one open credit default swap contract and 64 open interest rate swap contracts with counterparties. As of December 31, 2017 the Company had one open credit default swap contract and 52 open interest rate swap contracts with counterparties.

		As of December 31, 2018						As of December 31, 2017
				Asset		Liability				Asset		Liability
		Notional		Derivatives		Derivatives		Notional		Derivatives		Derivatives
(In Thousands)	Primary Underlying Risk	Amount		Fair Value		Fair Value		Amount		Fair Value		Fair Value
Credit Default Swaps	Credit Risk	$	15,000	$	295	$	—	$	15,000	$	—	$	(66)
Interest Rate Swaps- not designated as hedges	Interest rate risk		411,811		—		(2,349)		391,381		2,898		(216)
Interest Rate Swaps - designated as hedges	Interest rate risk		134,325		—		(1,276)		—		—		—
Interest rate lock commitments	Interest rate risk		144,799		1,775		—		167,533		1,827		—
Total		$	705,935	$	2,070	$	(3,625)	$	573,914	$	4,725	$	(282)

The following tables summarize the gains and losses on the Company’s derivatives:

	Year Ended December 31, 2018
			Net Change in
	Net Realized		Unrealized
(In Thousands)	(Loss)		Gain (Loss)
Credit default swaps (1)	$	(703)	$	862
Interest rate swaps (1)(2)		4,272		(5,323)
Residential mortgage banking activities interest rate swaps (3)		—		(783)
Interest rate lock commitments (3)		—		(51)
Total	$	3,569	$	(5,295)
(1) Gains/ (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income. (2) For qualifying hedges of interest rate risk, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in accumulated other comprehensive income (loss). (3) Gains/ (losses) are recorded in residential mortgage banking activities in the consolidated statements of income.

The following tables summarize the gains and losses on the Company’s derivatives which have qualified for hedge accounting:

(In Thousands)	Derivatives - effective portion reclassified from AOCI to income		Hedge ineffectiveness recorded directly in income (2)		Total income statement impact		Derivatives-  effective portion recorded in OCI (3)		Total change in OCI for period (3)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	(954)	$	(954)
Total - Year ended December 31, 2018	$	—	$	—	$	—	$	(954)	$	(954)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	—	$	—
Total - Year ended December 31, 2017	$	—	$	—	$	—	$	—	$	—
(1) Consists of benchmark interest rate hedges of LIBOR-indexed floating-rate liabilities.
(2) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
(3) Represents after tax amounts recorded in OCI.

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Note 16 – Related Party Transactions

Management Agreement

The Company has entered into a management agreement with the Manager (the “Management Agreement”), which describes the services to be provided to us by the Manager and compensation for such services. The Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors.

Management Fee

Pursuant to the terms of the Management Agreement, our Manager is paid a management fee calculated and payable quarterly in arrears equal to 1.5% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement) up to $500 million and 1.00% per annum of stockholders’ equity in excess of $500 million.

The following table presents certain information on the management fee payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Management fee - total	$	8.2 million	$	8.1 million
Management fee - amount unpaid	$	2.1 million	$	2.0 million

Incentive Distribution

The Manager is entitled to an incentive distribution in an amount equal to the product of (i) 15% and (ii) the excess of (a) core earnings (as defined in the partnership agreement or our operating partnership) on a rolling four-quarter basis over (b) an amount equal to 8.00% per annum multiplied by the weighted average of the issue price per share of the common stock or OP units multiplied by the weighted average number of shares of common stock outstanding, provided that core earnings over the prior twelve calendar quarters (or the period since the closing of the ZAIS merger, whichever is shorter) is greater than zero. For purposes of determining the incentive distribution payable to our Manager, core earnings is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of Core Earnings described below under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” included in this quarterly report on Form 10-Q 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 Core Earnings described under "Non-GAAP Financial Measures".

The following table presents certain information on the incentive fee payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Incentive fee distribution - total	$	1.1 million	$	—
Incentive fee distribution - amount unpaid	$	0.5 million	$	—

The initial term of the Management Agreement extends for three years from the closing of the ZAIS merger and is automatically renewed for one-year terms on each anniversary thereafter. Following the initial term, the Management Agreement may be terminated upon the affirmative vote of at least two-thirds of our independent directors or the holders of a majority of the outstanding common stock (excluding shares held by employees and affiliates of the Manager), based upon (1) unsatisfactory performance by our Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of our independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the

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average annual management fee during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

Expense Reimbursement

In addition to the management fees and incentive distribution described above, the Company is also responsible for reimbursing the Manager for certain expenses paid by our Manager on behalf of the Company and for certain services provided by the Manager to the Company.Expenses incurred by the Manager and reimbursed by us are typically included in salaries and benefits or general and administrative expense on the consolidated statements of income.

The following table presents certain information on reimbursable expenses payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Reimbursable expenses payable to our Manager - total	$	4.9 million	$	4.9 million
Reimbursable expenses payable to our Manager - amount unpaid	$	3.1 million	$	2.4 million

Other

In March of 2018, the Company acquired 75 loans, net, from Waterfall Olympic Master Fund Grantor Trust, Series I, II, and III, which are also managed by our Manager for $51.6 million, including interest. The total unpaid principal balance of the loans was $51.8 million.

In June of 2017, the Company acquired four loans, net, from RCSF III, LLC, an entity also managed by our Manager for $57.3 million. The total unpaid principal balance of the loans was $57.0 million.

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, with Waterfall Victoria Master Fund, Ltd., a fund also managed by our Manager. The Company’s investment in the joint venture was $54.2 million.

Note 17 – Other Assets and Other Liabilities

The following table details the Company’s other assets and other liabilities as of the consolidated balance sheet dates.

(In Thousands)	December 31, 2018		December 31, 2017
Other assets:
Due from servicers	$	7,284	$	9,964
Accrued interest		7,253		6,494
Intangible assets		2,915		3,264
Real estate acquired in settlement of loans		7,787		1,644
Deferred financing costs		2,564		446
Deferred tax asset		18,084		17,155
Prepaid taxes		—		6,014
Deferred loan exit fees		8,668		5,798
Other		8,679		6,061
Total other assets	$	63,234	$	56,840
Accounts payable and other accrued liabilities:
Accrued salaries, wages and commissions	$	18,718	$	16,508
Servicing principal and interest payable		10,582		5,659
Repair and denial reserve		5,524		5,687
Liability under subservicing agreements		239		1,496
Unapplied cash		340		2,445
Accrued interest payable		14,244		10,317
Payable to related parties		2,580		2,042
Deferred tax liability		19,972		18,506
Other accounts payable and accrued liabilities		1,313		11,976
Total accounts payable and other accrued liabilities	$	73,512	$	74,636

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Real Estate Acquired in Settlement of Loans

The Company acquires real estate through the foreclosure of its loans and the occasional purchase of real estate. The Company’s real estate properties are held in the Company’s consolidated TRSs. The following tables summarize the carrying amount of the Company’s real estate holdings as of the consolidated balance sheet dates:

(In Thousands)	December 31, 2018		December 31, 2017
Texas	$	3,444	$	97
Missouri		2,526		—
Virginia		755		—
Florida		279		303
Illinois		—		863
Other		783		381
Total	$	7,787	$	1,644

Intangible assets

The following table presents information about the intangible assets held by the Company:

(In Thousands)	December 31, 2018		December 31, 2017		Estimated Useful Life
Trade name	$	852	$	1,017	15 years
Favorable lease		1,063		1,247	12 years
SBA license		1,000		1,000	Indefinite life
Total Intangible Assets	$	2,915	$	3,264

Amortization expense related to the intangible assets previously acquired for the years ended December 31, 2018 and 2017 was $0.4 million. Such amounts are recorded as other operating expenses in the consolidated statements of income.

At December 31, 2018, accumulated amortization for finite-lived intangible assets is as follows:

(In Thousands)	December 31, 2018
Trade name	$	371
Favorable lease		417
Total Accumulated Amortization	$	788

Amortization expense related to the finite-lived intangible assets for the five years subsequent to December 31, 2018 is as follows:

(In Thousands)	December 31, 2018
2019	$	311
2020		277
2021		248
2022		222
2023		195
Thereafter		662
Total	$	1,915

Loan indemnification reserve

A liability has been established for potential losses related to representations and warranties made by GMFS for loans sold with a corresponding provision recorded for loan indemnification losses. The liability is included in accounts payable and other accrued liabilities in the Company's consolidated balance sheets and the provision for loan indemnification losses is included in variable expenses on residential mortgage banking activities, in the Company's consolidated statements of income. In assessing the adequacy of the liability, management evaluates various factors including historical repurchases and indemnifications, historical loss experience, known delinquent and other problem loans, outstanding repurchase demand, historical rescission rates and economic trends and conditions in the industry. Actual losses incurred are reflected as a reduction of the reserve liability. At December 31, 2018 and 2017, the loan indemnification reserve was $1.7 million and $3.0 million, respectively.

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Because of the uncertainty in the various estimates underlying the loan indemnification reserve, there is a range of losses in excess of the recorded loan indemnification reserve that is reasonably possible. The estimate of the range of possible losses for representations and warranties does not represent a probable loss, and is based on current available information, significant judgment, and a number of assumptions that are subject to change. At December 31, 2018 and 2017, the reasonably possible loss above the recorded loan indemnification reserve was not considered material.

Note 18 – Other Income and Operating Expenses

The following table details the Company’s other income and operating expenses for the consolidated statements of income.

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Other income
Origination income	$	4,590	$	4,302	$	4,144
Release of repair and denial reserve		163		1,013		1,258
Other		833		2,095		3,759
Total other income	$	5,586	$	7,410	$	9,161
Other operating expenses
Origination costs	$	7,752	$	6,862	$	4,098
Technology expense		3,624		3,692		2,945
Charge off of real estate acquired in settlement of loans		1,086		756		1,833
Rent expense		2,524		2,314		1,449
Recruiting, training and travel expenses		2,287		2,389		1,320
Loan acquisition costs		1,458		600		—
Other		10,017		10,326		5,535
Total other operating expenses	$	28,747	$	26,939	$	17,180

Note 19 – Stockholders’ Equity

Common stock dividends

The following table presents cash dividends declared by our board of directors on our common stock from January 1, 2017 through December 31, 2018:

			Dividend per
Declaration Date	Record Date	Payment Date	Share
March 14, 2017	March 31, 2017	April 13, 2017	$	0.37
June 15, 2017	June 30, 2017	July 31, 2017	$	0.37
September 12, 2017	September 29, 2017	October 20, 2017	$	0.37
December 13, 2017	December 29, 2017	January 31, 2018	$	0.37
March 14, 2018	March 30, 2018	April 30, 2018	$	0.37
June 12, 2018	June 29, 2018	July 31, 2018	$	0.40
September 11, 2018	September 28, 2018	October 31, 2018	$	0.40
December 12, 2018	December 31, 2018	January 31, 2019	$	0.40

Stock incentive plan

The Company currently maintains the 2012 equity incentive plan (“the 2012 Plan”). The 2012 Plan authorizes the Compensation Committee to approve grants of equity-based awards to our officers, directors, and employees of the Manager and its affiliates. The equity incentive plan provides for grants of equity-based awards up to an aggregate of 5% of the shares of the Company’s common stock issued and outstanding from time to time on a fully diluted basis.

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The Company’s current policy for issuing shares upon settlement of stock-based incentive awards is to issue new shares.

The fair value of the RSUs and RSAs granted, which is determined based upon the stock price on the grant date, is recorded as compensation expense on a straight-line basis over the vesting periods for the awards, with an offsetting increase in stockholders’ equity.

The following table summarizes the Company’s RSU and RSA activity for the years ended December 31, 2018 and 2017:

	Independent Director RSUs					Employee RSAs
(In Thousands, except share data)	Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)		Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)
Outstanding, January 1	—	$	—	$	—	—	$	—	$	—
Granted	40,000		580		14.50	25,851		380		14.70
Vested	(40,000)		(580)		14.50	—		—		—
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2017	—	$	—	$	—	25,851	$	380	$	14.70
Granted	23,104		320		13.85	101,670		1,408		13.85
Vested	(23,104)		(320)		13.85	(8,617)		(127)		14.70
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2018	—	$	—	$	—	118,904	$	1,661	$	13.97

At December 31, 2018 and 2017, there were 23,104 and 40,000 of fully vested RSUs that were not yet issued as common stock.

During the year ended December 31, 2018 and 2017, the Company recognized $0.6 and $0.7 million of noncash compensation expense related to its stock-based incentive plan in our consolidated statements of income, respectively.

At December 31, 2018 and 2017, approximately $1.2 million and $0.3 million of noncash compensation expense related to unvested awards had not yet been charged to net income. These costs are expected to be amortized into compensation expense ratably over the course of the remainder of the respective vesting periods.

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Note 20 – Earnings per Share of Common Stock

The following table provides information on the basic and diluted earnings per share computations, including the number of shares of common stock used for purposes of these computations.

	Year Ended December 31,
(In Thousands, except for share and per share amounts)	2018		2017		2016
Basic Earnings
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Basic earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Loss from discontinued operations		-		-		(2,158)
Basic — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Diluted Earnings
Continuing Operations
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Diluted earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Basic — Loss from discontinued operations		-		-		(2,158)
Diluted  — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Number of Shares
Basic — Average shares outstanding		32,085,975		31,350,102		26,647,981	(1)
Effect of dilutive securities — Unvested participating shares		16,209		1,509		-
Diluted — Average shares outstanding		32,102,184		31,351,611		26,647,981
Basic
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
Diluted
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
(1) Retroactively adjusted for the equivalent number of shares after the reverse acquisition using an exchange rate of 0.8356.

Participating unvested RSUs were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.

Additionally, as of December 31, 2018, there are potential shares of common stock contingently issuable upon the conversion of the Convertible Notes in the future. The Company has asserted its intent and ability to settle the principal amount of the Convertible Notes in cash.Based on this assessment, the Company determined that it would be appropriate to apply a method similar to the treasury stock method, such that contingently issuable common stock is assessed quarterly along with our other potentially dilutive instruments. In order to compute the dilutive effect, the number of shares included in the denominator of diluted EPS is determined by dividing the “conversion spread value” of the share-settled portion (value above accreted value of face value and interest component) of the instrument by the share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the bond upon an assumed conversion. As of December 31, 2018, the conversion spread value is currently zero, since the closing price of our common stock does not exceed the conversion rate (strike price) and is “out-of-the-money”, resulting in no impact on diluted EPS.

Certain investors own OP units in our operating partnership. An OP unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the operating partnership. OP unit holders have the right to redeem their OP units, subject to certain restrictions. The redemption is required to be satisfied in shares of common stock or cash at the Company's option, calculated as follows:

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one share of the Company's common stock, or cash equal to the fair value of a share of the Company's common stock at the time of redemption, for each OP unit. When an OP unit holder redeems an OP unit, non-controlling interests in the operating partnership is reduced and the Company's equity is increased. At December 31, 2018 and 2017, the non-controlling interest OP unit holders owned 1,117,169 and 1,150,827, OP units, respectively.

Note 21 – Offsetting Assets and Liabilities

In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company may enter into an International Swaps and Derivatives Association (“ISDA”) Master Agreement with multiple derivative counterparties. An ISDA Master Agreement, published by ISDA, is a bilateral trading agreement between two parties that allow both parties to enter into over-the-counter (“OTC”), derivative contracts. The ISDA Master Agreement contains a Schedule to the Master Agreement and a Credit Support Annex, which governs the maintenance, reporting, collateral management and default process (netting provisions in the event of a default and/or a termination event). Under an ISDA Master Agreement, the Company may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default, including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Company’s stockholders’ equity declines by a stated percentage or the Company fails to meet the terms of its ISDA Master Agreements, which would cause the Company to accelerate payment of any net liability owed to the counterparty.  As of December 31, 2018 and 2017 and for the periods then ended, the Company was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.

For derivatives traded under an ISDA Master Agreement, the collateral requirements are listed under the Credit Support Annex, which is the sum of the mark to market for each derivative contract, the independent amount due to the derivative counterparty and any thresholds, if any. Collateral may be in the form of cash or any eligible securities, as defined in the respective ISDA agreements. Cash collateral pledged to and by the Company with the counterparty, if any, is reported separately on the consolidated balance sheets as restricted cash. All margin call amounts must be made before the notification time and must exceed a minimum transfer amount threshold before a transfer is required. All margin calls must be responded to and completed by the close of business on the same day of the margin call, unless otherwise specified. Any margin calls after the notification time must be completed by the next business day. Typically, the Company and its counterparties are not permitted to sell, rehypothecate or use the collateral posted. To the extent amounts due to the Company from its counterparties are not fully collateralized, the Company bears exposure and the risk of loss from a defaulting counterparty. The Company attempts to mitigate counterparty risk by establishing ISDA agreements with only high grade counterparties that have the financial health to honor their obligations and diversification, entering into agreements with multiple counterparties.

In accordance with ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, the Company is required to disclose the impact of offsetting of assets and liabilities represented in the consolidated balance sheets to enable users of the consolidated financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities.  These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master Agreements or meet the following right of setoff criteria: (a) the amounts owed by the Company to another party are determinable, (b) the Company has the right to set off the amounts owed with the amounts owed by the counterparty, (c) the Company intends to set off, and (d) the Company’s right of setoff is enforceable at law.  As of December 31, 2018 and 2017, the Company has elected to offset assets and liabilities associated with its OTC derivative contracts in the consolidated balances sheets.

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The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets and liabilities presented in the consolidated balance sheet as of December 31, 2018:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Credit default swaps	$	295	$	—	$	295	$	—	$	295	$	—
Total	$	295	$	—	$	295	$	—	$	295	$	—

			Gross		Liabilities
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Liabilities		Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	3,625	$	—	$	3,625	$	—	$	3,625	$	—
Secured borrowings		831,574		—		831,574		831,574		—		—
Promissory note		2,973		—		2,973		2,973		—		—
Total	$	838,172	$	—	$	838,172	$	834,547	$	3,625	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets and liabilities presented in the consolidated balance sheet as of December 31, 2017:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Interest rate swaps	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—
Total	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—

					Liabilities
			Gross		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Amounts		the		Balance Sheets  (1)
	Amounts of		Offset in the		Consolidated				Cash
	Recognized		Consolidated		Balance		Financial		Collateral
(In Thousands)	Liabilities		Balance Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	216	$	—	$	216	$	—	$	216	$	—
Credit default swaps		66		—		66		—		66		—
Secured borrowings		631,286		—		631,286		631,286		—		—
Promissory note		6,107		—		6,107		6,107		—		—
Total	$	637,675	$	—	$	637,675	$	637,393	$	282	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

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Note 22 – Financial Instruments with Off-balance Sheet Risk, Credit Risk, and Certain Other Risks

In the normal course of business, the Company enters into transactions in various financial instruments that expose us to various types of risk, both on and off balance sheet. Such risks are associated with financial instruments and markets in which the Company invests. These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off balance sheet risk and prepayment risk.

Market Risk — Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments. We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest-bearing securities and equity securities.

Credit Risk — The Company is subject to credit risk in connection with our investments in SBC loans and SBC MBS and other target assets we may acquire in the future. The credit risk related to these investments pertains to the ability and willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed throughout the loan or security term. We believe that loan credit quality is primarily determined by the borrowers' credit profiles and loan characteristics. We seek to mitigate this 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.

The Company is also subject to credit risk with respect to the counterparties to derivative contracts. If a counterparty becomes bankrupt or otherwise fails to perform its obligation under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value.  If we are owed this fair market value in the termination of the derivative transaction and its claim is unsecured, we will be treated as a general creditor of such counterparty, and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in such circumstances. In addition, the business failure of a counterparty with whom we enter a hedging transaction will most likely result in its default, which may result in the loss of potential future value and the loss of our hedge and force us to cover our commitments, if any, at the then current market price.

Counterparty credit risk is the risk that counterparties may fail to fulfill their obligations, including their inability to post additional collateral in circumstances where their pledged collateral value becomes inadequate. The Company attempts to manage its exposure to counterparty risk through diversification, use of financial instruments and monitoring the creditworthiness of counterparties.

The Company finances the acquisition of a significant portion of its loans and investments with repurchase agreements and borrowings under credit facilities. In connection with these financing arrangements, the Company pledges its loans, securities and cash as collateral to secure the borrowings. The amount of collateral pledged will typically exceed the amount of the borrowings (i.e., the haircut) such that the borrowings will be over-collateralized. As a result, the Company is exposed to the counterparty if, during the term of the repurchase agreement financing, a lender should default on its obligation and the Company is not able to recover its pledged assets. The amount of this exposure is the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged by the Company to the lender including accrued interest receivable on such collateral.

GMFS sells loans to investors without recourse. As such, the investors have assumed the risk of loss or default by the borrower. However, GMFS is usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation and collateral. To the extent that GMFS does not comply with such representations, or there are early payment defaults, GMFS may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. In addition, if loans pay-off within a specified time frame, GMFS may be required to refund a portion of the sales proceeds to the investors.

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Liquidity Risk — Liquidity risk arises in our investments and the general financing of our investing activities.  It includes the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate positions in a timely manner at reasonable prices, in addition to potential increases in collateral requirements during times of heightened market volatility. If we were forced to dispose of an illiquid investment at an inopportune time, we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in SBC loans, MBS and other financial instruments.  Factors such as our expected exit strategy for, the bid to offer spread of, and the number of broker dealers making an active market in a particular strategy and the availability of long-term funding, are considered in analyzing liquidity risk.  To reduce any perceived disparity between the liquidity and the terms of the debt instruments in which we invest, we attempt to minimize our reliance on short-term financing arrangements. While we may finance certain investment in security positions using traditional margin arrangements and borrowings under repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer term financing vehicles may be utilized to attempt to provide us with sources of long-term financing.

Off‑Balance Sheet Risk —The Company has undrawn commitments on outstanding loans which are disclosed in Note 23.

Interest Rate — Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Generally, our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, subject to a floor, as determined by the particular financing arrangement. In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.  Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and interest-bearing liabilities.

Additionally, non-performing SBC 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 SBC 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 SBC financing.

Prepayment Risk — As we receive prepayments of principal on our investments, premiums paid on such investments will be amortized against interest income. In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments and this is also affected by interest rate movements. Conversely, discounts on such investments are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments. An increase in prepayment rates will also adversely affect the fair value of our MSRs.

Note 23 – Commitments, Contingencies and Indemnifications

Litigation

The Company may be subject to litigation and administrative proceedings arising in the ordinary course of its business.

The Company has entered into agreements, which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to these agreements. The Company’s individual maximum exposure under these

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arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on history and experience, the Company expects the risk of loss to be remote.

Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated financial statements.

Unfunded Loan Commitments

As of December 31, 2017, the Company had $9.6 million of unfunded loan commitments related to loans, held at fair value. As of December 31, 2018 and 2017, the Company had $161.7 million and $84.7 million of unfunded loan commitments related to loans, held-for-investment, respectively. As of December 31, 2018, the Company had $4.9 million of unfunded loan commitments related to loans, held for sale, at fair value.

Commitments to Originate Loans

GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not economically hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the borrower does not perform.

Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. As of December 31, 2018 and 2017, total commitments to originate loans were $124.0 million and $147.6 million, respectively.

Note 24 – Income Taxes

The Company is a REIT pursuant to IRC Section 856. Our qualification as a REIT depends on our ability to meet various requirements imposed by the Internal Revenue Code, which relate to our organizational structure, diversity of stock ownership and certain requirements with regard to the nature of our assets and the sources of our income. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four taxable years. As of December 31, 2018 and 2017, we are in compliance with all REIT requirements.

Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities that would not be qualifying income if earned directly by the parent REIT, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Internal Revenue Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.

Our TRSs engage in various real estate related operations, including originating and securitizing commercial and residential mortgage loans, and investments in real property. The majority of our TRSs are held within the SBC Originations, SBA Originations, Acquisitions and Servicing, and Residential Mortgage Banking segments. Our TRSs are not consolidated for federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred income taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act changed many aspects of U.S. corporate income taxation, including a reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system, and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. We recognized the tax effects of the Tax Act in our year ended December 31, 2017 results and recorded a $1.0 million

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income tax benefit which relates entirely to the re-measurement of deferred tax balances to the 21% tax rate. As of December 31, 2018, our accounting for the implications of the Tax Act is complete.

Our income tax provision consists of the following:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Current
Federal income tax (benefit)	$	356	$	(1,235)	$	6,441
State and local income tax (benefit)		169		(171)		947
Net current tax provision (benefit)		525		(1,406)		7,388
Deferred
Federal income tax		1,167		3,779		1,401
State and local income tax		(306)		613		583
Valuation allowance		—		(1,147)		279
Net deferred tax provision		861		3,245		2,263
Total income tax provision	$	1,386	$	1,839	$	9,651

The following table is a reconciliation of our federal income tax determined using our statutory federal tax rate to our reported income tax provision for the years ended December 31, 2018, 2017 and 2016:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
U.S. statutory tax	$	13,207	$	16,679	$	22,825
State and local income tax		464		569		2,322
Income attributable to REIT		(11,274)		(10,795)		(14,522)
Income attributable to Non-controlling interests		(400)		(568)		(1,251)
Nondeductible		(194)		748		21
Change in tax rate (a)		(554)		(727)		—
Change in valuation allowance		—		(1,147)		279
Return to Provision		(11)		(2,547)		—
Other		148		(373)		(23)
Effective income tax	$	1,386	$	1,839	$	9,651
(a) For 2017, the amount relates to the effects of revaluing our net deferred tax balances for the Tax Act that was enacted on December 22, 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are presented net by tax jurisdiction and are reported in other assets and other liabilities, respectively. The following table presents the tax effects of temporary differences on their respective net deferred tax assets and liabilities (in thousands):

(In Thousands)	December 31, 2018		December 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$	8,408	$	4,989
Unrealized losses		1,442		—
Accruals		2,815		—
Depreciation and amortization		986		997
Goodwill		3,927		3,110
Compensation		279		1,226
Other		227		1,240
Total deferred tax assets	$	18,084	$	11,562
Deferred tax liabilities:
Accruals	$	—	$	216
Loan / servicing rights balance		19,210		12,014
Derivative instruments		133		373
Other taxable temporary difference		629		310
Total deferred tax liabilities	$	19,972	$	12,913
Net deferred tax assets (liabilities)	$	(1,888)	$	(1,351)

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The Company has approximately $27.6 million of federal and $44.7 million of state net operating loss carryforwards which have expiration dates beginning 2033, with certain amounts having no expiration.

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases. We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of the future taxable income.

As of December 31, 2018, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax asset outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets, the cumulative net income in our consolidated statements of income in recent years, the future reversals of existing temporary differences, and the carryforward periods for any carryforwards of net operating losses.

The tables above do not include tax information on discontinued operations that occurred as of December 31, 2016. The tax rate on discontinued operations is approximately 39%. The difference between the statutory rate of 21% and the effective income tax rate is primarily due to state and local taxes.

As of December 31, 2018 and 2017, the Company had no uncertain tax positions recorded or disclosed in the financial statements. Additionally, it is the belief of management that the total amount of uncertain tax positions, if any, will not materially change over the next 12 months.

Our major tax jurisdictions where we file income tax returns include Federal, New York State and New York City. Our 2015 and forward tax years are subject to examination. The TRS major tax jurisdictions are Federal, Louisiana, New York State, New York City, New Jersey and California. For Federal and state purposes, with the exception of New Jersey, the TRS entities are subject to examination for the 2015 and forward tax years. For New Jersey, the TRS entities are subject to examination for the 2014 and forward tax years.

Note 25 – Segment Reporting

The Company reports its results of operations through the following four business segments: i) Loan Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking. The Company’s organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), uses to evaluate, view, and run its business operations, which includes customer base and nature of loan program types. The segments are based on this organizational structure and the information reviewed by the CODM and management to evaluate segment results.

Loan Acquisitions

Through the Loan Acquisitions segment, the Company acquires performing and non-performing SBC loans and intends to continue to acquire these loans as part of the Company’s business strategy.

SBC Originations

Through the SBC Originations segment, the Company originates SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels. Additionally, as part of this segment, we originate and service multi-family loan products under the Freddie Mac program. This segment also reflects the impact of our SBC securitization activities.

SBA Originations, Acquisitions, and Servicing

Through the SBA Originations, Acquisitions, and Servicing segment, the Company acquires, originates and services loans guaranteed by the SBA under the SBA Section 7(a) Program. This segment also reflects the impact of our SBA securitization activities.

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Residential Mortgage Banking

Through the Residential Mortgage Banking segment, the Company 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.

Corporate- Other

Corporate - Other consists primarily of unallocated corporate financing, including interest expense relating to our senior secured and convertible notes on funds yet to be deployed, allocated employee compensation from our Manager, management and incentive fees paid to our Manager and other general corporate overhead expenses.

Segment Realignment

Effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. Securitization activities on originated SBC and SBA loans were transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on loan type. The other change presents Corporate- Other amounts separately and no longer reflects these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

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Results of Business Segments and All Other

Reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other, for the year ended December 31, 2018 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	47,243	$	81,752	$	36,706	$	3,798	$	—	$	169,499
Interest expense		(28,946)		(60,879)		(16,218)		(3,195)		—		(109,238)
Net interest income before provision for loan losses	$	18,297	$	20,873	$	20,488	$	603	$	—	$	60,261
Provision for loan losses		(1,727)		(13)		39		—		—		(1,701)
Net interest income after provision for loan losses	$	16,570	$	20,860	$	20,527	$	603	$	—	$	58,560
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	59,852	$	—	$	59,852
Net realized gain on financial instruments		5,023		17,482		15,904		—		—		38,409
Net unrealized gain on financial instruments		(1,156)		142		173		5,694		—		4,853
Other income		368		4,366		621		200		31		5,586
Servicing income		20		1,396		5,390		20,269		—		27,075
Income from unconsolidated joint venture		12,148		—		—		—		—		12,148
Total non-interest income	$	16,403	$	23,386	$	22,088	$	86,015	$	31	$	147,923
Non-interest expense
Employee compensation and benefits		(386)		(8,815)		(13,077)		(33,401)		(923)		(56,602)
Allocated employee compensation and benefits from related party		(420)		—		—		—		(3,780)		(4,200)
Variable expenses on residential mortgage banking activities		—		—		—		(22,228)		—		(22,228)
Professional fees		(1,310)		(1,285)		(820)		(607)		(2,977)		(6,999)
Management fees – related party		—		—		—		—		(8,176)		(8,176)
Incentive fees – related party		—		—		—		—		(1,143)		(1,143)
Loan servicing expense		(3,926)		(3,883)		(260)		(7,444)		(32)		(15,545)
Other operating expenses		(3,214)		(10,392)		(4,070)		(8,254)		(2,817)		(28,747)
Total non-interest expense	$	(9,256)	$	(24,375)	$	(18,227)	$	(71,934)	$	(19,848)	$	(143,640)
Net income (loss) before provision for income taxes	$	23,717	$	19,871	$	24,388	$	14,684	$	(19,817)	$	62,843
Total assets	$	644,512	$	1,606,210	$	455,513	$	260,523	$	70,085	$	3,036,843

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Reportable segments for the year ended December 31, 2017 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	37,198	$	59,021	$	38,108	$	3,978	$	—	$	138,305
Interest expense		(16,741)		(35,121)		(16,098)		(3,145)		(3,541)		(74,646)
Net interest income before provision for loan losses	$	20,457	$	23,900	$	22,010	$	833	$	(3,541)	$	63,659
Provision for loan losses		(2,026)		(195)		(142)		—		—		(2,363)
Net interest income after provision for loan losses	$	18,431	$	23,705	$	21,868	$	833	$	(3,541)	$	61,296
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	83,437	$	—	$	83,437
Net realized gain on financial instruments		(323)		9,665		9,509		—		478		19,329
Net unrealized gain (loss) on financial instruments		1,628		8,125		1,315		(4,000)		(68)		7,000
Other income		1,766		3,983		1,513		148		—		7,410
Servicing income		197		824		4,624		17,349		—		22,994
Income on unconsolidated joint venture		1,048		—		—		—		—		1,048
Total non-interest income	$	4,316	$	22,597	$	16,961	$	96,934	$	410	$	141,218
Non-interest expense
Employee compensation and benefits		(576)		(8,509)		(10,505)		(34,601)		(848)		(55,039)
Allocated employee compensation and benefits from related party		(384)		—		—		—		(3,459)		(3,843)
Variable expenses on residential mortgage banking activities		—		—		—		(41,737)		—		(41,737)
Professional fees		(1,501)		(1,351)		(1,973)		(865)		(3,231)		(8,921)
Management fees – related party		—		—		—		—		(8,059)		(8,059)
Loan servicing expense		(2,981)		(2,355)		1,454		(6,441)		—		(10,323)
Other operating expenses		(4,285)		(9,666)		(4,076)		(6,677)		(2,235)		(26,939)
Total non-interest expense	$	(9,727)	$	(21,881)	$	(15,100)	$	(90,321)	$	(17,832)	$	(154,861)
Net income (loss) before provision for income taxes	$	13,020	$	24,421	$	23,729	$	7,446	$	(20,963)	$	47,653
Total assets	$	511,427	$	1,154,509	$	510,006	$	324,392	$	23,169	$	2,523,503

172

Reportable segments for the year ended December 31, 2016 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	49,311	$	40,586	$	46,417	$	709	$	—	$	137,023
Interest expense		(18,327)		(20,347)		(17,397)		(557)		(1,144)		(57,772)
Net interest income before provision for loan losses	$	30,984	$	20,239	$	29,020	$	152	$	(1,144)	$	79,251
Provision for loan losses		(6,419)		(86)		(1,314)		—		—		(7,819)
Net interest income after provision for loan losses	$	24,565	$	20,153	$	27,706	$	152	$	(1,144)	$	71,432
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	7,630	$	—	$	7,630
Net realized gain on financial instruments		(293)		2,290		4,604		—		313		6,914
Net unrealized gain (loss) on financial instruments		4,528		6,424		—		6,917		68		17,937
Other income		2,246		5,059		1,845		11		—		9,161
Servicing income		49		518		5,555		2,536				8,658
Gain on bargain purchase		—		—		—		—		15,218		15,218
Total non-interest income	$	6,530	$	14,291	$	12,004	$	17,094	$	15,599	$	65,518
Non-interest expense
Employee compensation and benefits		(337)		(9,359)		(9,391)		(5,578)		(162)		(24,827)
Allocated employee compensation and benefits from related party		(366)		—		—		—		(3,302)		(3,668)
Variable expenses on residential mortgage banking activities		—		—		—		(597)		—		(597)
Professional fees		(2,735)		(1,537)		(3,693)		359		(5,814)		(13,420)
Management fees – related party		—		—		—		—		(7,432)		(7,432)
Incentive fees – related party		—		—		—		—		—		—
Loan servicing expense		(2,743)		(1,348)		479		(999)		—		(4,611)
Other operating expenses		(3,604)		(6,864)		(3,798)		(1,074)		(1,840)		(17,180)
Total non-interest expense	$	(9,785)	$	(19,108)	$	(16,403)	$	(7,889)	$	(18,550)	$	(71,735)
Income from continuing operations before provision for income taxes	$	21,310	$	15,336	$	23,307	$	9,357	$	(4,095)	$	65,215
Total Assets	$	542,643	$	796,408	$	593,091	$	353,141	$	319,984	$	2,605,267

Note 26 – Discontinued Operations

In the fourth quarter of 2015, the Company determined Silverthread should be classified as held-for-sale due to management’s intent to sell the segment, the availability and active marketing of the segment for immediate sale and the high probability of a successful sale.

The sale of Silverthread closed in May of 2016, with an effective economic date of March 1, 2016. We negotiated an agreement with the buyer to receive $4.0 million. This amount was fully received in early 2019. As of December 31, 2018 and 2017, there were no assets or liabilities of the discontinued segment.

173

The primary components of discontinued operations are detailed in the table below:

		For the Year Ended December 31,
(In Thousands)		2018		2017		2016
Non-interest income
Commission income	$	—	$	—	$	2,984
Property management income		—		—		263
Other		—		—		16
Total non-interest income	$	—	$	—	$	3,263
Non-interest expense
Employee compensation and benefits	$	—	$	—	$	(1,071)
Professional fees		—		—		(138)
Commission expense		—		—		(1,844)
Technology expense		—		—		(171)
Rent expense		—		—		(268)
Tax expense		—		—		(3)
Recruiting, training, and travel expenses		—		—		(46)
Marketing expense		—		—		(29)
Other		—		—		(536)
Total non-interest expense	$	—	$	—	$	(4,106)
Loss on sale		—		—		(2,695)
Loss before income tax benefit	$	—	$	—	$	(3,538)
Income tax benefit		—		—		1,380
Loss on discontinued operations presented on the statements of income	$	—	$	—	$	(2,158)

Note 27 – Quarterly Financial Data (Unaudited)

The following table summarizes our quarterly financial data which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations (amounts in thousands, except per share amounts):

	March 31		June 30		September 30		December 31
2018
Net interest income after provision for loan losses	$	14,317	$	15,848	$	14,562	$	13,833
Non-interest income		42,747		40,288		42,761		22,125
Non-interest expense		(35,983)		(39,587)		(38,859)		(29,209)
Net income		18,518		15,884		17,569		9,486
Net income attributable to Ready Capital Corporation		17,854		15,296		16,931		9,177
Income (loss) from continuing operations - per share	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Basic	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Diluted	$	0.56	$	0.48	$	0.53	$	0.30
Dividends declared per share of common stock	$	0.37	$	0.40	$	0.40	$	0.40
2017
Net interest income after provision for loan losses	$	16,211	$	15,859	$	14,664	$	14,562
Non-interest income		27,015		38,564		38,370		37,269
Non-interest expense		(32,635)		(42,201)		(41,001)		(39,025)
Net income		9,557		11,153		12,374		12,730
Net income attributable to Ready Capital Corporation		8,856		10,496		11,841		12,097
Income (loss) from continuing operations - per share	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Basic	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Diluted	$	0.29	$	0.34	$	0.37	$	0.38
Dividends declared per share of common stock	$	0.37	$	0.37	$	0.37	$	0.37

Annual EPS may not equal the sum of each quarter’s EPS due to rounding and other computational factors.

174

Note 28  - Supplemental Financial Data

Summarized Financial Information of Our Unconsolidated Subsidiaries

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, which the Company has a 50% interest. Pursuant to the consolidation guidance, we determined our interest in the entity is a VIE, however, we do not consolidate the entity as we determined that we are not the primary beneficiary. WFLLA, LLC holds a 49.9% interest in another company, Girod HoldCo, LLC, whom owns and manages the day-to-day affairs and business associated with the SBC loan pool.

In accordance with Regulation S-X section 10-01(b)-1, unconsolidated entities that meet certain significance tests are required to have supplemental disclosures included in our consolidated financial statements, including condensed financial information for the years ended December 31, 2018 and 2017.

Statements of Income	Year Ended December 31, 2018
(In Thousands)		Girod HoldCo, LLC		WFLLA, LLC
Interest income	$	21,182	$	10,570
Realized gains		27,310		13,628
Unrealized gains		8,191		4,087
Servicing expense and other		(7,972)		(3,989)
Income before provision for income taxes	$	48,711	$	24,296

During the years ended December 31, 2018 and 2017, the Company recorded $12.1 million and $1.0 million of income, respectively, which is based on our proportional ownership interest in the entities above. This amount is reflected in Income from unconsolidated joint venture within the statement of income.

Note 29– Subsequent Events

In January 2019, the Company completed the securitization of $399.2 million of fixed-rate SBC loans and issued $355.8 million of senior bonds at a weighted average pass-through rate of 4.1%.

In March 2019, the Company extended one of our borrowings pursuant to a committed warehouse line of credit agreement used within our Residential mortgage banking business. The amended agreement has a maximum advance amount of $125.0 million and a pricing rate of LIBOR plus 1.6 to 2.2.%. 

175

Ready Capital Corporation

Schedule IV – Mortgage Loans on Real Estate

There are no individual loans that exceed 3% of the total carrying amount of all mortgages. The following table discloses the Company’s mortgage loans on real estate, categorized by product type:

Product Type	UPB Grouping	Loan Count	Interest Rate	Maturity Date	Carrying Value		UPB		UPB of loans subject to DQ principal or interest
Acquired Loans
	0 - 500k	602	0.00 - 18.00%	2004 - 2039	$	120,430	$	131,387	$	13,343
	500k - 1mm	159	3.50 - 10.25%	2019 - 2046		104,926		109,677		5,521
	1mm - 1.5mm	62	4.37 - 8.71%	2017 - 2038		70,490		74,323		4,668
	1.5mm - 2mm	28	5.00 - 7.64%	2019 - 2036		45,476		47,975		1,806
	2mm - 2.5mm	8	5.25 - 7.00%	2020 - 2030		17,902		18,146		2,440
	> 2.5mm	36	5.10 - 11.00%	2011 - 2034		189,479		191,434		3,368
Total Acquired Loans		895			$	548,703	$	572,942	$	31,146
Acquired SBA 7(a) loans
	0 - 500k	1254	0.00 - 10.50%	2012 - 2042	$	111,187	$	136,584	$	16,002
	500k - 1mm	176	4.75 - 8.00%	2014 - 2042		115,296		124,312		8,869
	1mm - 1.5mm	59	5.00 - 8.00%	2026 - 2041		69,080		73,794		5,071
	1.5mm - 2mm	4	6.00 - 8.00%	2035 - 2037		6,572		6,664		-
	2mm - 2.5mm	1	8.00 - 8.00%	2037 - 2037		2,290		2,242		-
	> 2.5mm	5	6.00 - 7.50%	2035 - 2038		14,063		14,381		-
Total Acquired SBA 7(a) loans		1,499			$	318,488	$	357,977	$	29,942
Originated Transitional loans
	0 - 500k	16	5.06 - 8.26%	2020 - 2023	$	3,047	$	3,089	$	-
	500k - 1mm	8	6.01 - 8.25%	2019 - 2023		6,558		6,562		-
	1mm - 1.5mm	7	4.76 - 8.79%	2019 - 2025		9,172		9,184		-
	1.5mm - 2mm	12	5.99 - 12.00%	2018 - 2026		20,020		19,997		-
	2mm - 2.5mm	7	6.35 - 8.44%	2019 - 2021		15,676		15,723		-
	> 2.5mm	89	5.44 - 9.19%	2018 - 2022		610,260		613,798		5,687
Total Originated Transitional loans		139			$	664,733	$	668,353	$	5,687
Originated Freddie loans
	1mm - 1.5mm	2	4.56 - 4.72%	2029 - 2039	$	2,968	$	2,900	$	-
	2mm - 2.5mm	2	4.88 - 4.95%	2024 - 2029		4,167		4,095		-
	> 2.5mm	3	4.70 - 5.14%	2024 - 2039		16,187		15,978		-
Total Originated Freddie loans		7			$	23,322	$	22,973	$	-
Originated Residential Agency loans
	0 - 500k	343	3.25 - 6.38%	2033 - 2049	$	66,867	$	64,713	$	1,563
	500k - 1mm	4	4.25 - 5.50%	2048 - 2049		2,807		2,773		-
Total Originated Residential Agency loans		347			$	69,674	$	67,486	$	1,563
Originated SBA 7(a) loans
	0 - 500k	379	6.50 - 8.00%	2023 - 2044	$	63,049	$	65,839	$	1,235
	500k - 1mm	43	6.25 - 8.00%	2028 - 2044		29,451		30,066		-
	1mm - 1.5mm	5	6.75 - 7.75%	2043 - 2043		5,870		5,874		1,105
	2mm - 2.5mm	1	6.75 - 6.75%	2043 - 2043		2,165		2,013		-
	> 2.5mm	2	6.75 - 7.25%	2043 - 2043		6,034		5,610		-
Total Originated SBA 7(a) loans		430			$	106,569	$	109,402	$	2,340
Originated SBC loans
	0 - 500k	9	5.09 - 6.30%	2024 - 2043	$	4,065	$	3,946	$	-
	500k - 1mm	46	4.50 - 7.42%	2019 - 2028		37,331		36,554		2,099
	1mm - 1.5mm	39	5.06 - 7.42%	2019 - 2029		48,694		47,847		2,443
	1.5mm - 2mm	42	4.56 - 7.52%	2019 - 2029		74,804		73,492		3,105
	2mm - 2.5mm	25	4.66 - 7.52%	2019 - 2032		57,715		56,698		4,241
	> 2.5mm	104	4.50 - 6.95%	2019 - 2038		554,799		547,111		16,515
Total Originated SBC loans		265			$	777,408	$	765,648	$	28,403
Originated SBC loans, at fair value
	1mm - 1.5mm	1	6.38 - 6.38%	2026 - 2026	$	1,438	$	1,376	$	-
	1.5mm - 2mm	1	5.25 - 5.25%	2027 - 2027		1,692		1,608		-
	2mm - 2.5mm	1	6.23 - 6.23%	2024 - 2024		2,318		2,235		-
	> 2.5mm	3	5.57 - 7.75%	2019 - 2019		17,216		17,106		-
Total Originated SBC loans, at fair value		6			$	22,664	$	22,325	$	-
General Allowance for Loan Losses						(1,937)
Total Loans		3,588			$	2,529,624	$	2,587,106	$	99,081

176

Reconciliation of mortgage loans on real estate:

The following tables reconcile mortgage loans on real estate, including loans in consolidated VIEs, from December 31, 2016 to December 31, 2018 ($ in thousands):

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2015	$	1,716,072	$	-	$	1,716,072
Origination of loan receivables		315,339		621,343		936,682
Purchases of loan receivables		98,683		-		98,683
Loans acquired in connection with reverse merger		-		189,197		189,197
Proceeds from disposition and principal payment of loan receivables		(479,965)		(645,954)		(1,125,919)
Net realized gain (loss) on sale of loan receivables		6,349		14,342		20,691
Net unrealized gain (loss) on loan receivables		4,131		(2,982)		1,149
Non-cash proceeds on creation of MSR		(951)		(5,166)		(6,117)
Accretion/amortization of discount, premium and other fees		26,809		-		26,809
Transfers		(11,968)		11,017		(951)
Provision for loan losses		(7,819)		-		(7,819)
Balance at December 31, 2016	$	1,666,680	$	181,797	$	1,848,477

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2016	$	1,666,680	$	181,797	$	1,848,477
Origination of loan receivables		454,975		2,508,153		2,963,128
Purchases of loan receivables		147,327		11,195		158,522
Proceeds from disposition and principal payment of loan receivables		(422,059)		(2,571,583)		(2,993,642)
Net realized gain (loss) on sale of loan receivables		(3,203)		78,798		75,595
Net unrealized gain (loss) on loan receivables		5,328		3,537		8,865
Accretion/amortization of discount, premium and other fees		13,825		-		13,825
Transfers		(4,125)		4,125		-
Transfers to Real estate owned		(2,285)		-		(2,285)
Provision for loan losses		(2,363)		-		(2,363)
Balance at December 31, 2017	$	1,854,100	$	216,022	$	2,070,122

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2017	$	1,854,100	$	216,022	$	2,070,122
Origination of loan receivables		934,607		2,407,492		3,342,099
Purchases of loan receivables		369,418		17,481		386,899
Proceeds from disposition and principal payment of loan receivables		(746,162)		(2,586,724)		(3,332,886)
Net realized gain (loss) on sale of loan receivables		(5,454)		63,067		57,613
Net unrealized gain (loss) on loan receivables		(720)		(2,401)		(3,121)
Accretion/amortization of discount, premium and other fees		14,474		-		14,474
Transfers		(503)		503		-
Transfers to Real estate owned		(3,693)		(182)		(3,875)
Provision for loan losses		(1,701)		-		(1,701)
Balance at December 31, 2018	$	2,414,366	$	115,258	$	2,529,624

177

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this annual report on Form 10-K. Based on that review and evaluation, the CEO and CFO have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, the Company’s management used criteria set forth by the 2013 Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Based on its assessment, the Company’s management believes that, as of December 31, 2018, the Company’s internal control over financial reporting was effective based on those criteria.

There have been no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

Item 9B.  Other Information.

None noted.

178

PART III

Item 10.  Directors, Executive Officers and Corporate Governance.

The information regarding our executive officers required by Item 401 of Regulation S-K is located under Part I, Item 1 within the caption "Executive Officers of the Company" of this annual report on Form 10-K.

The information regarding our directors and certain other matters required by Item 401 of Regulation S-K is incorporated herein by reference to our definitive proxy statement relating to our 2017 annual meeting of stockholders (the "Proxy Statement"), to be filed with the SEC within 120 days after December 31, 2018.

The information regarding compliance with Section 16(a) of the Exchange Act required by Item 405 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

The information regarding our Code of Business Conduct and Ethics required by Item 406 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

The information regarding certain matters pertaining to our corporate governance required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

Item 11.  Executive Compensation.

The information regarding executive compensation and other compensation related matters required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The tables on our equity compensation plan information and beneficial ownership required by Items 201(d) and 403 of Regulation S-K are incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

Item 13.  Certain Relationships and Related Transactions and Director Independence.

The information regarding transactions with related persons, promoters and certain control persons and director independence required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2018.

Item 14.  Principal Accountant Fees and Services.

The information concerning principal accounting fees and services and the Audit Committee's pre-approval policies and procedures required by Item 14 is incorporated herein by reference to the Proxy Statement to be filed with the U.S. Securities and Exchange Commission within 120 days after December 31, 2018.

179

PART IV

Item 15.  Exhibits and Financial Statement Schedules.

Documents filed as part of the report

The following documents are filed as part of this annual report on Form 10-K:

(1) Financial Statements:

Our consolidated financial statements, together with the independent registered public accounting firm's report thereon, are set forth on pages 111 through 176 of this annual report on Form 10-K and are incorporated herein by reference.  See Item 8, "Financial Statements and Supplementary Data," filed herewith, for a list of financial statements.

(2) Financial Statement Schedule:

All financial statement schedules have been omitted because the required information is not applicable or deemed not material, or the required information is presented in the consolidated financial statements and/or in the notes to consolidated financial statements filed in response to Item 8 of this annual report on Form 10-K.

(3) Exhibits Files:

Exhibit number		Exhibit description
2.1	*	Agreement and Plan of Merger, dated as of April 6, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed April 7, 2016)
2.2	*	Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 9, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed May 9, 2016)
2.3	*	Amendment No. 2 to the Agreement and Plan of Merger, dated as of August 4, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.3 of the Registrant's Current Report on Form 8-K filed November 4, 2016)
2.4	*	Agreement and Plan of Merger, by and among Ready Capital Corporation, ReadyCap Merger Sub LLC and Owens Realty Mortgage, Inc., dated as of November 7, 2018  (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed November 9, 2018)
3.1	*	Articles of Amendment and Restatement of ZAIS Financial Corp. (incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-11, as amended (Registration No. 333-185938)
3.2	*	Articles Supplementary of ZAIS Financial Corp. (incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-11, as amended (Registration No. 333-185938)
3.3	*	Articles of Amendment and Restatement of Sutherland Asset Management Corporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed November 4, 2016)
3.4	*	Articles of Amendment of Ready Capital Corporation (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on September 26, 2018)
3.5	*	Amended and Restated Bylaws of Ready Capital Corporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K filed on September 26, 2018)

180

4.1	*	Specimen Common Stock Certificate of Ready Capital Corporation (incorporated by reference to Exhibit 4.1 to the Registrant’s Form S-4 filed on December 13, 2018)
4.2	*	Indenture, dated February 13, 2017, by and among ReadyCap Holdings, LLC, as issuer, Sutherland Asset Management Corporation, Sutherland Partners, L.P., Sutherland Asset I, LLC and ReadyCap Commercial, LLC, each as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed February 13, 2017)
4.3	*	First Supplemental Indenture, dated February 13, 2017, by and among ReadyCap Holdings, LLC, as issuer, Sutherland Asset Management Corporation, Sutherland Partners, L.P., Sutherland Asset I, LLC, ReadyCap Commercial, LLC, each as guarantors and U.S. Bank National Association, as trustee and as collateral agent, including the form of 7.5% Senior Secured Notes due 2022 and the related guarantees (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed February 13, 2017)
4.4	*	Indenture, dated as of August 9, 2017, by and between Sutherland Asset Management Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed August 9, 2017)
4.5	*	First Supplemental Indenture, dated as of August 9, 2017, by and between Sutherland Asset Management Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 of the Registrant's Current Report on Form 8-K filed August 9, 2017)
4.6	*	Second Supplemental Indenture, dated as of April 27, 2018, by and between Sutherland Asset Management Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed April 27, 2018)
4.7		Third Supplemental Indenture, dated as of February 26, 2019, by and between Ready Capital Corporation and U.S. Bank National Association, as trustee
4.8		Amendment No. 1, dated as of February 26, 2019, to the First Supplemental Indenture, dated as of August 9, 2017, by and between Ready Capital Corporation and U.S. Bank National Association, as trustee
4.9		Amendment No. 1, dated as of February 26, 2019, to the Second Supplemental Indenture, dated as of April 27, 2018, by and between Ready Capital Corporation and U.S. Bank National Association, as trustee
10.1	*	Master Repurchase Agreement, dated May 8, 2014, between Waterfall Commercial Depositor LLC, Sutherland Asset I, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-K filed on March 15, 2017)
10.2	*	Amendment Number Four to the Master Repurchase Agreement, dated June 17, 2016, between Waterfall Commercial Depositor LLC, Sutherland Asset I, LLC and Citibank, N.A. (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-K filed on March 15, 2017)
10.3	*	Agreement and Plan of Merger dated August 5, 2014, by and among ZFC Honeybee TRS, LLC, ZFC Honeybee Acquisitions, LLC, GMFS LLC, Honeyrep, LLC, solely in its capacity as the Securityholder Representative and ZAIS Financial Corp., as guarantor (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K filed on August 6, 2014)
10.4	*	Master Loan and Security Agreement, dated June 27, 2014, by and among ReadyCap Lending, LLC, Sutherland Asset I, LLC, Sutherland Asset Management Corporation Corporation and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-K filed on March 15, 2017)
10.5	*	Termination Agreement, dated as of April 6, 2016, among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Asset I, LLC, ZAIS Asset II, LLC, ZAIS Asset III, LLC, ZAIS Asset IV, LLC, ZFC Funding, Inc., ZFC Trust, ZFC Trust TRS I, LLC, ZAIS REIT Management, LLC and Sutherland Asset Management Corporation (incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K filed April 7, 2016)

181

10.6	*	Amended and Restated Management Agreement, dated as of May 9, 2016, among ZAIS Financial Corp, ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset I, LLC, Sutherland Asset II, LLC, SAMC REO 2013-01, LLC, ZAIS Asset I, LLC, ZAIS Asset II, LLC, ZAIS Asset III, LLC, ZAIS Asset IV, LLC, ZFC Funding, Inc., ZFC Trust, ZFC Trust TRS I, LLC, and Waterfall Asset Management, LLC (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 9, 2016)
10.7	*	Master Repurchase Agreement, dated June 30, 2016, by and among Sutherland Asset I, LLC, Sutherland 2016-1 JPM Grantor Trust, Sutherland Asset Management Corporation and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-K filed on March 15, 2017)
10.8		Third Amended and Restated Agreement of Limited Partnership of Sutherland Partners, L.P., dated as of March [●], 2019, by and among Ready Capital Corporation, as General Partner, and the limited partners listed on Exhibit A thereto
10.9		Form of Indemnification Agreement
10.10		Ready Capital Corporation 2012 Equity Incentive Plan
10.11		Form of Restricted Stock Unit Award Agreement
10.12		Form of Restricted Stock Award Agreement
10.13	*	Third Amended and Restated Master Repurchase Agreement, dated as of February 14, 2017, by and among ReadyCap Commercial, LLC, Sutherland Warehouse Trust II, Sutherland Asset I, LLC, as sellers, U.S. Bank National Association, as depository and paying agent and Deutsche Bank AG, Cayman Island Branch, as buyer (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed February 21, 2017)
10.14	*	Second Amended and Restated Guaranty, dated as of October 31, 2016, from Sutherland Partners, L.P. to Deutsche Bank AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed February 21, 2017)
21.1		List of Subsidiaries of Ready Capital Corporation
23.1		Consent of Deloitte & Touche LLP
24.1		Power of Attorney (included on signature page)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of the Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	**	Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Scheme Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Extension Definition Linkbase Document

182

101.LAB	XBRL Taxonomy Extension Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

*      Previously filed.

**    This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

Item 16.  Form 10-K Summary

None.

183

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Ready Capital Corporation

Date:  March 13, 2019	By:	/s/ Thomas E. Capasse
	Thomas E. Capasse
	Chairman of the Board and Chief Executive
	Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Thomas E. Capasse, Jack J. Ross and Frederick C. Herbst, and each of them, with full power to act without the other, as such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:  March 13, 2019	By:	/s/ Thomas E. Capasse
		Thomas E. Capasse
		Chairman of the Board and Chief Executive
		Officer
		(Principal Executive Officer)
Date:  March 13, 2019	By:	/s/ Jack J. Ross
		Jack J. Ross
		President and Director
Date: March 13, 2019	By:	/s/ Frederick C. Herbst
		Frederick C. Herbst
		Chief Financial Officer
		(Principal Accounting and Financial Officer)
Date:  March 13, 2019	By:	/s/ Frank P. Filipps
		Frank P. Filipps
		Director
Date:  March 13, 2019	By:	/s/ Todd M. Sinai
		Todd M. Sinai
		Director
Date:  March 13, 2019	By:	/s/ J. Mitchell Reese
		J. Mitchell Reese
		Director
Date:  March 13, 2019	By:	/s/ David Holman
		David Holman
		Director

184

EX-4.7

Exhibit 4.7

Ready Capital Corporation

(formerly known as Sutherland Asset Management Corporation)

as Issuer

U.S. Bank National Association

as Trustee

Third Supplemental Indenture

Dated as of February 26, 2019

to the Indenture

Dated as of August 9, 2017

THIRD SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 26, 2019, between Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation), a Maryland corporation (the “Company”), and U.S. Bank National Association (the “Trustee”), as trustee under the Indenture dated as of August 9, 2017, between the Company and the Trustee (as amended or supplemented from time to time in accordance with the terms thereof, the “Base Indenture”).

RECITALS OF THE COMPANY

WHEREAS, the Company executed and delivered the Base Indenture  (and, together with the First Supplemental Indenture, dated as of August 9, 2017, between the Company and the Trustee, and the Second Supplemental Indenture, dated as of April 27, 2018, between the Company and the Trustee, and as further amended or supplemented from time to time in accordance with the terms thereof, the “Indenture”), which provides, among other things, for the issuance, from time to time, of the Company’s senior unsecured debt Securities, in an unlimited aggregate principal amount, in one or more series to be established by the Company under, and authenticated and delivered as provided in, the Base Indenture;

WHEREAS, Section 9.01(e) of the Base Indenture provides for the Company and the Trustee to amend or supplement the Base Indenture without notice to or consent of any Securityholder to make any change that does not materially adversely affect the rights of the Securityholder;

WHEREAS, Sutherland Asset Management Corporation has changed its name to Ready Capital Corporation and the Company desires to enter into this Supplemental Indenture for the purpose of evidencing such name change; and

WHEREAS, the Company has requested that the Trustee execute and deliver this Supplemental Indenture, and that all requirements necessary to make (i) this Supplemental Indenture a valid instrument in accordance with its terms, and (ii) the Securities, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company have been performed, and the execution and delivery of this Supplemental Indenture have been duly authorized in all respects.

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, for and in consideration of the premises and the purchases of the Securities by the Securityholders thereof, it is mutually agreed, for the benefit of the Company and the equal and proportionate benefit of all Securityholders, as follows:

Section 1.01         Scope of Supplemental Indenture. The changes, modifications and supplements to the Base Indenture effected by this Supplemental Indenture shall be applicable only with respect to, and shall govern only the terms of (and only the rights of the Securityholders and the obligations of the Company with respect to), the Securities, which may be issued from time to time, and shall not apply to any other securities that may be issued under the Base Indenture (or govern the rights of the Securityholders or the obligations of the Company with respect to any such other securities) unless a supplemental indenture with respect to such other securities specifically incorporates such changes, modifications and supplements. The provisions of this Supplemental Indenture shall, with respect to the Securities, supersede any corresponding provisions in the Base Indenture. Subject to the preceding sentence, and except as otherwise provided herein, the provisions of the Base Indenture shall apply to the Securities and govern the rights of the Securityholders of the Securities and the obligations of the Company and the Trustee with respect thereto.

Section 1.02         Definitions. For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires, capitalized terms shall have the meanings assigned thereto in the Indenture.

Section 1.03         Name. For the avoidance of doubt, all references in the Base Indenture to “Sutherland Asset Management Corporation” shall mean “Ready Capital Corporation.”

2

Section 1.04         Effect on Successors and Assigns. Notwithstanding Section 12.12 of the Base Indenture, all agreements of the Company, the Trustee, the Security Registrar, the Paying Agent and the Conversion Agent in this Indenture and the Securities will bind their respective successors.

Section 1.05         Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE SECURITIES, INCLUDING WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B).

Section 1.06         Execution in Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

Section 1.07         Ratification of Base Indenture. The Base Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein provided. For the avoidance of doubt, each of the Company and each Holder of Securities, by its acceptance of such Securities, acknowledges and agrees that all of the rights, privileges, protections, immunities and benefits afforded to the Trustee under the Base Indenture are deemed to be incorporated herein, and shall be enforceable by the Trustee hereunder, in each of its capacities hereunder as if set forth herein in full.

[Remainder of the page intentionally left blank]

3

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written.

READY CAPITAL CORPORATION
By:	/s/ Frederick C. Herbst
	Name:	Frederick C. Herbst
	Title:	Authorized Person

[Signature Page to Third Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:	/s/ Richard Prokosch
	Name:	Richard Prokosch
	Title:	Vice President

[Signature Page to Third Supplemental Indenture]

EX-4.8

Exhibit 4.8

Ready Capital Corporation

(formerly known as Sutherland Asset Management Corporation)

as Issuer

U.S. Bank National Association

as Trustee

Amendment No. 1

Dated as of February 26, 2019

to the First Supplemental Indenture

Dated as of August 9, 2017

to the Indenture

Dated as of August 9, 2017

7.00% Convertible Senior Notes due 2023

i

AMENDMENT NO. 1 TO FIRST SUPPLEMENTAL INDENTURE (this “Amendment No. 1”), dated as of February 26,  2019, between Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation), a Maryland corporation (the “Company”), and U.S. Bank National Association (the “Trustee”), as trustee under the Indenture dated as of August 9, 2017, between the Company and the Trustee (as amended or supplemented from time to time in accordance with the terms thereof, the “Base Indenture”).

RECITALS OF THE COMPANY

WHEREAS, the Company executed and delivered the Base Indenture (and together with the First Supplemental Indenture, dated as of August 9, 2017 (the “First Supplemental Indenture”), each as amended by this Amendment No. 1 and as further amended or supplemented from time to time, the “Indenture”), which provides, among other things, for the issuance, from time to time, of the Company’s senior unsecured debt Securities, in an unlimited aggregate principal amount, in one or more series to be established by the Company under, and authenticated and delivered as provided in, the Base Indenture;

WHEREAS, pursuant to the terms of the Base Indenture and the First Supplemental Indenture, the Company established and issued a series of its Securities designated as its 7.00% Convertible Senior Notes due 2023 (the “Notes”);

WHEREAS, Section 9.01(e) of the First Supplemental Indenture provides for, without the consent of any Holder, the Company (when authorized by a Board Resolution) and the Trustee, at any time and from time to time, to enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee to make any change that does not adversely affect the rights of any Holder;

WHEREAS, Sutherland Asset Management Corporation has changed its name to Ready Capital Corporation and the Company desires to enter into this Supplemental Indenture for the purpose of evidencing such name change;

WHEREAS, the Company desires (i) that the existing Global Security representing the Notes be cancelled by the Trustee and (ii) in exchange, a Global Security identical to such cancelled Global Security in all respects, except that the name of the Company and the CUSIP identifier and date of execution reflected on such Global Security shall be updated, be immediately executed by the Company and authenticated and delivered by the Trustee to the Holders, substantially in the forms set forth in Exhibit A hereto;

WHEREAS, the Board of Directors has duly adopted resolutions authorizing the Company to execute and deliver this Amendment No. 1;

WHEREAS, the Company has requested that the Trustee execute and deliver this Supplemental Indenture, and that all requirements necessary to make (i) this Supplemental Indenture a valid instrument in accordance with its terms, and (ii) the Securities, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company have been performed, and the execution and delivery of this Supplemental Indenture have been duly authorized in all respects.

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, for and in consideration of the premises and the purchases of the Securities by the Securityholders thereof, it is mutually agreed, for the benefit of the Company and the equal and proportionate benefit of all Securityholders, as follows:

Section 1.01         Definitions.  For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires, capitalized terms shall have the meanings assigned thereto in the Indenture.

Section 1.02         Name. For the avoidance of doubt, all references in the First Supplemental Indenture to “Sutherland Asset Management Corporation” shall mean “Ready Capital Corporation.”

Section 1.03         Effect on Successors and Assigns. Notwithstanding Section 12.12 of the Base Indenture, all agreements of the Company, the Trustee, the Security Registrar, the Paying Agent and the Conversion Agent in this Indenture and the Securities will bind their respective successors.

Section 1.04         Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE SECURITIES, INCLUDING WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B).

Section 1.05         Execution in Counterparts. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

Section 1.06         Ratification of Base Indenture. The Base Indenture, as supplemented by the First Supplemental Indenture, as amended by this Amendment No. 1, is in all respects ratified and confirmed, and the First Supplemental Indenture, as amended by this Amendment No. 1, shall be deemed part of the Base Indenture in the manner and to the extent herein provided. For the avoidance of doubt, each of the Company and each Holder of Securities, by its acceptance of such Securities, acknowledges and agrees that all of the rights, privileges, protections, immunities and benefits afforded to the Trustee under the Base Indenture are deemed to be incorporated herein, and shall be enforceable by the Trustee hereunder, in each of its capacities hereunder as if set forth herein in full.

[Remainder of the page intentionally left blank]

2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written.

READY CAPITAL CORPORATION
By:	/s/ Frederick C. Herbst
	Name:	Frederick C. Herbst
	Title:	Authorized Person

[Signature Page to Amendment No. 1 to First Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Richard Prokosch
	Name:	Richard Prokosch
	Title:	Vice President

[Signature Page to Amendment No. 1 to First Supplemental Indenture]

EXHIBIT A

[FORM OF FACE OF SECURITY]

[For Global Securities, include the following legend:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

No.:	[                 ]
CUSIP:	75574U 200
ISIN:	US75574U2006

Principal Amount $[                 ]

[as revised by the Schedule of Increases

and Decreases in the Global Security attached hereto]1

Ready Capital Corporation

7.00% Convertible Senior Notes due 2023

Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation), a Maryland corporation, promises to pay to [                 ] [include “Cede & Co.” for Global Security] or registered assigns, the principal amount of $[                 ] on August 15, 2023 (the “Maturity Date”).

Interest Payment Dates: February 15, May 15, August 15 and November 15, beginning on November 15, 2017.

Regular Record Dates: February 1, May 1, August 1 and November 1.

Additional provisions of this Security are set forth on the other side of this Security.

¹ Include for Global Securities only.

A-1

IN WITNESS WHEREOF, READY CAPITAL CORPORATION has caused this instrument to be duly signed.

Ready Capital Corporation
By:
	Name:
	Title:

Dated: _______________

A-2

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

U.S. Bank National Association, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
	Name:
	Title:

Dated: __________________________

A-3

[FORM OF REVERSE OF SECURITY]

READY CAPITAL CORPORATION

7.00% Convertible Senior Notes due 2023

This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued under an Indenture dated as of August 9, 2017 (herein called the “Base Indenture”), and as further supplemented by the Supplemental Indenture, dated as of August 9, 2017, as amended by Amendment No. 1 to the Supplemental Indenture, dated as of February 26, 2019 (herein called the “Supplemental Indenture” and the Base Indenture, as supplemented by the First Supplemental Indenture, the “Indenture”) by and between the Company and U.S. Bank National Association, herein called the “Trustee”, and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is not subject to redemption prior to August 15, 2021. On or after August 15, 2021, this Security is subject to redemption in accordance with the terms and subject to the conditions specified in the Indenture.

As provided in and subject to the provisions of the Indenture, upon the occurrence of a Fundamental Change, the Holder of this Security will have the right, at such Holder’s option, to require the Company to purchase this Security, or any portion of this Security such that the principal amount of this Security that is not purchased equals $25.00 or an integral multiple of $25.00 in excess thereof, on the Fundamental Change Purchase Date at a price equal to the Fundamental Change Purchase Price for such Fundamental Change Purchase Date.

As provided in and subject to the provisions of the Indenture, the Holder hereof has the right, at its option (i) during certain periods and upon the occurrence of certain conditions specified in the Indenture, prior to the Close of Business on the Business Day immediately preceding February 15, 2023, and (ii) on or after February 15, 2023, at any time prior to the Close of Business on the second Scheduled Trading Day immediately preceding the Stated Maturity, to convert this Security or a portion of this Security such that the principal amount of this Security that is not converted equals $25.00 or an integral multiple of $25.00 in excess thereof, into an amount of cash, shares of Common Stock or a combination of cash and shares of Common Stock, as the case may be, determined in accordance with Article 5 of the Supplemental Indenture.

The Securities shall not be redeemed by the Company prior to August 15, 2021. As provided in and subject to the provisions of the Indenture, on or after August 15, 2021, the Company may redeem the Securities for cash, in whole or from time to time in part, at the Company’s option, upon the occurrence of certain conditions specified in the Indenture.

As provided in and subject to the provisions of the Indenture, the Company will make all payments in respect of the Fundamental Change Purchase Price for, and the principal amount of, this Security to the Holder that surrenders this Security to the Paying Agent to collect such payments in respect of this Security. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities to be effected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past Defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for

A-4

any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Security, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or interest hereon or amounts due upon conversion on or after the respective due dates expressed herein.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay or deliver, as the case may be, the principal of (including the Fundamental Change Purchase Price or the Redemption Price), interest on and the amount of cash, shares of Common Stock or combination of cash and shares of Common Stock, as the case may be, due upon conversion of, this Security at the time, place and rate, and in the coin and currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities are issuable only in registered form without coupons in denominations of $25.00 and integral multiples of $25.00 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or Trustee may treat the Person in whose name the Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

All defined terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. If any provision of this Security limits, qualifies or conflicts with a provision of the Indenture, such provision of the Indenture shall control.

A-5

ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full

TEN COM - as tenants in common	UNIF GIFT MIN ACT	Custodian
	(Cust)
TEN ENT -as tenants by the entireties
	(Minor)
JT TEN - as joint tenants with right of Survivorship and not as tenants in common	Uniform Gifts to Minors Act		(State)

Additional abbreviations may also be used though not in the above list.

A-6

ANNEX A

[Include for Global Security]

SCHEDULE OF INCREASES AND DECREASES OF GLOBAL SECURITY

Initial principal amount of Global Security:

Date Amount of
Increase in
principal
amount of
Global Security Amount of
Decrease in
principal
amount of
Global Security principal
amount of
Global Security
after Increase
or Decrease Notation by
Security
Registrar or
Custodian

A-7

ATTACHMENT 1

[FORM OF NOTICE OF CONVERSION]

To:         Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation)

The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or a portion hereof (which is such that the principal amount of the portion of this Security that will not be converted equals $25.00 or an integral multiple of $25.00 in excess thereof) below designated, into an amount of cash, shares of Common Stock or combination of cash and shares of Common Stock, as the case may be, in accordance with the terms of the Indenture referred to in this Security, and directs that any cash payable and any shares of Common Stock issuable and deliverable upon conversion, together with any Securities representing any unconverted principal amount hereof, be paid and/or issued and/or delivered, as the case may be, to the registered Holder hereof unless a different name is indicated below.

Subject to certain exceptions set forth in the Indenture, if this notice is being delivered on a date after the Close of Business on a Regular Record Date and prior to the Open of Business on the Interest Payment Date corresponding to such Regular Record Date, this notice must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security to be converted. If any shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect to such issuance and transfer as set forth in the Indenture.

Principal amount to be converted (in an integral multiple of $25.00, if less than all):

Signature(s)

Signature(s) must be guaranteed by an institution which is a member of one of the following recognized signature Guarantee Programs:

(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) another guarantee program acceptable to the Trustee.

Signature Guarantee

A-8

Fill in for registration of any shares of Common Stock and Securities if to be issued otherwise than to the registered Holder.

(Name)

(Address)

Please print Name and Address

(including zip code number)

Social Security or other Taxpayer

Identifying

Number

A-9

ATTACHMENT 2

[FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE]

To:          Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation)

The undersigned registered owner of this Security hereby acknowledges receipt of a notice from Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation) (the “Company”) as to the occurrence of a Fundamental Change with respect to the Company and specifying the Fundamental Change Purchase Date and requests and instructs the Company to pay to the registered holder hereof in accordance with the applicable provisions of the Indenture referred to in this Security (i) the entire principal amount of this Security, or the portion thereof (that is such that the portion not to be purchased has a principal amount equal to $25.00 or an integral multiple of $25.00 in excess thereof) below designated, and (ii) if such Fundamental Change Purchase Date does not occur during the period after a Regular Record Date and on or prior to the Interest Payment Date corresponding to such Regular Record Date, accrued and unpaid interest, if any, thereon to, but excluding, such Fundamental Change Purchase Date.

In the case of certificated Securities, the certificate numbers of the Securities to be purchased are as set forth below:

Dated:
	Signature(s)
	Social Security or Other Taxpayer Identification Number
	principal amount to be repaid (if less than all):
	$
	NOTICE: The signature on the Fundamental Change Purchase Notice must correspond with the name as written upon the face of the Security in every particular without alteration or enlargement or any change whatever.

A-10

ATTACHMENT 3

[FORM OF ASSIGNMENT AND TRANSFER]

For value received                 hereby sell(s), assign(s) and transfer(s) unto                 (Please insert social security or Taxpayer Identification Number of assignee) the within Security, and hereby irrevocably constitutes and appoints                      to                      transfer the said Security on the books of the Company, with full power of substitution in the premises.

Signature(s)

Signature(s) must be guaranteed by an institution which is a member of one of the following recognized signature Guarantee Programs:

(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) another guarantee program

A-11

EX-4.9

Exhibit 4.9

Ready Capital Corporation

(formerly known as Sutherland Asset Management Corporation)

as Issuer

U.S. Bank National Association

as Trustee

Amendment No. 1

Dated as of February 26, 2019

to the Second Supplemental Indenture

Dated as of April 27, 2018

to the Indenture

Dated as of August 9, 2017

6.50% Senior Notes due 2021

i

AMENDMENT NO. 1 TO SECOND SUPPLEMENTAL INDENTURE (this “Amendment No. 1”), dated as of February 26,  2019, between Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation), a Maryland corporation (the “Company”), and U.S. Bank National Association (the “Trustee”), as trustee under the Indenture dated as of August 9, 2017, between the Company and the Trustee (as amended or supplemented from time to time in accordance with the terms thereof, the “Base Indenture”).

RECITALS OF THE COMPANY

WHEREAS, the Company executed and delivered the Base Indenture (and together with the Second Supplemental Indenture, dated as of April 27, 2018 (the “Second Supplemental Indenture”), each as amended by this Amendment No. 1 and as further amended or supplemented from time to time, the “Indenture”), which provides, among other things, for the issuance, from time to time, of the Company’s senior unsecured debt Securities, in an unlimited aggregate principal amount, in one or more series to be established by the Company under, and authenticated and delivered as provided in, the Base Indenture;

WHEREAS, pursuant to the terms of the Base Indenture and the Second Supplemental Indenture, the Company established and issued a series of its Securities designated as its 6.50% Senior Notes due 2021(the “Notes”);

WHEREAS, Section 7.01(e) of the Second Supplemental Indenture provides for, without the consent of any Holder, the Company (when authorized by a Board Resolution) and the Trustee, at any time and from time to time, to enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee to make any change that does not adversely affect the rights of any Holder;

WHEREAS, Sutherland Asset Management Corporation has changed its name to Ready Capital Corporation and the Company desires to enter into this Supplemental Indenture for the purpose of evidencing such name change; and

WHEREAS, the Company desires (i) that the existing Global Security representing the Notes be cancelled by the Trustee and (ii) in exchange, a Global Security identical to such cancelled Global Security in all respects, except that the name of the Company and the CUSIP identifier and date of execution reflected on such Global Security shall be updated, be immediately executed by the Company and authenticated and delivered by the Trustee to the Holders, substantially in the forms set forth in Exhibit A hereto;

WHEREAS, the Board of Directors has duly adopted resolutions authorizing the Company to execute and deliver this Amendment No. 1;

WHEREAS, the Company has requested that the Trustee execute and deliver this Supplemental Indenture, and that all requirements necessary to make (i) this Supplemental Indenture a valid instrument in accordance with its terms, and (ii) the Securities, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company have been performed, and the execution and delivery of this Supplemental Indenture have been duly authorized in all respects.

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, for and in consideration of the premises and the purchases of the Securities by the Securityholders thereof, it is mutually agreed, for the benefit of the Company and the equal and proportionate benefit of all Securityholders, as follows:

Section 1.01         Definitions.  For all purposes of the Indenture, except as otherwise expressly provided or unless the context otherwise requires, capitalized terms shall have the meanings assigned thereto in the Indenture.

Section 1.02         Name. For the avoidance of doubt, all references in the Second Supplemental Indenture to “Sutherland Asset Management Corporation” shall mean “Ready Capital Corporation.”

Section 1.03         Effect on Successors and Assigns. Notwithstanding Section 12.12 of the Base Indenture, all agreements of the Company, the Trustee, the Security Registrar, the Paying Agent and the Conversion Agent in this Indenture and the Securities will bind their respective successors.

Section 1.04         Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE SECURITIES, INCLUDING WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(B).

Section 1.05         Execution in Counterparts. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

Section 1.06         Ratification of Base Indenture. The Base Indenture, as supplemented by the First Supplemental Indenture, as amended by this Amendment No. 1, is in all respects ratified and confirmed, and the First Supplemental Indenture, as amended by this Amendment No. 1, shall be deemed part of the Base Indenture in the manner and to the extent herein provided. For the avoidance of doubt, each of the Company and each Holder of Securities, by its acceptance of such Securities, acknowledges and agrees that all of the rights, privileges, protections, immunities and benefits afforded to the Trustee under the Base Indenture are deemed to be incorporated herein, and shall be enforceable by the Trustee hereunder, in each of its capacities hereunder as if set forth herein in full.

[Remainder of the page intentionally left blank]

2

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written.

READY CAPITAL CORPORATION
By:	/s/ Frederick C. Herbst
	Name:	Frederick C. Herbst
	Title:	Authorized Person

[Signature Page to Amendment No. 1 to First Supplemental Indenture]

U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:	/s/ Richard Prokosch
	Name:	Richard Prokosch
	Title:	Vice President

[Signature Page to Amendment No. 1 to First Supplemental Indenture]

EXHIBIT A

[FORM OF FACE OF SECURITY]

[For Global Securities, include the following legend:

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

No.:                      [                 ]

CUSIP:                75574U 309

ISIN:                    US75574U3095

Principal Amount $[                 ]

 [as revised by the Schedule of Increases

and Decreases in the Global Security attached hereto]1

Ready Capital Corporation

6.50% Senior Notes due 2021

Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation), a Maryland corporation, promises to pay to [                 ] [include “Cede & Co.” for Global Security] or registered assigns, the principal amount of $[                 ] on August 30, 2021 (the “Maturity Date”).

Interest Payment Dates: January 30, April 30, July 30 and October 30, beginning on July 30, 2018.

Regular Record Dates: January 15, April 15, July 15 and October 15.

Additional provisions of this Security are set forth on the other side of this Security.

1    Include for Global Securities only.

A-1

IN WITNESS WHEREOF, READY CAPITAL CORPORATION has caused this instrument to be duly signed.

	Ready Capital Corporation
	By:
		Name:
		Title:
Dated:

A-2

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

U.S. Bank National Association, as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
	Name:
	Title:
		Dated:

A-3

[FORM OF REVERSE OF SECURITY]

READY CAPITAL CORPORATION

6.50% Senior Notes due 2021

This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued under an Indenture dated as of August 9, 2017 (herein called the “Base Indenture”), and as further supplemented by the Supplemental Indenture, dated as of August 9, 2017, as amended by Amendment No. 1 to the Supplemental Indenture, dated as of February 26, 2019 (herein called the “Supplemental Indenture” and the Base Indenture, as supplemented by the First Supplemental Indenture, the “Indenture”) by and between the Company and U.S. Bank National Association, herein called the “Trustee”, and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered.

The Securities shall not be redeemed by the Company prior to April 30, 2019. As provided in and subject to the provisions of the Indenture, on or after April 30, 2019, the Company may redeem the Securities for cash, in whole or from time to time in part, at the Company’s option, at a redemption price, prior to April 30, 2020 equal to 101% of the principal amount of the Securities to be redeemed, and on or after April 30, 2020 equal to 100% of the principal amount of the Securities to be redeemed, in each case plus accrued and unpaid interest thereon to but excluding, the redemption date, and upon the occurrence of certain conditions specified in the Indenture.

As provided in and subject to the provisions of the Indenture, upon the occurrence of a Change of Control Repurchase Event, the Company will make an offer purchase this Security, or any portion of this Security such that the principal amount of this Security that is not purchased equals $25.00 or an integral multiple of $25.00 in excess thereof, on the Change of Control Payment Date at a price equal to the Change of Control Payment for such Change of Control Payment Date.

As provided in and subject to the provisions of the Indenture, the Company will make all payments in respect of a Change of Control Payment for, and the principal amount of, this Security to the Holder that surrenders this Security to the Paying Agent to collect such payments in respect of this Security. The Company will pay cash amounts in money of the United States that at the time of payment is legal tender for payment of public and private debts.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities to be effected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past Defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Security, the Holders of not less than 25% in principal amount of the Securities at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or interest hereon on or after the respective due dates expressed herein.

A-4

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay or deliver, as the case may be, the principal of (including the Change of Control Payment or the Redemption Price) and interest on this Security at the time, place and rate, and in the coin and currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities are issuable only in registered form without coupons in denominations of $25.00 and integral multiples of $25.00 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Securities are exchangeable for a like aggregate principal amount of Securities and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or Trustee may treat the Person in whose name the Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

All defined terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. If any provision of this Security limits, qualifies or conflicts with a provision of the Indenture, such provision of the Indenture shall control.

A-5

ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full

TEN COM	Tenants in common
TEN ENT	Tenants by the entireties
JT TEN	Tenants with right of Survivorship and not as tenants in common
CUST	Custodian
U/G/M/A	Uniform Gift to Minors Act

Additional abbreviations may also be used though not in the above list.

A-6

ANNEX A

[Include for Global Security]

SCHEDULE OF INCREASES AND DECREASES OF GLOBAL SECURITY

Initial principal amount of Global Security:

Date Amount of
Increase in
principal
amount of
Global Security Amount of
Decrease in
principal
amount of
Global Security principal
amount of
Global Security
after Increase
or Decrease Notation by
Security
Registrar or
Custodian

A-7

ATTACHMENT 1

[FORM OF ASSIGNMENT AND TRANSFER]

For value received                 hereby sell(s), assign(s) and transfer(s) unto                 (Please insert social security or Taxpayer Identification Number of assignee) the within Security, and hereby irrevocably constitutes and appoints                      to                      transfer the said Security on the books of the Company, with full power of substitution in the premises.

Signature(s)

Signature(s) must be guaranteed by an institution which is a member of one of the following recognized signature Guarantee Programs:

(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) another guarantee program

A-8

EX-10.10

Exhibit 10.10

READY CAPITAL CORPORATION

2013 EQUITY INCENTIVE PLAN

1.Purpose.  The Plan is intended to provide incentives to directors, officers, advisors, consultants, key employees, and others expected to provide significant services to the Company and its Subsidiaries, including the Manager and personnel, employees, officers and directors of the other Participating Companies (as defined herein), to encourage a proprietary interest in the Company, to encourage the Manager and such key personnel to remain in the service of the Company and the other Participating Companies, to attract new personnel with outstanding qualifications, and to afford additional incentive to others to increase their efforts in providing significant services to the Company and the other Participating Companies, in each case, as may be necessary from time to time.  In furtherance thereof, the Plan permits awards of equity-based incentives to the Manager and key personnel, employees, officers and directors of, and certain other providers of services to, the Company or any other Participating Company.

2.Definitions.  As used in this Plan, the following definitions apply:

“Act” shall mean the Securities Act of 1933, as amended.

“Award Agreement” shall mean a written agreement evidencing a Grant pursuant to the Plan.

“Board” shall mean the Board of Directors of the Company.

“Cause” shall mean, unless otherwise provided in an applicable Award Agreement, a termination of employment or service, based upon a finding by the Company, acting in good faith, after the occurrence of any of the following:  (i) the Grantee has engaged in any criminal offense which involves a violation of federal or state securities laws or regulations, embezzlement, fraud, wrongful taking or misappropriation of property, theft, or any other crime involving dishonesty, or has committed gross negligence; (ii) any Grantee has persistently and willfully neglected his or her duties in respect of the Company, the Manager or any other Participating Company or failed to devote substantially all of his or her working time, attention, energy and skills to the faithful and diligent performance of such duties, after the Company or the applicable Participating Company has given written notice specifying such conduct and giving the Grantee a reasonable period of time (not less than thirty (30) days), to conform his or her conduct to such duties; (iii) any Grantee that becomes ineligible pursuant to Section 9(a) or (b) of the Investment Company Act of 1940 to serve as an investment advisor (or in any other capacity affected by such Section) to a registered investment company or is or becomes ineligible pursuant to Section 203 of the Investment Advisors Act of 1940 to serve as a registered investment advisor, or has been determined by an appropriate body to have engaged in conduct that would permit the U.S. Securities and Exchange Commission to bar him or her from any such services; (iv) any Grantee has engaged in conduct which may have a material adverse effect on, or cause reputational damage to, the Company or any Participating Company (as determined by the Company in its sole and absolute discretion); or (v) the Grantee’s intentional breach of any material provision of an Award Agreement or any other agreements of the Company, the Manager or any of their respective affiliates.  As used in this definition, “material” means “more than de minimis.”

“Change in Control” means unless otherwise provided in an Award Agreement the happening of any of the following:

(i)any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding the Company, any entity controlling, controlled by or under common control with the Company, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any such entity, and, with respect to any particular Grantee, the Grantee and any “group” (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Grantee is a member), is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of either (A) the combined voting power of the Company’s then outstanding

securities or (B) the then outstanding Shares (in either such case other than as a result of an acquisition of securities directly from the Company);

-1-

(ii)any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any);

(iii)there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by “persons” (as defined above) in substantially the same proportion as their ownership of the Company immediately prior to such sale or (B) the approval by shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or

(iv)the members of the Board at the beginning of any consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company’s shareholders, was approved or ratified by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 24-calendar-month period, shall be deemed to be an Incumbent Director.

Notwithstanding the foregoing, no event or condition shall constitute a Change in Control to the extent that, if it were, a 20% tax would be imposed under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Change in Control to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Committee” shall mean the Compensation Committee of the Company or any subcommittee of the Board as appointed by the Board in accordance with Section 4 of the Plan; provided, however, that the Committee shall at all times consist of two or more persons who, at the time of their appointment, each qualified as a “Non Employee Director” under Rule 16b 3(b)(3)(i) promulgated under the Exchange Act and, to the extent that relief from the limitation of Section 162(m) of the Code is sought, as an “Outside Director” under Section 1.162 27(e)(3)(i) of the Treasury Regulations.

“Common Stock” shall mean the Company’s common stock, par value $0.01 per share, either currently existing or authorized hereafter.

“Company” shall mean Ready Capital Corporation, a Maryland corporation.

“DER” shall mean a right awarded under Section 11 of the Plan to receive (or have credited) the equivalent value (in cash or Shares) of dividends paid on Common Stock.

“Disability” shall mean, unless otherwise provided by the Committee in the Grantee’s Award Agreement, a finding by the Committee, based on the basis of medical evidence satisfactory to the Committee in its sole and absolute judgment, that a Grantee is disabled, mentally or physically, within the meaning of Section 409A(a)(2)(C) of the Code.  Notwithstanding the foregoing, no circumstances or condition shall constitute a Disability to the extent that, if it were, a 20% tax would be imposed under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Disability to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

“Eligible Persons” shall mean the Manager and officers, directors, advisors, personnel and employees of the Participating Companies and other persons expected to provide significant services (of a type expressly approved by the Committee as covered services for these purposes) to one or more of the Participating Companies.  For purposes of the Plan and to the extent consistent with applicable securities law, a provider of significant services

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(such as a consultant or advisor) to the Company or any other Participating Company shall be deemed to be an Eligible Person, but will be eligible to receive Grants (but in no event Incentive Stock Options), only after a finding by the Committee in its discretion that the value of the services rendered or to be rendered to the Participating Company is at least equal to the value of the Grants being awarded.

“Employee” shall mean an individual, including an officer of a Participating Company, who is employed (within the meaning of Code Section 3401 and the regulations thereunder) by a Participating Company.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Exercise Price” shall mean the price per share of Common Stock, determined by the Board or the Committee, at which an Option may be exercised.

“Fair Market Value” shall mean the value of one share of Common Stock, determined as follows:

(i)If the Shares are then listed on a national stock exchange, the closing sales price per Share on the exchange on the date in question (or, if no such price is available for such date, for the last preceding date on which there was a sale of Shares on such exchange), as determined by the Committee.

(ii)If the Shares are not then listed on a national stock exchange but are then traded on an over-the-counter market, the average of the closing bid and asked prices on the date in question for the Shares in such over-the-counter market (or, if no such average is available for such date, for the last preceding date on which there was a sale of Shares in such market), as determined by the Committee.

(iii)If neither (i) nor (ii) applies, such value as the Committee in its discretion may in good faith determine.  Notwithstanding the foregoing, where the Shares are listed or traded, the Committee may make discretionary determinations in good faith where the Shares have not been traded for 10 trading days.

Notwithstanding the foregoing, with respect to any “stock right” within the meaning of Section 409A of the Code, Fair Market Value shall not be less than the “fair market value” of the Shares determined in accordance with the final regulations promulgated under Section 409A of the Code.

“Grant” shall mean the issuance of an Incentive Stock Option, Non-qualified Stock Option, Restricted Stock, Phantom Share, DER, Restricted Limited Partnership Units, or other equity-based grant as contemplated herein or any combination thereof as applicable to an Eligible Person.  The Committee will determine the eligibility of personnel, employees, officers, directors and others expected to provide significant services to any Participating Company based on, among other factors, the position and responsibilities of such individuals, the nature and value to such Participating Company of such individuals’ accomplishments and potential contribution to the success of such Participating Company whether directly or through its subsidiaries.

“Grantee” shall mean an Eligible Person to whom Options, Restricted Stock, Phantom Shares, DERs, Restricted Limited Partnership Units or other equity-based awards are granted hereunder.

“Incentive Stock Option” shall mean an Option of the type described in Section 422(b) of the Code issued to an Employee of (i) the Company, or (ii) a “subsidiary corporation” or a “parent corporation” as defined in Section 424(f) of the Code.

“Manager” shall mean Waterfall Asset Management, LLC, the Company’s manager.

“Non-qualified Stock Option” shall mean an Option not described in Section 422(b) of the Code.

“Operating Partnership” shall mean Sutherland Partners, L.P., a Delaware limited partnership.

“Option” shall mean any option, whether an Incentive Stock Option or a Non-qualified Stock Option, to purchase, at a price and for the term fixed by the Committee in accordance with the Plan, and subject to such other limitations and restrictions in the Plan and the applicable Award Agreement, a number of Shares determined by the Committee.

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“Optionee” shall mean any Eligible Person to whom an Option is granted, or the Successors of the Optionee, as the context so requires.

“Participating Companies” shall mean the Company, the Subsidiaries, the Manager, and, with the consent of the Board or the Committee, any of their respective affiliates and any joint venture affiliate of the Company.

“Performance-Based Grants” shall have the meaning set forth in Section 14.

“Performance Criteria” shall have the meaning set forth in Exhibit A.

“Performance Goals” shall have the meaning set forth in Section 14.

“Phantom Share” shall mean a right, pursuant to the Plan, of the Grantee to payment of the Phantom Share Value.

“Phantom Share Value,” per Phantom Share, shall mean the Fair Market Value of a Share or, if so provided by the Committee, such Fair Market Value to the extent in excess of a base value established by the Committee at the time of grant.

“Plan” shall mean the Company’s 2013 Equity Incentive Plan, as set forth herein, and as the same may from time to time be amended.

“Purchase Price” shall mean the Exercise Price multiplied by the number of Shares with respect to which an Option is exercised.

“Restricted Stock” shall mean an award of Shares that are subject to restrictions hereunder.

“Restricted Limited Partnership Units” shall mean restricted limited partner profits interests in the Operating Partnership and other restricted limited partnership units in the Operating Partnership, providing distributions to the holder of the award based on the achievement of specified levels of profitability by the Operating Partnership or the achievement of certain goals or events, which may be convertible into or exchangeable for other securities of the Operating Partnership or into shares of the Company’s capital stock, including the Shares.

“Settlement Date” shall have the meaning set forth in Section 10(d)(iii)(A) hereof.

“Shares” shall mean shares of Common Stock of the Company, adjusted in accordance with Section 16 of the Plan (if applicable).

“Subsidiary” shall mean any corporation, partnership, limited liability company or other entity at least 50% of the economic interest in the equity of which is owned, directly or indirectly, by the Company or by another Subsidiary.

“Successors of the Optionee” shall mean the legal representative of the estate of a deceased Optionee or the person or persons who shall acquire the right to exercise an Option by bequest or inheritance or by reason of the death of the Optionee.

“Termination of Service” shall mean the time when the employee-employer relationship or directorship, or other service relationship (sufficient to constitute service as an Eligible Person), between the Grantee and any Participating Company is terminated for any reason, with or without Cause, including, but not limited to, any termination by resignation, discharge, death or retirement; provided,  however, Termination of Service shall not include a termination where there is a simultaneous continuation of service of the Grantee (sufficient to constitute service as an Eligible Person) for another Participating Company.  The Committee, in its absolute discretion, shall determine the effects of all matters and questions relating to Termination of Service, including, but not limited to,

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the question of whether any Termination of Service was for Cause and all questions of whether particular leaves of absence constitute Terminations of Service.  For this purpose, the service relationship shall be treated as continuing intact while the Grantee is on military leave, sick leave or other bona fide leave of absence (to be determined in the discretion of the Committee).

3.Effective Date.  The effective date of the Plan is November 25, 2013.  The Plan shall terminate on, and no award shall be granted hereunder on or after, the 10-year anniversary of the earlier of the approval of the Plan by (i) the Board or (ii) the shareholders of the Company; provided,  however,  that the Board may at any time prior to that date terminate the Plan.

4.Administration.

(a)Membership on Committee.  The Plan shall be administered by the Committee.  If no Committee is appointed by the Board to act for those purposes or the Board otherwise so elects, the full Board shall have the rights and responsibilities of the Committee hereunder and under the Award Agreements.

(b)Committee Meetings.  The acts of a majority of the members present at any meeting of the Committee at which a quorum is present, or acts approved in writing by a majority of the entire Committee, shall be the acts of the Committee for purposes of the Plan.  If and to the extent applicable, no member of the Committee may act as to matters under the Plan specifically relating to such member.

(c)Grant of Awards.

(i)The Committee shall from time to time at its discretion select the Eligible Persons who are to be issued Grants and determine the number and type of Grants to be issued under any Award Agreement to an Eligible Person.  In particular, the Committee shall (A) determine the terms and conditions, not inconsistent with the terms of the Plan, of any Grants awarded hereunder (including, but not limited to the performance goals and periods applicable to the award of Grants); (B) determine the time or times when and the manner and condition in which each Option shall be exercisable and the duration of the exercise period; and (C) determine or impose other conditions to the Grant or exercise of Options under the Plan as it may deem appropriate.  The Committee may establish such rules, regulations and procedures for the administration of the Plan as it deems appropriate, determine the extent, if any, to which Options, Phantom Shares, Shares (whether or not Shares of Restricted Stock), DERs, Restricted Limited Partnership Units or other equity-based awards shall be forfeited (whether or not such forfeiture is expressly contemplated hereunder), and take any other actions and make any other determinations or decisions that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof.  The Committee shall also cause each Incentive Stock Option to be designated as such, except that no Incentive Stock Options may be granted to an Eligible Person who is not an Employee of the Company or a “subsidiary corporation” or a “parent corporation” as defined in Section 424(f) of the Code.  The Grantee shall take whatever additional actions and execute whatever additional documents the Committee may in its reasonable judgment deem necessary or advisable in order to carry or effect one or more of the obligations or restrictions imposed on the Grantee pursuant to the express provisions of the Plan and the Award Agreement.  DERs will be exercisable separately or together with Options, and paid in cash or other consideration at such times and in accordance with such rules, as the Committee shall determine in its discretion.  Unless expressly provided hereunder, the Committee, with respect to any Grant, may exercise its discretion hereunder at the time of the award or thereafter.  The Committee shall have the right and responsibility to interpret the Plan and the interpretation and construction by the Committee of any provision of the Plan or of any Grant thereunder, including, without limitation, in the event of a dispute, shall be final and binding on all Grantees and other persons to the maximum extent permitted by law.  Without limiting the generality of Section 25 hereof, no member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant hereunder.

(ii)Notwithstanding clause (i) of this Section 4(c), unless otherwise required by law or exchange listing rules, any award under the Plan to an Eligible Person who is a member of the Committee shall be made by the full Board, but for these purposes the directors of the Company who are on the Committee shall be required to be recused in respect of such awards and shall not be permitted to vote.

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(d)Awards.

(i)Agreements.  Grants to Eligible Persons shall be evidenced by written Award Agreements in such form as the Committee shall from time to time determine (which Award Agreements need not be in the same form as any other Award Agreement evidencing Grants under the Plan and need not contain terms and conditions identical to those applicable to any other Grant under the Plan or to those applicable to any other Eligible Persons).  Such Award Agreements shall comply with and be subject to the terms and conditions set forth below.

(ii)Number of Shares.  Each Grant issued to an Eligible Person shall state the number of Shares to which it pertains or which otherwise underlie the Grant and shall provide for the adjustment thereof in accordance with the provisions of Section 16 hereof.

(iii)Grants.  Subject to the terms and conditions of the Plan and consistent with the Company’s intention for the Committee to exercise the greatest permissible flexibility under Rule 16b-3 under the Exchange Act in awarding Grants, the Committee shall have the power:

(A)to determine from time to time the Grants to be issued to Eligible Persons under the Plan and to prescribe the terms and provisions (which need not be identical) of Grants issued under the Plan to such persons;

(B)to construe and interpret the Plan and the Grants thereunder and to establish, amend and revoke the rules, regulations and procedures established for the administration of the Plan.  In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in the Plan, in any Award Agreement, or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.  All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Participating Companies and the Grantees;

(C)to amend any outstanding Grant, subject to Section 18 hereof, and to accelerate or extend the vesting or exercisability of any Grant (in compliance with Section 409A of the Code, if applicable) and to waive conditions or restrictions on any Grants, to the extent it shall deem appropriate;

(D)to determine the circumstances, if any, upon which an award made under the Plan shall be subject to forfeiture in whole or in part as a result of a breach by the Grantee of a provision or covenant to which the Grantee is subject; and

(E)generally to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan.

(iv)Any Grant awarded after the effective date of the Plan is subject to mandatory repayment by the Grantee to the Company to the extent the Grantee is or in the future becomes subject to any Company “clawback” or recoupment policy or as otherwise required by applicable law.

5.Participation.

(a)Eligibility.  Only Eligible Persons shall be eligible to receive Grants under the Plan.

(b)Limitation of Ownership.  No Grants shall be issued under the Plan to any person who after such Grant would beneficially own more than 9.8% of the outstanding Shares, unless the foregoing restriction is expressly and specifically waived by action of the independent directors of the Board.

(c)Share Ownership.  For purposes of Section 5(b) above, in determining Share ownership, a Grantee shall be considered as owning the Shares owned, directly or indirectly, by or for his or her brothers, sisters, spouses, ancestors and lineal descendants.  Shares owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners or beneficiaries.  Shares with respect to which any person holds an Option shall be considered to be owned by such person.

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(d)Outstanding Shares.  For purposes of Section 5(b) above, “outstanding Shares” shall include all Shares actually issued and outstanding immediately after the issue of the Grant to the Grantee.  With respect to the Share ownership of any Grantee, “outstanding Shares” shall include Shares authorized for issue under outstanding Options held by such Grantee, but not options held by any other person.

6.Shares.  Subject to adjustments pursuant to Section 16 hereof, no Grant may cause the total number of Shares subject to all outstanding awards to exceed 5.0% of the Shares issued and outstanding from time to time on a fully diluted basis (assuming, if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible securities into Shares).  Notwithstanding the first sentence of this Section 6, (x) Shares that have been granted as Restricted Stock or that have been reserved for distribution in payment for Options or Phantom Shares but are later forfeited or for any other reason are not payable under the Plan; and (y) Shares as to which an Option is granted under the Plan that remains unexercised at the expiration, forfeiture or other termination of such Option, may be the subject of the issue of further Grants.  Shares of Common Stock issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or previously issued Shares under the Plan.  The certificates for Shares issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the Award Agreement, or as the Committee may otherwise deem appropriate.  Shares subject to DERs, other than DERs based directly on the dividends payable with respect to Shares subject to Options or the dividends payable on a number of Shares corresponding to the number of Phantom Shares awarded, shall be subject to the limitation of this Section 6.  Notwithstanding the limitations above in this Section 6, except in the case of Grants intended to qualify for relief from the limitations of Section 162(m) of the Code, there shall be no limit on the number of Phantom Shares or DERs to the extent they are paid out in cash that may be granted under the Plan.  If any Phantom Shares or DERs are paid out in cash, the underlying Shares may again be made the subject of Grants under the Plan, notwithstanding the first sentence of this Section 6.

7.Terms and Conditions of Options.

(a)Each Award Agreement with an Eligible Person shall state the Exercise Price.  The Exercise Price for any Option shall not be less than the Fair Market Value on the date of Grant.

(b)Medium and Time of Payment.  Except as may otherwise be provided below, the Purchase Price for each Option granted to an Eligible Person shall be payable in full in United States dollars upon the exercise of the Option.  In the event the Company determines that it is required to withhold taxes as a result of the exercise of an Option, as a condition to the exercise thereof, an Employee may be required to make arrangements satisfactory to the Company to enable it to satisfy such withholding requirements in accordance with Section 22 hereof.  If the applicable Award Agreement so provides, or the Committee otherwise so permits, the Purchase Price may be paid in one or a combination of the following, taking into account the desired accounting treatment and compliance with applicable law:

(i)by a certified or bank cashier’s check;

(ii)by the surrender of Shares in good form for transfer, owned by the person exercising the Option and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equals the Purchase Price;

(iii)by reduction of the Shares issuable upon exercise of the Option;

(iv)by cancellation of indebtedness owed by the Company to the Grantee;

(v)subject to Section 19(e) hereof, by broker-assisted cashless exercise using a broker reasonably acceptable to the Company, pursuant to which the Grantee delivers to the Company, on or prior to the exercise date, the Grantee’s instruction directing and obligating the broker to (a) sell Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option and (b) remit to the Company a sufficient portion of the sale proceeds to pay the aggregate purchase price, no later than the third trading day after the exercise date;

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(vi)subject to Section 18(e) hereof, by a loan or extension of credit from the Company evidenced by a full recourse promissory note executed by the Grantee.  The interest rate and other terms and conditions of such note shall be determined by the Committee (in which case the Committee may require that the Grantee pledge his or her Shares to the Company for the purpose of securing the payment of such note, and in no event shall the stock certificate(s) representing such Shares be released to the Grantee until such note shall have been paid in full); or

(vii)by any combination of such methods of payment or any other method acceptable to the Committee in its discretion.

Except in the case of Options exercised by certified or bank cashier’s check, the Committee may impose such limitations and prohibitions on the exercise of Options as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid accounting consequences which may result from the use of Shares as payment upon exercise of an Option.  Any fractional Shares resulting from a Grantee’s election that are accepted by the Company shall in the discretion of the Committee be paid in cash.

(c)Term and Nontransferability of Grants and Options.

(i)Each Option under this Section 7 shall state the time or times which all or part thereof becomes exercisable, subject to the restrictions set forth in clauses (ii) through (v) below.

(ii)No Option shall be exercisable except by the Grantee or a transferee permitted hereunder.

(iii)No Option shall be assignable or transferable, except by will or the laws of descent and distribution of the state wherein the Grantee is domiciled at the time of his or her death; provided,  however,  that the Committee may (but need not) permit other transfers, where the Committee concludes that such transferability (A) does not result in accelerated taxation, (B) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Section 422(b) of the Code and (C) is otherwise appropriate and desirable.

(iv)Notwithstanding Section 7(c)(iii) above, if the Award Agreement provides, an Option that is not an Incentive Stock Option may be transferred by an Optionee to the Optionee’s children, grandchildren, spouse, one or more trusts for the benefit of such family members or a partnership in which such family members are the only partners, on such terms and conditions as may be permitted under Rule 16b-3 under the Exchange Act as in effect from time to time. The holder of an Option transferred pursuant to this clause shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Optionee; provided, however, that such transferee may not transfer the Option except by will or the laws of descent and distribution.  In the event of any transfer of an Option (by the Optionee or his or her transferee), the Option and any corresponding stock appreciation right that relates to such Option must be transferred to the same person or persons or entity or entities.

(v)No Option shall be exercisable until such time as set forth in the applicable Award Agreement (but in no event after the expiration of such Grant).

(vi)No modification of an Option shall, without the consent of the Optionee or as required by applicable law or regulation or to meet the requirements of any accounting standard or to correct an administrative error, materially impair the rights of an Optionee under any Option previously granted.

(d)Termination of Service, other than by Death, Disability, or for Cause.  Unless otherwise provided in the applicable Award Agreement, upon any Termination of Service for any reason other than his or her death or Disability, an Optionee shall have the right, subject to the restrictions of Section 4(c) above, to exercise his or her Option at any time within 90 days after Termination of Service, but only to the extent that, at the date of Termination of Service, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised or forfeited; provided,  however,  that, unless otherwise provided in the applicable Award Agreement, if there occurs a Termination of Service by a Participating Company for Cause, any Option not exercised in full prior to such termination shall be cancelled.

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(e)Death of Optionee.  Unless otherwise provided in the applicable Award Agreement, if the Optionee of an Option dies while an Eligible Person or within 90 days after any Termination of Service other than for Cause, and has not fully exercised such Option, subject to the restrictions of Section 4(c) above, such Option may be exercised at any time within 12 months after the Optionee’s death (or 12 months after the Optionee’s Termination of Service, if sooner) by the Successor of the Optionee, but only to the extent that, at the date of death, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised or forfeited.

(f)Disability of Optionee.  Unless otherwise provided in the Award Agreement, upon any Termination of Service for reason of his or her Disability, an Optionee shall have the right, subject to the restrictions of Section 4(c) above, to exercise an Option at any time within 12 months after Termination of Service, but only to the extent that, at the date of Termination of Service, the Optionee’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised or forfeited.

(g)Rights as a Stockholder.  An Optionee, a Successor of the Optionee, or the holder of a DER shall have no rights as a stockholder with respect to any Shares covered by his or her Grant until, in the case of an Optionee, the date of the issuance of a stock certificate for such Shares.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 16 hereof.

(h)Modification, Extension and Renewal of Option.  Within the limitations of the Plan, and only with respect to Options granted to Eligible Persons, the Committee may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options (to the extent not previously exercised) for the granting of new Options in substitution therefor (but not including repricings, in the absence of stockholder approval).  The Committee may modify, extend or renew any Option granted to any Eligible Person, taking into consideration Rule 16b-3 under the Exchange Act and Section 409A of the Code.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

(i)Stock Appreciation Rights.  The Committee, in its discretion, may (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate), also permit the Optionee to elect to exercise an Option by receiving Shares, cash or a combination thereof, in the discretion of the Committee and as may be set forth in the applicable Award Agreement, with an aggregate Fair Market Value (or, to the extent of payment in cash, in an amount) equal to the excess of the Fair Market Value of the Shares with respect to which the Option is being exercised over the aggregate Purchase Price, as determined as of the day the Option is exercised.

(j)Deferral.  The Committee may establish a program (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate) under which Optionees will have Phantom Shares, subject to Section 10 hereof, credited upon their exercise of Options, rather than receiving Shares at that time.

(k)Other Provisions.  The Award Agreement authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the exercise of the Option) as the Committee shall deem advisable.

8.Special Rules for Incentive Stock Options.

(a)In the case of Incentive Stock Options granted hereunder, the aggregate Fair Market Value (determined as of the date of the Grant thereof) of the Shares with respect to which Incentive Stock Options become exercisable by any Optionee for the first time during any calendar year (under the Plan and all other plans) required to be taken into account under Section 422(d) of the Code shall not exceed $100,000.

(b)In the case of an individual described in Section 422(b)(6) of the Code (relating to certain 10% owners), the Exercise Price with respect to an Incentive Stock Option shall not be less than 110% of the Fair Market

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Value of a Share on the day the Option is granted and the term of an Incentive Stock Option shall be no more than five years from the date of grant.

(c)If Shares acquired upon exercise of an Incentive Stock Option are disposed of in a disqualifying disposition within the meaning of Section 422 of the Code by an Optionee prior to the expiration of either two years from the date of grant of such Option or one year from the transfer of Shares to the Optionee pursuant to the exercise of such Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Optionee shall notify the Company in writing as soon as practicable thereafter of the date and terms of such disposition and, if the Company thereupon has a tax-withholding obligation, shall pay to the Company an amount equal to any withholding tax the Company is required to pay as a result of the disqualifying disposition.

9.Provisions Applicable to Restricted Stock.

(a)Vesting Periods.  In connection with the grant of Restricted Stock, whether or not Performance Goals apply thereto, the Committee shall establish one or more vesting periods with respect to the shares of Restricted Stock granted, the length of which shall be determined in the discretion of the Committee and set forth in the applicable Award Agreement.  Subject to the provisions of this Section 9, the applicable Award Agreement and the other provisions of the Plan, restrictions on Restricted Stock shall lapse if the Grantee satisfies all applicable employment or other service requirements through the end of the applicable vesting period.

(b)Grant of Restricted Stock.  Subject to the other terms of the Plan, the Committee may, in its discretion as reflected by the terms of the applicable Award Agreement:  (i) authorize the Grant of Restricted Stock to Eligible Persons; (ii) provide a specified purchase price for the Restricted Stock (whether or not the payment of a purchase price is required by any state law applicable to the Company); (iii) determine the restrictions applicable to Restricted Stock and (iv) determine or impose other conditions to the Grant of Restricted Stock under the Plan as it may deem appropriate.

(c)Certificates.

(i)Each Grantee of Restricted Stock may be issued a stock certificate in respect of Shares of Restricted Stock awarded under the Plan.  Any such certificate shall be registered in the name of the Grantee.  Without limiting the generality of Section 6 hereof, in addition to any legend that might otherwise be required by the Board or the Company’s charter, bylaws or other applicable documents, the certificates for Shares of Restricted Stock issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the applicable Award Agreement, or as the Committee may otherwise deem appropriate, and, without limiting the generality of the foregoing, shall bear a legend referring to the terms, conditions, and restrictions applicable to such Grant, substantially in the following form:

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE READY CAPITAL CORPORATION. 2013 EQUITY INCENTIVE PLAN, AND AN AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND READY CAPITAL CORPORATION COPIES OF SUCH PLAN AND AWARD AGREEMENT ARE ON FILE IN THE OFFICES OF READY CAPITAL CORPORATION AT 1140 AVENUE OF THE AMERICAS, 7TH FLOOR, NEW YORK, NEW YORK 10036.

(ii)The Committee may require that any stock certificates evidencing such Shares be held in custody by the Company until the restrictions hereunder shall have lapsed and that, as a condition of any grant of Restricted Stock, the Grantee shall have delivered a stock power, endorsed in blank, relating to the stock covered by such Grant.  If and when such restrictions so lapse, the stock certificates shall be delivered by the Company to the Grantee or his or her designee as provided in Section 9(d) hereof.

(iii)For purposes of clarity, nothing contained in the Plan shall preclude the use of non-certficated evidence of ownership that the Committee determines to be appropriate, including book entry.

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(d)Restrictions and Conditions.  Unless otherwise provided by the Committee in an Award Agreement, the Shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

(i)Subject to the provisions of the Plan and the applicable Award Agreement, during a period commencing with the date of such Grant and ending on the date the period of forfeiture with respect to which such Shares lapses, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock awarded under the Plan (or have such Shares attached or garnished).  Subject to the provisions of the applicable Award Agreement, the period of forfeiture with respect to Shares granted hereunder shall lapse as provided in the applicable Award Agreement.  Notwithstanding the foregoing, unless otherwise expressly provided by the Committee, the period of forfeiture with respect to such Shares shall only lapse as to whole Shares.

(ii)Except as provided in the foregoing clause (i), or in Section 16 hereof, the Grantee shall have, in respect of the shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the underlying Shares and receive dividends.  Certificates for Shares underlying Restricted Stock (not subject to restrictions hereunder) shall be delivered to the Grantee or his or her designee (or where permitted, transferee) promptly after, and only after, the period of forfeiture shall lapse without forfeiture in respect of such shares of Restricted Stock.

(iii)Termination of service.  Unless otherwise provided in the applicable Award Agreement, if the Grantee has a Termination of Service for any reason, then (A) all shares of Restricted Stock still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee, and (B) the Company shall pay to the Grantee as soon as practicable (and in no event more than 30 days) after such termination an amount equal to the lesser of (X) the amount paid by the Grantee, if any, for such forfeited Restricted Stock as contemplated by Section 9(b) hereof, and (Y) the Fair Market Value on the date of termination of the forfeited Restricted Stock.

10.Provisions Applicable to Phantom Shares.

(a)Grant of Phantom Shares.  Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the applicable Award Agreement:  (i) authorize the Granting of Phantom Shares to Eligible Persons and (ii) determine or impose other conditions to the grant of Phantom Shares under the Plan as it may deem appropriate.

(b)Term.  The Committee may provide in an Award Agreement that any particular Phantom Share shall expire at the end of a specified term.

(c)Vesting.

(i)Subject to the provisions of the applicable Award Agreement and Section 10(c)(ii) below, Phantom Shares shall vest as provided in the applicable Award Agreement.

(ii)Unless otherwise determined by the Committee in an applicable Award Agreement, in the event that a Grantee has a Termination of Service, any and all of the Grantee’s Phantom Shares which have not vested prior to or as of such termination shall thereupon, and with no further action, be forfeited and cease to be outstanding, and the Grantee’s vested Phantom Shares shall be settled as set forth in Section 10(d) below.

(d)Settlement of Phantom Shares.

(i)Except as otherwise provided by the Committee, each vested and outstanding Phantom Share shall be settled by the transfer to the Grantee of one Share; provided,  however,  that, the Committee at the time of grant (or, in the appropriate case, as determined by the Committee, thereafter) may provide that a Phantom Share may be settled (A) in cash at the applicable Phantom Share Value, (B) in cash or by transfer of Shares as elected by the Grantee in accordance with procedures established by the Committee (if any) or (C) in cash or by transfer of Shares as elected by the Company.

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(ii)Each Phantom Share shall be settled with a single-sum payment by the Company; provided,  however,  that, with respect to Phantom Shares of a Grantee which have a common Settlement Date, the Committee may permit the Grantee to elect in accordance with procedures established by the Committee (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate) to receive installment payments over a period not to exceed 10 years.

(iii)(A)Except as otherwise provided by the Committee, the settlement date with respect to a Grantee is the first day of the month to follow the Grantee’s Termination of Service (the “Settlement Date”).

(B)Notwithstanding Section 10(d)(iii)(A), the Committee may provide that distributions of Phantom Shares can be elected at any time in those cases in which the Phantom Share Value is determined by reference to Fair Market Value to the extent in excess of a base value, rather than by reference to unreduced Fair Market Value.

(C)Notwithstanding the foregoing, the Settlement Date, if not earlier pursuant to this Section 10(d)(iii), is the date of the Grantee’s death.

(iv)Notwithstanding any other provision of the Plan (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate), a Grantee may receive any amounts to be paid in installments as provided in Section 10(d)(ii) or deferred by the Grantee as provided in Section 10(d)(iii) in the event of an “Unforeseeable Emergency.” For these purposes, an “Unforeseeable Emergency” shall have the meaning provided in Section 409A of the Code and the regulations thereunder, as determined by the Committee in its sole discretion, provided that such Unforeseeable Emergency must cause a severe financial hardship to the Grantee resulting from (A) a sudden and unexpected illness or accident of the Grantee or “dependent,” as defined in Section 152(a) of the Code, of the Grantee, (B) loss of the Grantee’s property due to casualty, or (C) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Grantee.  The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:

(X)through reimbursement or compensation by insurance or otherwise;

(Y)by liquidation of the Grantee’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or

(Z)by future cessation of the making of additional deferrals with respect to Phantom Shares.

Without limitation, the need to send a Grantee’s child to college or the desire to purchase a home shall not constitute an Unforeseeable Emergency.  Distributions of amounts because of an Unforeseeable Emergency shall be permitted to the extent reasonably needed to satisfy the emergency need.

(e)Other Phantom Share Provisions.

(i)Except as permitted by the Committee, rights to payments with respect to Phantom Shares granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to payments or other benefits payable hereunder, shall be void.

(ii)A Grantee may designate in writing, on forms to be prescribed by the Committee, a beneficiary or beneficiaries to receive any payments payable after his or her death and may amend or revoke such designation at any time.  If no beneficiary designation is in effect at the time of a Grantee’s death, payments hereunder shall be made to the Grantee’s estate.  If a Grantee with a vested Phantom Share dies, such Phantom Share shall be settled and the Phantom Share Value in respect of such Phantom Shares paid, and any payments deferred pursuant to an election under Section 10(d)(iii) shall be accelerated and paid, as soon as practicable (but no later than 60 days) after the date of death to such Grantee’s beneficiary or estate, as applicable.

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(iii)The Committee may (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate) establish a program under which distributions with respect to Phantom Shares may be deferred for periods in addition to those otherwise contemplated by the foregoing provisions of this Section 10.  Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts and, if permitted by the Committee, provisions under which Grantees may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

(iv)Notwithstanding any other provision of this Section 10, any fractional Phantom Share will be paid out in cash at the Phantom Share Value as of the Settlement Date.

(v)No Phantom Share shall give any Grantee any rights with respect to Shares or any ownership interest in the Company.  Except as may be provided in accordance with Section 11 hereof, no provision of the Plan shall be interpreted to confer upon any Grantee of a Phantom Share any voting, dividend or derivative or other similar rights with respect to any Phantom Share.

(f)Claims Procedures.

(i)The Grantee, or his or her beneficiary hereunder or authorized representative, may file a claim for payments with respect to Phantom Shares under the Plan by written communication to the Secretary of the Company or his or her designee.  A claim is not considered filed until such communication is actually received.  Within 90 days (or, if special circumstances require an extension of time for processing, 180 days, in which case notice of such special circumstances should be provided to the Secretary of the Company or his or her designee within the initial 90-day period) after the filing of the claim, the Committee will either:

(A)approve the claim and take appropriate steps for satisfaction of the claim; or

(B)if the claim is wholly or partially denied, advise the claimant of such denial by furnishing to him or her a written notice of such denial setting forth (1) the specific reason or reasons for the denial; (2) specific reference to pertinent provisions of the Plan on which the denial is based and, if the denial is based in whole or in part on any rule of construction or interpretation adopted by the Committee, a reference to such rule, a copy of which shall be provided to the claimant; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the reasons why such material or information is necessary; and (4) a reference to this Section 10(f) as the provision setting forth the claims procedure under the Plan.

(ii)The claimant may request a review of any denial of his or her claim by written application to the Committee within 60 days after receipt of the notice of denial of such claim.  Within 60 days (or, if special circumstances require an extension of time for processing, 120 days, in which case notice of such special circumstances should be provided within the initial 60-day period) after receipt of written application for review, the Committee will provide the claimant with its decision in writing, including, if the claimant’s claim is not approved, specific reasons for the decision and specific references to the Plan provisions on which the decision is based.

11.Provisions Applicable to Dividend Equivalent Rights.

(a)Grant of DERs.  Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the Award Agreements, authorize the granting of DERs to Eligible Persons based on the dividends declared on Common Stock, to be credited as of the dividend payment dates, during a specified period determined by the Committee, which may be, for example, between the date a Grant is issued or vests, and the date such Grant is exercised, vests or expires.  Such DERs shall be converted to cash or additional Shares by such formula and at such time and subject to such limitation as may be determined by the Committee.  With respect to DERs granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such DERs shall be payable regardless of whether such Option is exercised.  If a DER is granted in respect of another Grant hereunder, then, unless otherwise stated in the Award Agreement, or, in the appropriate case, as determined by the Committee, in no event shall the DER be in effect for a period beyond the

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time during which the applicable related portion of the underlying Grant has been exercised or otherwise settled, or has expired, been forfeited or otherwise lapsed, as applicable.

(b)Certain Terms.

(i)The term of a DER shall be set by the Committee in its discretion.

(ii)Payment of the amount determined in accordance with Section 11(a) shall be in cash, in Common Stock or a combination of the both, as determined by the Committee at the time of grant.

(c)Other Types of DERs.  The Committee may establish a program under which DERs of a type whether or not described in the foregoing provisions of this Section 11 may be granted to Eligible Persons.  For example, without limitation, the Committee may grant a DER in respect of each Share subject to an Option or with respect to a Phantom Share, which right would consist of the right (subject to Section 11(d)) to receive a cash payment in an amount equal to the dividend distributions paid on a Share from time to time.

(d)Deferral.

(i)The Committee may (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate) establish a program under which Grantees (A) will have Phantom Shares credited, subject to the terms of Sections 10(d) and 10(e) hereof as though directly applicable with respect thereto, upon the granting of DERs, or (B) will have payments with respect to DERs deferred.

(ii)The Committee may establish a program under which distributions with respect to DERs may be deferred.  Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts, and, if permitted by the Committee, provisions under which Grantees may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

12.Provisions Applicable to Restricted Limited Partnership Units.

(a)Vesting Periods.  In connection with the grant of Restricted Limited Partnership Units, whether or not Performance Goals apply thereto, the Committee shall establish one or more vesting periods with respect to the Restricted Limited Partnership Units granted, the length of which shall be determined in the discretion of the Committee and set forth in the applicable Award Agreement.  Subject to the provisions of this Section 12, the applicable Award Agreement and the other provisions of the Plan, restrictions on Restricted Limited Partnership Units shall lapse if the Grantee satisfies all applicable employment or other service requirements through the end of the applicable vesting period.

(b)Grant of Restricted Limited Partnership Units.  Subject to the other terms of the Plan, the Committee may, in its discretion as reflected by the terms of the applicable Award Agreement:  (i) authorize the Grant of Restricted Limited Partnership Units to Eligible Persons; (ii) provide a specified purchase price for the Restricted Limited Partnership Units (whether or not the payment of a purchase price is required by any state law applicable to the Company); (iii) determine the restrictions applicable to Restricted Limited Partnership Units and (iv) determine or impose other conditions to the Grant of Restricted Limited Partnership Units under the Plan as it may deem appropriate.

(c)Restrictions and Conditions.  Unless otherwise provided by the Committee in an Award Agreement, the Restricted Limited Partnership Units awarded pursuant to the Plan shall be subject to the following restrictions and conditions:  subject to the provisions of the Plan and the applicable Award Agreement, during a period commencing with the date of such Grant and ending on the date the period of forfeiture with respect to such Restricted Limited Partnership Units lapses, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Restricted Limited Partnership Units awarded under the Plan (or have such units attached or garnished).  Subject to the provisions of the applicable Award Agreement, the period of forfeiture with respect to Restricted Limited Partnership Units granted hereunder shall lapse as provided in the applicable Award Agreement.  Notwithstanding the foregoing, unless otherwise expressly provided by the Committee, the period of forfeiture with respect to such Restricted Limited Partnership Units shall only lapse as to whole units.

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(d)Termination of service.  Unless otherwise provided in the applicable Award Agreement, if the Grantee has a Termination of Service for any reason, then (A) all Restricted Limited Partnership Units still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee, and (B) the Company shall pay to the Grantee as soon as practicable (and in no event more than 30 days) after such termination an amount equal to the lesser of (X) the amount paid by the Grantee, if any, for such forfeited Restricted Limited Partnership Units as contemplated by Section 12(b) hereof, and (Y) the Fair Market Value on the date of termination of the forfeited Restricted Limited Partnership Units.

13.Other Equity-Based Awards.  The Board shall have the right to grant other awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Common Stock, and the grant of restricted stock units.

14.Performance Goals.  The Committee, in its discretion, shall in the case of Grants (including, in particular, Grants other than Options) intended to qualify for an exception from the limitation imposed by Section 162(m) of the Code (“Performance-Based Grants”) (i) establish one or more performance goals (“Performance Goals”) as a precondition to the issuance or vesting of Grants, and (ii) provide, in connection with the establishment of the Performance Goals, for predetermined Grants to those Grantees (who continue to meet all applicable eligibility requirements) with respect to whom the applicable Performance Goals are satisfied.  The Performance Goals shall be based upon the Performance Criteria set forth in Exhibit A hereto which is hereby incorporated herein by reference as though set forth in full.  The Performance Goals shall be established in a timely fashion such that they are considered preestablished for purposes of the rules governing performance-based compensation under Section 162(m) of the Code.  Prior to the award of Restricted Stock intended to qualify for an exception from the limitation imposed by Section 162(m) of the Code, the Committee shall have certified that any applicable Performance Goals, and other material terms of the Grant, have been satisfied.  Performance Goals which do not satisfy the foregoing provisions of this Section 14 may be established by the Committee with respect to Grants not intended to qualify for an exception from the limitations imposed by Section 162(m) of the Code.

15.Term of Plan.  Grants may be granted pursuant to the Plan until the expiration of 10 years from the effective date of the Plan.

16.Recapitalization and Changes of Control.

(a)Subject to any required action by stockholders and to the specific provisions of Section 17 hereof, if (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization or other similar change in the capital structure of the Company, or any distribution to holders of Common Stock other than cash dividends, shall occur or (iii) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Grants, then:

(i)the maximum aggregate number of Shares which may be made subject to Options and DERs under the Plan, the maximum aggregate number and kind of Shares of Restricted Stock that may be granted under the Plan, the maximum aggregate number of Phantom Shares and other Grants which may be granted under the Plan shall be appropriately adjusted by the Committee in its discretion; and

(ii)the Committee shall take any such action as in its discretion shall be necessary to maintain each Grantees’ rights hereunder (including under their applicable Award Agreements) so that they are, in their respective Options, Phantom Shares and DERs (and, as appropriate, other Grants under Section 13 hereof), substantially proportionate to the rights existing in such Options, Phantom Shares and DERs (and other Grants under Section 13 hereof) prior to such event, including, without limitation, adjustments in (A) the number of Options, Phantom Shares and DERs (and other Grants under Section 13) granted, (B) the number and kind of shares or other property to be distributed in respect of Options, Phantom Shares and DERs (and other Grants under Section 13, as

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applicable, (C) the Exercise Price, Purchase Price and Phantom Share Value, and (D) performance-based criteria established in connection with Grants (to the extent consistent with Section 162(m) of the Code, as applicable); provided that, in the discretion of the Committee, the foregoing clause (D) may also be applied in the case of any event relating to a Subsidiary if the event would have been covered under this Section 16(a) had the event related to the Company.

To the extent that such action shall include an increase or decrease in the number of Shares (or units of other property then available) subject to all outstanding Grants, the number of Shares (or units) available under Section 6 above shall be increased or decreased, as the case may be, proportionately.

(b)Any Shares or other securities distributed to a Grantee with respect to Restricted Stock or otherwise issued in substitution of Restricted Stock pursuant to this Section 16 shall be subject to the applicable restrictions and requirements imposed by Section 9 hereof, including depositing the certificates therefor with the Company together with a stock power and bearing a legend as provided in Section 9(c)(i) hereof.

(c)If the Company shall be consolidated or merged with another corporation or other entity, each Grantee who has received Restricted Stock that is then subject to restrictions imposed by Section 9(d) hereof may be required to deposit with the successor corporation the certificates for the stock or securities or the other property that the Grantee is entitled to receive by reason of ownership of Restricted Stock in a manner consistent with Section 9(c)(ii) hereof, and such stock, securities or other property shall become subject to the restrictions and requirements imposed by Section 9(d) hereof, and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 9(c)(i) hereof.

(d)The judgment of the Committee with respect to any matter referred to in this Section 16 shall be conclusive and binding upon each Grantee without the need for any amendment to the Plan.

(e)Subject to any required action by stockholders, if the Company is the surviving corporation in any merger or consolidation, the rights under any outstanding Grant shall pertain and apply to the securities to which a holder of the number of Shares subject to the Grant would have been entitled.  Subject to the terms of any applicable Award Agreement, in the event of a merger or consolidation in which the Company is not the surviving corporation, the date of exercisability of each outstanding Option and settling of each Phantom Share or, as applicable, other Grant under Section 13 hereof (in each case whether or not vested), shall be accelerated to a date prior to such merger or consolidation, unless the agreement of merger or consolidation provides for the assumption of the Grant by the successor to the Company.

(f)To the extent that the foregoing adjustment related to securities of the Company, such adjustments shall be made by the Committee, whose determination shall be conclusive and binding on all persons.

(g)Except as expressly provided in this Section 16, a Grantee shall have no rights by reason of subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to a Grant or the Exercise Price of Shares subject to an Option.

(h)Grants made pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business assets.

(i)Upon the occurrence of a Change in Control:

(i)The Committee as constituted immediately before such Change in Control may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of such Change in Control (including, without limitation, the substitution of stock other than stock of the Company as the stock optioned hereunder, and the acceleration of the exercisability or vesting of awards granted under the Plan, cancellation of any

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Options or stock appreciation rights in return for payment equal to the Fair Market Value of Shares subject to an Option or stock appreciation right as of the date of such Change in Control less the Exercise Price applicable thereto (which amount may be zero) and settling of each vested Phantom Share or, as applicable, other Grant under Section 13 hereof (in each case whether or not vested)), if any, provided that the Committee determines that such adjustments do not have a substantial adverse economic impact on the Grantee as determined at the time of the adjustments.

(ii)Notwithstanding the provisions of Section 10 hereof, the Settlement Date for Phantom Shares shall be the date of such Change in Control and all amounts due with respect to Phantom Shares to a Grantee hereunder shall be paid as soon as practicable (but in no event more than 30 days) after such Change in Control, unless such Grantee elects otherwise in accordance with procedures established by the Committee.

17.Effect of Certain Transactions.  In the case of (a) the dissolution or liquidation of the Company, (b) a merger, consolidation, reorganization or other business combination in which the Company is acquired by another entity or in which the Company is not the surviving entity, or (c) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, the Plan and the Grants issued hereunder shall terminate upon the effectiveness of any such transaction or event, unless provision is made in connection with such transaction for the assumption of Grants theretofore granted, or the substitution for such Grants of new Grants, by the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and the per share exercise prices, as provided in Section 16 hereof.  In the event of such termination, all outstanding Options and Grants shall be exercisable to the extent then vested (taking into account any accelerated vesting provided by the Committee) for at least ten days prior to the date of such termination.

18.Securities Law Requirements.

(a)Legality of Issuance.  The issuance of any Shares pursuant to Grants under the Plan and the issuance of any Grant shall be contingent upon the following:

(i)the obligation of the Company to sell Shares with respect to Grants issued under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee;

(ii)the Committee may make such changes to the Plan as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain tax benefits applicable to stock options; and

(iii)each grant of Options, Restricted Stock, Phantom Shares (or issuance of Shares in respect thereof), DERs (or issuance of Shares in respect thereof), Restricted Limited Partnership Units or other Grant under Section 13 hereof (or issuance of Shares in respect thereof), is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares or other awards issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Options, Shares of Restricted Stock, Phantom Shares, DERs, Restricted Limited Partnership Units, other Grants or other Shares, no payment shall be made, or Phantom Shares or Shares issued or grant of Restricted Stock, Restricted Limited Partnership Units or other Grant made, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions in a manner acceptable to the Committee.

(b)Restrictions on Transfer.  Regardless of whether the offering and sale of Shares under the Plan has been registered under the Act or has been registered or qualified under the securities laws of any state, the Company may impose restrictions on the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state or any other law.  In the event that the sale of Shares under the Plan is not registered under the Act but an exemption

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is available which requires an investment representation or other representation, each Grantee shall be required to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary or appropriate by the Company and its counsel.  Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 18 shall be conclusive and binding on all persons.  Without limiting the generality of Section 6 hereof, stock certificates evidencing Shares acquired under the Plan pursuant to an unregistered transaction shall bear a restrictive legend, substantially in the following form, and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law:

“THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.”

(c)Registration or Qualification of Securities.  The Company may, but shall not be obligated to, register or qualify the issuance of Grants and/or the sale of Shares under the Act or any other applicable law.  The Company shall not be obligated to take any affirmative action in order to cause the issuance of Grants or the sale of Shares under the Plan to comply with any law.

(d)Exchange of Certificates.  If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under the Plan is no longer required, the holder of such certificate shall, with the permission of the Committee, be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

(e)Certain Loans.  Notwithstanding any other provision of the Plan, the Company shall not be required to take or permit any action under the Plan or any Award Agreement which, in the good-faith determination of the Company, would result in a material risk of a violation by the Company of Section 13(k) of the Exchange Act.

19.Compliance with Section 409a of the Code.

(a)Any Award Agreement issued under the Plan that is subject to Section 409A of the Code shall include such additional terms and conditions as may be required to satisfy the requirements of Section 409A of the Code.

(b)With respect to any Grant issued under the Plan that is subject to Section 409A of the Code, and with respect to which a payment or distribution is to be made upon a Termination of Service, if the Grantee is determined by the Company to be a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code and any of the Company’s stock is publicly traded on an established securities market or otherwise, such payment or distribution, to the extent it would constitute a payment of nonqualified deferred compensation within the meaning of Section 409A of the Code that is ineligible for an exemption from treatment as such, may not be made before the date which is six months after the date of Termination of Service (to the extent required under Section 409A of the Code).

(c)Notwithstanding any other provision of the Plan, the Board and the Committee shall administer the Plan, and exercise authority and discretion under the Plan, to satisfy the requirements of Section 409A of the Code or any exemption thereto.  Nothing contained herein is intended to provide assurances or an indemnity to any Grantee regarding his or her personal tax treatment.

20.Amendment of the Plan.  The Board may from time to time, with respect to any Shares at the time not subject to Grants, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, taking into account applicable laws, regulations, exchange and accounting rules.  The Board may otherwise amend the Plan as it shall deem advisable, except that no amendment may materially impair the rights of a Grantee under an award previously granted without the Grantee’s consent, unless effected to comply with applicable law or regulation or to meet the requirements of any accounting standard or to correct an administrative error.

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21.Application of Funds.  The proceeds received by the Company from the sale of Common Stock pursuant to the exercise of an Option, the sale of Restricted Stock or in connection with other Grants under the Plan will be used for general corporate purposes.

22.Tax Withholding.  Each Grantee shall, no later than the date as of which the value of any Grant first becomes includable in the gross income of the Grantee for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Company regarding payment of any federal, state or local taxes of any kind that are required by law to be withheld with respect to such income.  To the extent permitted by the Committee from time to time, a Grantee may elect to have such tax withholding satisfied, in whole or in part, by (a) authorizing the Company to withhold a number of Shares to be issued pursuant to a Grant equal to the Fair Market Value as of the date withholding is effected that would satisfy the withholding amount due, (b) transferring to the Company Shares owned by the Grantee with a Fair Market Value equal to the amount of the required withholding tax, or (c) in the case of a Grantee who is an Employee of the Company at the time such withholding is effected, by withholding from the Grantee’s cash compensation.  Notwithstanding anything contained in the Plan to the contrary, the Grantee’s satisfaction of any tax-withholding requirements imposed by the Committee shall be a condition precedent to the Company’s obligation as may otherwise by provided hereunder to provide Shares to the Grantee, and the failure of the Grantee to satisfy such requirements with respect to a Grant shall cause such Grant to be forfeited.

23.Notices.  All notices under the Plan shall be in writing, and if to the Company, shall be delivered to the Secretary of the Company or his or her designee or mailed to its principal office, addressed to the attention of the Secretary of the Company or to his or her designee; and if to the Grantee, shall be delivered personally or mailed to the Grantee at the address appearing in the records of the applicable Participating Company.  Such addresses may be changed at any time by written notice to the other party given in accordance with this Section 23.

24.Rights to Employment or Other Service.  Nothing in the Plan or in any Grant issued pursuant to the Plan shall confer on any individual any right to continue in the employ or other service of any Participating Company (if applicable) or interfere in any way with the right of such Participating Company and its stockholders to terminate the individual’s employment or other service at any time.

25.Exculpation and Indemnification.  To the maximum extent permitted by law, the Company shall indemnify and hold harmless the members of the Board and the members of the Committee, in each case as constituted from time to time, from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection with the performance of such person’s duties, responsibilities and obligations under the Plan, other than such liabilities, costs and expenses as may result from the gross negligence, bad faith, willful misconduct or criminal acts of such persons.

26.No Fund Created.  Any and all payments hereunder to any Grantee under the Plan shall be made from the general funds of the Company (or, if applicable, a Participating Company), no special or separate fund shall be established or other segregation of assets made to assure such payments, and the Phantom Shares (including for purposes of this Section 26 any accounts established to facilitate the implementation of Section 10(d)(iii) hereof) and any other similar devices issued hereunder to account for Plan obligations do not constitute Common Stock and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided,  however,  that the Company (or a Participating Company) may establish a mere bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended.  The obligations of the Company (or, if applicable, a Participating Company) under the Plan are unsecured and constitute a mere promise by the Company (or, if applicable, a Participating Company) to make benefit payments in the future and, to the extent that any person acquires a right to receive payments under the Plan from the Company (or, if applicable, a Participating Company), such right shall be no greater than the right of a general unsecured creditor of the Company (or, if applicable, a Participating Company).  Without limiting the foregoing, Phantom Shares and any other similar devices issued hereunder to account for Plan obligations are solely a device for the measurement and determination of the amounts to be paid to a Grantee under the Plan, and each Grantee’s right in the Phantom Shares and any such other devices is limited to the right to receive payment, if any, as may herein be provided.

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27.No Fiduciary Relationship.  Nothing contained in the Plan (including without limitation Section 10(e)(iii) hereof), and no action taken pursuant to the provisions of the Plan, shall create or shall be construed to create a trust of any kind, or a fiduciary relationship between the Company, the Participating Companies, their respective officers or the Committee, on the one hand, and the Grantee, the Company, the Participating Companies or any other person or entity, on the other.

28.Captions.  The use of captions in the Plan is for convenience.  The captions are not intended to provide substantive rights.

29.GOVERNING LAW.  THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.

30.Regional Variation.  The Committee reserves the right to authorize the establishment of, and to grant Awards pursuant to, annexes, sub-plans or other supplementary documentation as the Committee deems appropriate in light of local law, rules and customs.

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EXHIBIT A

PERFORMANCE CRITERIA

Performance Based Grants intended to qualify as “performance based” compensation under Section 162(m) of the Code, may be payable upon the attainment of objective performance goals that are established by the Committee and relate to one or more Performance Criteria (as defined below), in each case on a specified date or over any period, up to 10 years, as determined by the Committee.  Performance Criteria may be based on the achievement of the specified levels of performance under one or more of the measures set out below relative to the performance of one or more other corporations or indices.

“Performance Criteria” means the following business criteria (or any combination thereof) with respect to one or more of the Company, any Participating Company or any division or operating unit thereof:

(i)pre-tax income,

(ii)after-tax income,

(iii)net income (meaning net income as reflected in the Company’s financial reports for the applicable period, on an aggregate, diluted and/or per share basis, or economic net income),

(iv)operating income or profit,

(v)cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital,

(vi)earnings per share (basic or diluted),

(vii)return on equity,

(viii)returns on revenues,

(ix)return on invested capital or assets (gross or net),

(x)cash, funds or earnings available for distribution,

(xi)appreciation in the fair market value of the Common Stock,

(xii)operating expenses,

(xiii)implementation or completion of critical projects or processes,

(xiv)return on investment,

(xv)total return to stockholders (meaning the aggregate Common Stock price appreciation and dividends paid (assuming full reinvestment of dividends) during the applicable period),

(xvi)net earnings growth,

(xvii)stock appreciation (meaning an increase in the price or value of the Common Stock after the date of grant of an award and during the applicable period),

(xviii)related return ratios,

(xix)increase in revenues,

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(xx)the Company’s published ranking against its peer group of real estate investment trusts based on total stockholder return,

(xxi)net earnings,

(xxii)changes (or the absence of changes) in the per share or aggregate market price of the Company’s Common Stock,

(xxiii)number of securities sold,

(xxiv)earnings before or after any one or more of the following items:  interest, taxes, depreciation or amortization, as reflected in the Company’s financial reports for the applicable period,

(xxv)total revenue growth (meaning the increase in total revenues after the date of grant of an award and during the applicable period, as reflected in the Company’s financial reports for the applicable period),

(xxvi)economic value created,

(xxvii)operating margin or profit margin,

(xxviii)Share price or total shareholder return,

(xxix)cost targets, reductions and savings, productivity and efficiencies,

(xxx)strategic business criteria, consisting of one or more objectives based on meeting objectively determinable specified market penetration, geographic business expansion, investor satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons,

(xxxi)objectively determinable personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions, and

(xxxii)any combination of, or a specified increase or improvement in, any of the foregoing.

Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of a particular Performance Criteria or the attainment of a percentage increase or decrease in a particular Performance Criteria, and may be applied to one or more of the  Company, a Subsidiary or affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee.

The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur).

Except as otherwise expressly provided, all financial terms are used as defined under Generally Accepted Accounting Principles (“GAAP”) and all determinations shall be made in accordance with GAAP, as applied by the Company in the preparation of its periodic reports to stockholders.

To the extent permitted by Section 162(m) of the Code, unless the Committee provides otherwise at the time of establishing the performance goals, for each fiscal year of the Company, the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events

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affecting the Company or any Subsidiary or affiliate or the financial statements of the Company or any Subsidiary or affiliate and may provide for objectively determinable adjustments, as determined in accordance with GAAP, to any of the Performance Criteria described above for one or more of the items of gain, loss, profit or expense:  (A) determined to be extraordinary or unusual in nature or infrequent in occurrence, (B) related to the disposal of a segment of a business, (C) related to a change in accounting principle under GAAP or a change in applicable laws or regulations, (D) related to discontinued operations that do not qualify as a segment of a business under GAAP, and (E) attributable to the business operations of any entity acquired by the Company during the fiscal year.

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EX-10.11

Exhibit 10.11

READY CAPITAL CORPORATION

2012 EQUITY INCENTIVE PLAN

FORM OF RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS AGREEMENT is made by and between Ready Capital Corporation,  a Maryland corporation (the “Company”), and (the “Grantee”), dated as of the day of, 20.

WHEREAS, the Company maintains the Ready Capital Corporation 2012 Equity Incentive Plan (the “Plan”) (capitalized terms used but not defined herein shall have the respective meanings ascribed thereto by the Plan);

WHEREAS, in accordance with the Plan, the Company may from time to time issue awards of Restricted Stock Units (“RSUs”) (also generally known and referred to under the Plan as Phantom Shares) to individuals and persons who provide services to, among others, the Company and Waterfall Asset Management, LLC (the “Manager”);

WHEREAS, the Grantee,  as the Manager, an officer, director, advisor, employee or other personnel of the Company, the Subsidiaries or the Manager (or with the consent of the Board or the Compensation Committee of the Company (the “Compensation Committee”), any of the respective affiliates of the Company, the Subsidiaries, or the Manager, or any joint venture affiliate of the Company) or another person expected to provide significant services (of a type expressly approved by the Committee as covered services) to one or more of the Company, the Subsidiaries and the Manager,  is an Eligible Person under the terms of the Plan;  and

WHEREAS, in accordance with the Plan, the Committee has determined that it is in the best interests of the Company and its stockholders to grant RSUs to the Grantee subject to the terms and conditions set forth below.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.          Grant of RSUs.

The Company hereby grants the Grantee RSUs. The RSUs are subject to the terms and conditions of this Agreement, and are also subject to the provisions of the Plan. The Plan is hereby incorporated herein by reference as though set forth herein in its entirety. To the extent such terms or conditions in this Agreement conflict with any provision of the Plan, the terms and conditions set forth in the Plan shall govern. Where the context permits, references to the Company shall include any successor to the Company.  If this Agreement is not executed and returned to the Company by the Grantee by April 18,  2017 this award will be null and void ab initio and the Grantee will have no rights hereunder.

2.          Restrictions.

The RSUs awarded pursuant to this Agreement and the Plan shall be subject to the terms and conditions set forth in this Paragraph 2.

(a)         Subject to clauses (b) and (c) below, the RSUs granted hereunder shall vest, solely to the extent the Grantee has not had a Termination of Service, in accordance with the following schedule:

Vesting Date	Shares Vested
Date hereof
March 31, 2017
June 30, 2017
September 30, 2017
December 31, 2017

(b)         Subject to clause (c) below, upon the Grantee’s Termination of Service for any reason, all unvested RSUs shall thereupon, and with no further action, be forfeited by the Grantee,  and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such RSUs.

(c)         Termination of Service as an employee shall not be treated as a termination of employment for purposes of this Paragraph 2  if the Grantee continues without interruption to serve thereafter as an officer or director of the Company,  or in such other capacity as determined by the Committee (or if no Committee is appointed, the Board), and the termination of such successor service shall be treated as the applicable termination.

3.          Voting and Other Rights.

The Grantee shall have no rights of a stockholder (including the right to distributions or dividends), and will not be treated as an owner of Shares for tax purposes, except with respect to Shares that have been issued.  Notwithstanding the foregoing, a  DER, often referred to as a dividend equivalent right, is hereby granted to the Grantee, consisting of the right to receive, with respect to each outstanding and non-forfeited RSU, cash in an amount equal to the cash dividend distributions paid in the ordinary course on a Share to the Company’s common stockholders, as set forth below.  All DERs (if any) payable on an  outstanding and non-forfeited RSU, whether or not then vested, shall be paid not later than 30 days after any ordinary cash dividend distributions on Shares are paid to the Company’s common stockholders.  Under no circumstances shall the Grantee be entitled to receive both (i) a distribution and a DER with respect to a vested RSU (or its associated Share) or (ii)  a distribution and a  DER with respect to an unvested RSU.

4.          Settlement.

One Share of Common Stock of the Company shall be issued to the Grantee in settlement of each vested RSU not later than 365 days following the final Vesting Date set forth in Paragraph 2(a) above (either by delivering one or more certificates for such Share or by entering such Share in book‑entry form, as determined by the Company in its discretion).  Such issuance shall constitute payment of the RSUs.  References herein to issuances to the Grantee shall include issuances to any beneficial owner or other person to whom (or to

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which) the Shares are issued.  The Company’s obligation to issue Shares or otherwise make any payment with respect to vested RSUs is subject to the condition precedent that the Grantee or other person entitled under the Plan to receive any Shares with respect to the vested RSUs deliver to the Company any representations or other documents or assurances required pursuant to Paragraph5(l) and the Company may meet any obligation to issue Shares by having one or more of its Subsidiaries or affiliates issue the Shares.  The Grantee shall have no further rights with respect to any RSUs, including with respect to any DER granted in connection with the RSU, that are paid or that terminate pursuant to Paragraph 2(b).  For the avoidance of doubt, to the extent the terms of this Paragraph 4 conflict with any terms of the Plan relating to the settlement of RSU or DERs, the terms of this Paragraph 4 shall govern.

5.          Miscellaneous.

(a)         The value of an  RSU may decrease depending upon the Fair Market Value of a Share from time to time.  Neither the Company, the Committee, the Manager, nor any other party associated with the Plan, shall be held liable for any decrease in the value of the RSUs.  If the value of such RSUs decrease, there will be a decrease in the underlying value of what is distributed to the Grantee under the Plan and this Agreement.

(b)         Participation in the Plan confers no rights or interests other than as herein provided.  With respect to this Agreement, (i) the RSUs are bookkeeping entries, (ii) the obligations of the Company under the Plan are unsecured and constitute a commitment by the Company to make benefit payments in the future, (iii) to the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of any general unsecured creditor of the Company, (iv) all payments under the Plan (including distributions of Shares) shall be paid from the general funds of the Company in the manner specified in Paragraph 5(f) and (v) no special or separate fund shall be established or other segregation of assets made to assure such payments (except that the Company may in its discretion establish a bookkeeping reserve to meet its obligations under the Plan).  The RSUs shall be used solely as a device for the determination of the payment to eventually be made to the Grantee if the RSUs vest pursuant to Paragraph 2.  The award of RSUs is intended to be an arrangement that is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended.

(c)         Governing Law; Venue; Waiver of Jury Trial.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAW WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF MARYLAND.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d)         The Committee may construe and interpret this Agreement and establish, amend and revoke such rules, regulations and procedures for the administration of this Agreement as it deems appropriate.  In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in this Agreement or in any related agreements, in the manner and to the extent it shall deem necessary or expedient to make

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the Plan fully effective.  All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company and the Grantee.

(e)         All notices hereunder shall be in writing, and if to the Company or the Committee, shall be delivered to the Board or mailed to its principal office, addressed to the attention of the Board; and if to the Grantee, shall be delivered personally, sent by facsimile transmission or mailed to the Grantee at the address appearing in the records of the Company.  Such addresses may be changed at any time by written notice to the other party given in accordance with this Paragraph 5(e).

(f)         If the grant made hereby is made to an affiliate of the Manager in consideration of services rendered thereby, and is in turn made by such affiliate of the Manager in consideration of the services rendered by the Grantee, for purposes of the provisions in Paragraphs 2(a) through 2(c) above relating to employment with the Company (and the termination thereof), and also for purposes of any references in the Plan to an employment agreement, “Company,” as the context so requires, shall include Manager and its affiliates to the extent that the Grantee is a provider of services to such entities.

(g)         The failure of the Grantee or the Company to insist upon strict compliance with any provision of this Agreement or the Plan, or to assert any right the Grantee or the Company, respectively, may have under this Agreement or the Plan, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement or the Plan.

(h)         The Company or the Manager shall be entitled to withhold from any payments or deemed payments any amount of tax withholding it determines to be required by law.

(i)          Notwithstanding anything to the contrary contained in this Agreement, to the extent that the Board determines that the Plan or the RSU is subject to Section 409A of the Code and fails to comply with the requirements of Section 409A of the Code, the Board reserves the right (without any obligation to do so or to indemnify the Grantee for failure to do so), without the consent of the Grantee, to amend or terminate the Plan and this Agreement and/or amend, restructure, terminate or replace the RSU in order to cause the RSU to either not be subject to Section 409A of the Code or to comply with the applicable provisions of such section.

(j)          The terms of this Agreement shall be binding upon the Grantee and upon the Grantee’s heirs, executors, administrators, personal representatives, transferees, assignees and successors in interest and upon the Company and its successors and assignees, subject to the terms of the Plan.

(k)         Unless otherwise permitted in the sole discretion of the Committee, (i) neither this Agreement nor any rights granted herein shall be assignable by the Grantee, and (ii) no purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any RSUs or Shares by any holder thereof in violation of the provisions of this Agreement or the Plan will be valid, and the Company will not transfer any of said RSUs or Shares on its books nor will any Shares be entitled to vote, nor will any distributions be paid thereon, unless and until there has been full compliance with said provisions to the satisfaction of the Company.  The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

(l)          The Grantee hereby agrees to perform all acts, and to execute and deliver any documents, that may be reasonably necessary to carry out the provisions of this Agreement, including

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but not limited to all acts and documents related to compliance with securities, tax and other applicable laws and regulations.

(m)        The Grantee hereby represents and agrees that the Grantee is not acquiring the RSUs or the Shares with a view to distribution thereof.

(n)         Nothing in this Agreement shall confer on the Grantee any right to continue in the employ or other service of the Company, its Subsidiaries or any other Participating Companies or interfere in any way with the right of any such entity and its stockholders to terminate the Grantee’s  employment or other service at any time.  Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Grantee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a Termination of Service as provided in this Agreement or under the Plan.

(o)         This Agreement and the Plan contain the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.

(p)         This Agreement may be executed in any number of counterparts, including via facsimile, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

(q)         Except as otherwise provided in the Plan or clause (i) above, no amendment or modification hereof shall be valid unless it shall be in writing and signed by all parties hereto.

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IN WITNESS WHEREOF, the Company and the Grantee have executed this Agreement as of the day and year first above written.

READY CAPITAL CORPORATION
By:
	Name:
	Title:

The undersigned hereby accepts and agrees to all of the terms and provisions of this Agreement.

[Signature Page to Award Agreement]

EX-10.12

Exhibit 10.12

READY CAPITAL CORPORATION

2012 EQUITY INCENTIVE PLAN

FORM OF RESTRICTED STOCK AWARD AGREEMENT

THIS AGREEMENT is made by and between Ready Capital Corporation, a Maryland corporation (the "Company"), and [] (the "Grantee"), dated as of the [] day of [], 20[] (the "Agreement").

WHEREAS, the Company maintains the Ready Capital Corporation 2012 Equity Incentive Plan (the "Plan") (capitalized terms used but not defined herein shall have the respective meanings ascribed thereto by the Plan);

WHEREAS, in accordance with the Plan, the Company may from time to time issue awards of Restricted Stock to individuals and persons who provide services to, among others, the Company and Waterfall Asset Management, LLC (the “Manager”);

WHEREAS, the Grantee, as the Manager, an officer, director, advisor, employee or other personnel of the Company, the Subsidiaries or the Manager (or with the consent of the Board or the Compensation Committee of the Company (the “Compensation Committee”), any of the respective affiliates of the Company, the Subsidiaries, or the Manager, or any joint venture affiliate of the Company) or another person expected to provide significant services (of a type expressly approved by the Compensation Committee as covered services) to one or more of the Company, the Subsidiaries and the Manager, is an Eligible Person under the terms of the Plan; and

WHEREAS, in accordance with the Plan, the Compensation Committee has determined that it is in the best interests of the Company and its stockholders to grant Restricted Stock to the Grantee subject to the terms and conditions set forth below.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1.          Grant of restricted stock.

The Company hereby grants the Grantee [] Shares of Restricted Stock of the Company, subject to the following terms and conditions and subject to the provisions of the Plan.  The Plan is hereby incorporated herein by reference as though set forth herein in its entirety.  To the extent the terms or conditions in this Agreement conflict with any provision of the Plan, the terms and conditions set forth in the Plan shall govern. Where the context permits, references to the Company shall include any successor to the Company. If this Agreement is not executed and returned to the Company by the Grantee by [], 20[] this award will be null and void ab initio and the Grantee will have no rights hereunder.

2.          Restrictions and conditions.

The Restricted Stock awarded pursuant to this Agreement and the Plan shall be subject to the following restrictions and conditions:

(i)          Subject to clauses (ii), (iii) and (iv) below, the period of restriction with respect to Shares granted hereunder (the "Restriction Period") shall begin on the date hereof and lapse, solely to the extent the Grantee has not had a Termination of Service, on the following schedule:

Date Restriction Lapses	Number of Shares
[], 20[]	[]
[], 20[]	[]
[], 20[]	[]

For purposes of the Plan and this Agreement, Shares with respect to which the Restriction Period has lapsed shall be vested.  Notwithstanding the foregoing, the Restriction Period with respect to such Shares shall only lapse as to whole Shares.  Subject to the provisions of the Plan and this Agreement, during the Restriction Period, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, hypothecate, alienate, encumber or assign the Shares of Restricted Stock awarded under the Plan (or have such Shares attached or garnished).

(ii)         Except as provided in the foregoing clause (i), below in this clause (ii) or in the Plan, the Grantee shall have, in respect of the Shares of Restricted Stock (whether or not vested), all of the rights of a stockholder of the Company, including the right to vote the Shares and the right to receive any cash dividends.  Shares (not subject to restrictions) shall be delivered to the Grantee or his or her designee promptly after, and only after, the Restriction Period shall lapse without forfeiture in respect of such Shares of Restricted Stock.

(iii)       Subject to clause (iv) below, upon the Grantee's Termination of Service for any reason during the Restriction Period, all Shares still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives shall thereafter have any further rights or interests in such Shares.

(iv)        Termination of Service as an employee shall not be treated as a termination of employment for purposes of this paragraph 2 if the Grantee continues without interruption to serve thereafter as an officer or director of the Company or in such other capacity as determined by the Compensation Committee (or if no Compensation Committee is appointed, the Board), and the termination of such successor service shall be treated as the applicable termination.

3.          Miscellaneous.

(a)         Governing law; venue; waiver of jury trial. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAW WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF MARYLAND.  The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(b)         The Committee may construe and interpret this Agreement and establish, amend and revoke such rules, regulations and procedures for the administration of this Agreement as it deems appropriate.  In this connection, the Committee may correct any defect or supply any omission, or reconcile any inconsistency in this Agreement or in any related agreements, in the manner and to the extent it shall

deem necessary or expedient to make the Plan fully effective.  All decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company and the Grantee.

(c)         All notices hereunder shall be in writing, and if to the Company or the Compensation Committee, shall be delivered to the Board or mailed to its principal office, addressed to the attention of the Board; and if to the Grantee, shall be delivered personally, sent by facsimile transmission or mailed to the Grantee at the address appearing in the records of the Company.  Such addresses may be changed at any time by written notice to the other party given in accordance with this paragraph 3(c).

(d)         If the grant made hereby is made to an affiliate of the Manager in consideration of services rendered thereby, and is in turn made by such affiliate of the Manager in consideration of the services rendered by the Grantee for purposes of the provisions in Paragraphs 2(a) through 2(c) above relating to employment with the Company (and the termination thereof), and also for purposes of any references in the Plan to an employment agreement, “Company,” as the context so requires, shall include Manager and its affiliates to the extent that the Grantee is a provider of services to such entities.

(e)         Without limiting the Grantee's rights as may otherwise be applicable in the event of a Change in Control, if the Company shall be consolidated or merged with another corporation or other entity, the Grantee may be required to deposit with the successor corporation the certificates for the stock or securities or the other property that the Grantee is entitled to receive by reason of ownership of Restricted Stock in a manner consistent with the Plan, and such stock, securities or other property shall become subject to the restrictions and requirements imposed under the Plan and this Agreement, and the certificates therefor or other evidence shall bear a legend similar in form and substance to the legend set forth in the Plan.

Any shares or other securities distributed to the grantee with respect to Restricted Stock or otherwise issued in substitution of Restricted Stock shall be subject to the restrictions and requirements imposed by the Plan and this Agreement, including depositing the certificates therefor with the Company together with a stock power and bearing a legend as provided in the Plan.

(f)         The failure of the Grantee or the Company to insist upon strict compliance with any provision of this Agreement or the Plan, or to assert any right the Grantee or the Company, respectively, may have under this Agreement or the Plan, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement or the Plan.

(g)         The Company or the Manager shall be entitled to withhold from any payments or deemed payments any amount of tax withholding it determines to be required by law.

(h)         The terms of this Agreement shall be binding upon the Grantee and upon the Grantee’s heirs, executors, administrators, personal representatives, transferees, assignees and successors in interest and upon the Company and its successors and assignees, subject to the terms of the Plan.

(i)          Unless otherwise permitted in the sole discretion of the Committee, (i) neither this Agreement nor any rights granted herein shall be assignable by the Grantee, and (ii) no purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any Shares by any holder thereof in violation of the provisions of this Agreement or the Plan will be valid, and the Company will not transfer any of said Shares on its books nor will any Shares be entitled to vote, nor will any distributions be paid thereon, unless and until there has been full compliance with said provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

(j)          The Grantee hereby agrees to perform all acts, and to execute and deliver any documents, that may be reasonably necessary to carry out the provisions of this Agreement, including but not limited to all acts and documents related to compliance with securities, tax and other applicable laws and regulations.

(k)         The Grantee hereby represents and agrees that the Grantee is not acquiring the RSUs or the Shares with a view to distribution thereof.

(l)          Nothing in this Agreement shall confer on the Grantee any right to continue in the employ or other service of the Company or its Subsidiaries or interfere in any way with the right of the Company or its Subsidiaries and its stockholders to terminate the Grantee's employment or other service at any time.  Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Grantee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or service as provided in this Agreement or under the Plan.

(m)        This Agreement and the Plan contain the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.

(n)         This Agreement may be executed in any number of counterparts, including via facsimile, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

(o)         Except as otherwise provided in the Plan, no amendment or modification hereof shall be valid unless it shall be in writing and signed by all parties hereto.

IN WITNESS WHEREOF, the Company and the Grantee have executed this Agreement as of the day and year first above written.

READY CAPITAL CORPORATION
By:
	Name:
	Title:

The undersigned hereby accepts and agrees to all of the terms and provisions of this Agreement.

[GRANTEE]

EX-10.8

Exhibit 10.8

CLIFFORD CHANCE US LLP

SUTHERLAND PARTNERS, L.P.

a Delaware limited partnership

THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

TABLE OF CONTENTS

		Page
ARTICLE I DEFINED TERMS		1
ARTICLE II ORGANIZATIONAL MATTERS		16
Section 2.01.	Organization	16
Section 2.02.	Name	16
Section 2.03.	Registered Office and Agent; Principal Office	16
Section 2.04.	Power of Attorney	16
Section 2.05.	Term	17
Section 2.06.	Partnership Interests as Securities	18
ARTICLE III PURPOSE		18
Section 3.01.	Purpose and Business	18
Section 3.02.	Powers	18
Section 3.03.	Partnership Only for Partnership Purposes Specified	18
Section 3.04.	Representations and Warranties by the Parties	19
ARTICLE IV CAPITAL CONTRIBUTIONS		20
Section 4.01.	Capital Contributions of the Partners	20
Section 4.02.	Issuances of Additional Partnership Interests	21
Section 4.03.	Additional Funds and Capital Contributions	22
Section 4.04.	Equity Incentive Plan	23
Section 4.05.	Initial Issuance of Class A Special Unit	24
Section 4.06.	No Interest; No Return	24
Section 4.07.	Other Contribution Provisions	24
Section 4.08.	Not Publicly Traded	24
Section 4.09.	No Third Party Beneficiary	25
ARTICLE V DISTRIBUTIONS		25
Section 5.01.	Requirement and Characterization of Distributions	25
Section 5.02.	Class A Special Unit Distributions	26
Section 5.03.	Interests in Property Not Held Through the Partnership	27
Section 5.04.	Distributions In‑Kind	27
Section 5.05.	Amounts Withheld	27
Section 5.06.	Distributions Upon Liquidation	27
Section 5.07.	Distributions to Reflect Issuance of Additional Partnership Units	27

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Section 5.08.	Restricted Distributions	27
ARTICLE VI ALLOCATIONS		28
Section 6.01.	Timing and Amount of Allocations of Net Income and Net Loss	28
Section 6.02.	General Allocations	28
Section 6.03.	Additional Allocation Provisions	30
Section 6.04.	Tax Allocations	32
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS		32
Section 7.01.	Management	32
Section 7.02.	Certificate of Limited Partnership	37
Section 7.03.	Restrictions on General Partner's Authority	37
Section 7.04.	Reimbursement of the General Partner	38
Section 7.05.	Outside Activities of the General Partner	40
Section 7.06.	Contracts with Affiliates	40
Section 7.07.	Indemnification	41
Section 7.08.	Liability of the General Partner	43
Section 7.09.	Other Matters Concerning the General Partner	44
Section 7.10.	Title to Partnership Assets	45
Section 7.11.	Reliance by Third Parties	45
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS		46
Section 8.01.	Limitation of Liability	46
Section 8.02.	Management of Business	46
Section 8.03.	Outside Activities of Limited Partners	46
Section 8.04.	Return of Capital	46
Section 8.05.	Adjustment Factor	47
Section 8.06.	Redemption Rights	47
Section 8.07.	Repurchase of the Class A Special Unit	49
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS		49
Section 9.01.	Records and Accounting	49
Section 9.02.	Partnership Year	49
Section 9.03.	Reports	49
ARTICLE X TAX MATTERS		50
Section 10.01.	Preparation of Tax Returns	50
Section 10.02.	Tax Elections	50
Section 10.03.	Tax Matters Partner	50

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Section 10.04.	Withholding	52
Section 10.05.	Organizational Expenses	52
ARTICLE XI TRANSFERS AND WITHDRAWALS		53
Section 11.01.	Transfer	53
Section 11.02.	Transfer of General Partner's Partnership Interest	53
Section 11.03.	Transfer of Limited Partners' Partnership Interests	54
Section 11.04.	Substituted Limited Partners	55
Section 11.05.	Assignees	56
Section 11.06.	General Provisions	56
ARTICLE XII ADMISSION OF PARTNERS		58
Section 12.01.	Admission of Successor General Partner	58
Section 12.02.	Admission of Additional Limited Partners	58
Section 12.03.	Amendment of Agreement and Certificate of Limited Partnership	59
Section 12.04.	Limit on Number of Partners	59
Section 12.05.	Admission	59
ARTICLE XIII DISSOLUTION, LIQUIDATION AND TERMINATION		59
Section 13.01.	Dissolution	59
Section 13.02.	Winding Up	60
Section 13.03.	Deemed Distribution and Recontribution	62
Section 13.04.	Rights of Limited Partners	62
Section 13.05.	Notice of Dissolution	62
Section 13.06.	Cancellation of Certificate of Limited Partnership	62
Section 13.07.	Reasonable Time for Winding‑Up	62
ARTICLE XIV PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS		63
Section 14.01.	Procedures for Actions and Consents of Partners	63
Section 14.02.	Amendments	63
Section 14.03.	Meetings of the Partners	63
ARTICLE XV GENERAL PROVISIONS		64
Section 15.01.	Addresses and Notice	64
Section 15.02.	Titles and Captions	64
Section 15.03.	Pronouns and Plurals	64
Section 15.04.	Further Action	65
Section 15.05.	Binding Effect	65
Section 15.06.	Waiver	65

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Section 15.07.	Counterparts	65
Section 15.08.	Applicable Law	65
Section 15.09.	Entire Agreement	65
Section 15.10.	Invalidity of Provisions	65
Section 15.11.	Limitation to Preserve REIT Qualification	65
Section 15.12.	No Partition	66
Section 15.13.	No Third-Party Rights Created Hereby	66
Section 15.14.	No Rights as Members of the General Partner	67
Section 15.15.	Creditors	67

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THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SUTHERLAND PARTNERS, L.P., dated as of March 5, 2019 (this "Agreement") is entered into by and among READY CAPITAL CORPORATION (formerly known as SUTHERLAND ASSET MANAGEMENT CORPORATION formerly known as ZAIS FINANCIAL CORP.), a Maryland corporation (the "General Partner"), and the limited partner(s) listed on Exhibit A hereto (each a "Limited Partner").

WHEREAS, the General Partner is a party to the Agreement and Plan of Merger, dated as of April 6, 2016 (the "Merger Agreement"), as amended, by and among the General Partner, ZAIS Financial Partners, L.P., a Delaware limited partnership ("Company Operating Partnership"), ZAIS Merger Sub, LLC, a Delaware limited liability company ("Merger Sub"), Sutherland Asset Management Corporation ("Sutherland"), and Sutherland Partners, L.P. ("Sutherland Operating Partnership"), whereby Sutherland merged with and into Merger Sub, with Merger Sub being the surviving company under the name of "Sutherland Asset Management LLC" and a wholly owned subsidiary of the Company, and whereby Sutherland Operating Partnership merged with Company Operating Partnership, with Company Operating Partnership being the surviving entity ("Surviving Partnership"), in each case effective as of October 31, 2016 (the "Partnership Merger");

WHEREAS, in accordance with the Merger Agreement and the certificate of merger filed with the Delaware Secretary of State with respect to the Partnership Merger, the name of the Surviving Partnership was "Sutherland Partners, L.P.";

WHEREAS, in accordance with the Merger Agreement, at the Partnership Merger Effective Time (as defined in the Merger Agreement), (i) the certificate of limited partnership of Company Operating Partnership was the certificate of limited partnership of the Surviving Partnership and (ii) this Agreement was the limited partnership agreement of the Surviving Partnership; and

WHEREAS, the General Partner changed its name from "Sutherland Asset Management Corporation" to "Ready Capital Corporation," effective as of September 26, 2018.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Agreement of Limited Partnership, dated July 29, 2011, of Company Operating Partnership, as amended on October 31, 2016 and September 26, 2018, is hereby amended and restated in its entirety as follows:

ARTICLE I

DEFINED TERMS

The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.

"Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17‑101 et seq.), as it may be amended from time to time, and any successor to such statute.

"Actions" has the meaning set forth in Section 7.07 hereof.

"Additional Funds" has the meaning set forth in Section 4.03(a) hereof.

"Additional Limited Partner" means a Person who is admitted to the Partnership as a Limited Partner pursuant to Section 4.02 and Section 12.02 hereof and who is shown as such on the books and records of the Partnership.

"Adjusted Capital Account" means the Capital Account maintained for each Partner as of the end of each Fiscal Year (i) increased by any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704‑2(g)(1) and 1.704‑2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704‑1(b)(2)(ii)(d)(4), 1.704‑1(b)(2)(ii)(d)(5) and 1.704‑1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704‑1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

"Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account as of the end of the relevant Partnership Year.

"Adjustment Factor" means 1.0; provided,  however,  that in the event that:

(i)         the General Partner (a) declares or pays a dividend on its outstanding REIT Shares wholly or partly in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares wholly or partly in REIT Shares, (b) splits or subdivides its outstanding REIT Shares or (c) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination;

(ii)       the General Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares) at a price per share less than the Value of a REIT Share on the record date for such distribution (each a "Distributed Right"), then the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date plus the maximum number of REIT Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date plus a fraction (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the

-  2  -

denominator of which is the Value of a REIT Share as of the record date; provided,  however,  that if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fraction;

(iii)      the General Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) above), which evidences of indebtedness or assets relate to assets not received by the General Partner or its Subsidiaries pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of stockholders of the General Partner entitled to receive such distribution by a fraction (i) the numerator of which shall be such Value of a REIT Share on the date fixed for such determination and (ii) the denominator of which shall be the Value of a REIT Share on the dates fixed for such determination less the then fair market value (as determined by the REIT, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share; and

(iv)       an entity other than an Affiliate of the General Partner shall become General Partner pursuant to any merger, consolidation or combination of the General Partner with or into another entity (the "Successor Entity"), the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor by the number of shares of the Successor Entity into which one REIT Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination.

Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event. Notwithstanding the foregoing, the Adjustment Factor shall not be adjusted in connection with an event described in clauses (i) or (ii) above if, in connection with such event, the Partnership makes a distribution of cash, Partnership Units, REIT Shares and/or rights, options or warrants to acquire Partnership Units and/or REIT Shares with respect to all applicable OP Units or effects a reverse split of, or otherwise combines, the OP Units, as applicable, that is comparable as a whole in all material respects with such an event, or if in connection with an event described in clause (iv) above, the consideration in Section 11.02 hereof is paid.

"Affiliate" means, with respect to any Person, (i) any Person directly or indirectly controlling or controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests or (iv) any officer, director, general partner or trustee of such Person or any Person referred to in clauses (i), (ii), and (iii) above. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

-  3  -

"Agreement" means this Agreement of Limited Partnership of Sutherland Partners, L.P., as it may be amended, supplemented or restated from time to time.

"Assignee" means a Person to whom one or more Partnership Units have been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.05 hereof.

"Available Cash" means, with respect to any period for which such calculation is being made, the amount of cash flow from operations available for distribution by the Partnership as determined by the General Partner in its sole and absolute discretion.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

"Bylaws" means the Bylaws of the General Partner, as amended, supplemented or restated from time to time.

"Capital Account" means, with respect to any Partner, the Capital Account maintained by the General Partner for such Partner on the Partnership's books and records in accordance with the following provisions:

A.        To each Partner's Capital Account, there shall be added such Partner's Capital Contributions, such Partner's distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.03 hereof, and the principal amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner.

B.         From each Partner's Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.03 hereof, and the principal amount of any liabilities of such Partner assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership.

C.         In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest.

D.        In determining the principal amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

E.         The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704‑1(b) and 1.704‑2, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification provided,  that such modification will not have a material effect on the amounts distributable to any Partner

-  4  -

without such Partner's Consent. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704‑1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704‑1(b) or Section 1.704‑2.

"Capital Account Deficit" has the meaning set forth in Section 13.02(c) hereof.

"Capital Contribution" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes to the Partnership or is deemed to contribute pursuant to Section 4.03 hereof.

"Cash Amount" means, with respect to a Tendering Party, an amount of cash equal to the product of (A) the Value of a REIT Share and (B) such Tendering Party's REIT Shares Amount determined as of the date of receipt by the General Partner of such Tendering Party's Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day.

"Certificate" means the Certificate of Limited Partnership of the Partnership filed in the office of the Secretary of State of the State of Delaware on May 24, 2011, as may be further amended from time to time in accordance with the terms hereof and the Act.

"Charter" means the Articles of Amendment and Restatement of General Partner dated August 3, 2011, as amended, supplemented or restated from time to time.

"Class A Special Unit" means the Class A Special Unit of limited partner interest in the Partnership.

"Class A Special Unit Holder" means any Person named as a holder of a Class A Special Unit in Exhibit A attached hereto, as such Exhibit A may be amended from time to time by the General Partner, in such Person's capacity as a Limited Partner of the Partnership, or any Substituted Limited Partner or Additional Limited Partner named as a holder of a Class A Special Unit in Exhibit A hereto.

"Class A Special Unit Value" means the fair market value of the Class A Special Unit in a Terminating Transaction as determined in accordance with the valuation procedures specified in Exhibit C hereto.

"Closing Price" has the meaning set forth in the definition of "Value."

"Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

"Consent" means the consent to, approval of, or vote in favor of a proposed action by a Partner given in accordance with Article XIV hereof.

-  5  -

"Contributed Property" means each item of Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (or deemed contributed by the Partnership to a "new" partnership pursuant to Code Section 708) net of any liabilities assumed by the Partnership relating to such Contributed Property and any liability to which such Contributed Property is subject.

"Core Earnings" means GAAP net income (loss) of the Partnership excluding non‑cash equity compensation expense, the expenses incurred in connection with the Partnership's formation or continuation, the expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby, the Incentive Distribution, real estate depreciation and amortization (to the extent that the General Partner forecloses on any properties underlying its assets) and any unrealized gains, losses or other non‑cash items recorded in the period, regardless of whether such items are included in other comprehensive income or loss, or in net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non‑cash charges after discussions between the Manager and the General Partner's independent directors and after approval by a majority of the General Partner's independent directors.

"Debt" means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person's interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized.

"Depreciation" means, for each Partnership Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided,  however,  that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.

"Distributed Right" has the meaning set forth in the definition of "Adjustment Factor."

"Effective Date" means October 31, 2016, which date is the closing date under the Merger Agreement.

"Equity Incentive Plan" means (i) the Company's equity incentive plan in place on the Effective Date and (ii) any equity incentive plan adopted by the Partnership or the General Partner following the Effective Date.

-  6  -

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"Funding Debt" means the incurrence of any Debt for the purpose of providing funds to the Partnership by or on behalf of the General Partner or any wholly owned subsidiary of the General Partner.

"GAAP" means generally accepted accounting principles, as applied in the United States.

"General Partner" means Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation formerly known as ZAIS Financial Corp.), a Maryland corporation, and its successors and assigns, as the general partner of the Partnership.

"General Partner Employees" means an employee of the Partnership, the General Partner or any of their subsidiaries.

"General Partner Interest" means the Partnership Interest held by the General Partner, which Partnership Interest is an interest as a general partner under the Act. A General Partner Interest may be expressed as a number of Partnership Units.

"General Partner Loan" has the meaning set forth in Section 4.03(d) hereof.

"Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows:

(a)        The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset as determined by the General Partner in its sole discretion.

(b)        The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clause (i), clause (ii), clause (iii) or clause (iv) hereof shall be adjusted to equal their respective gross fair market values, as determined by the General Partner in its sole discretion using such reasonable method of valuation as it may adopt, as of the following times:

(i)         the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;

(ii)       the distribution by the Partnership to a Partner of more than a de minimis amount of Property as consideration for an interest in the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership;

-  7  -

(iii)      the liquidation of the Partnership within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g); and

(iv)       at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704‑1(b) and

(c)        The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner provided,  that, if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by an independent third party experienced in the valuation of similar assets, selected by the General Partner in good faith.

(d)        The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m); provided,  however,  that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d).

(e)        If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses.

"Holder" means either (a) a Partner or (b) an Assignee, owning a Partnership Unit, that is treated as a member of the Partnership for federal income tax purposes.

"Incapacity" or "Incapacitated" means, (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, or the revocation of the corporation's charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate's entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner's creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described

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in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner's properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within 120 days after the commencement thereof, (g) the appointment without the Partner's consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within 90 days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within 90 days after the expiration of any such stay.

"Incentive Distribution" has the meaning set forth in Section 5.02 hereof.

"Indemnitee" means (i) any Person made a party to a proceeding by reason of its status as (A) the General Partner or any successor thereto or (B) a member of the General Partner or an officer of the Partnership, the General Partner or a Subsidiary thereof and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.

"Independent Directors" means the independent directors of the Board of Directors of the General Partner as determined by the rules and regulations of the New York Stock Exchange then in effect.

"IRS" means the Internal Revenue Service, which administers the internal revenue laws of the United States.

"Junior Share" means a share of capital stock of the General Partner now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are junior in rank to the REIT Shares.

"Junior Unit" means a fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.01,  4.02, or 4.03 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are junior in rank to the OP Units.

"Limited Partner" means any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership.

"Limited Partner Interest" means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of OP Units, Class A Special Units, Preferred Units, Junior Units or other Partnership Units.

"Liquidating Event" has the meaning set forth in Section 13.01 hereof.

"Liquidator" has the meaning set forth in Section 13.02(a) hereof.

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"Majority in Interest of the Outside Limited Partners" means Limited Partners (excluding for this purpose (i) any Limited Partnership Interests held by the General Partner or its Subsidiaries, and (ii) any Person of which the General Partner or its Subsidiaries directly or indirectly owns or controls more than 50% of the voting interests and (iii) any Person directly or indirectly owning or controlling more than 50% of the outstanding REIT Shares of the General Partner) holding more than 50% of the outstanding OP Units and any other Partnership Units voting as single class that are held by all Limited Partners who are not excluded for the purposes hereof.

"Management Agreement" means the Amended and Restated Management Agreement dated as of May 9, 2016 and effective as of the Effective Date by and among the Manager, the General Partner, the Partnership and its subsidiaries set forth therein, as it may be amended, supplemented or restated from time to time.

"Manager" means Waterfall Asset Management, LLC, a Delaware limited liability company, and its successors and assigns.

"Market Price" has the meaning set forth in the definition of "Value."

"Merger Agreement" has the meaning set forth in the Recitals.

"Net Income" or "Net Loss" means, for each Partnership Year of the Partnership, an amount equal to the Partnership's taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

(a)        Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be added to (or subtracted from, as the case may be) such taxable income (or loss);

(b)        Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704‑1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the case may be) such taxable income (or loss);

(c)        In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of "Gross Asset Value," the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss;

(d)        Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

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(e)        In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Partnership Year;

(f)        To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and

(g)        Notwithstanding any other provision of this definition of "Net Income" or "Net Loss," any item that is specially allocated pursuant to Section 6.03 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.03 hereof shall be determined by applying rules analogous to those set forth in this definition of "Net Income" or "Net Loss."

"New Securities" means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares, Preferred Shares or Junior Shares, except that "New Securities" shall not mean any Preferred Shares, Junior Shares or grants under the Equity Incentive Plans or (ii) any Debt issued by the REIT that provides any of the rights described in clause (i).

"Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704‑2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704‑2(c).

"Nonrecourse Liability" has the meaning set forth in Regulations Section 1.752‑1(a)(2).

"Notice of Redemption" means the Notice of Redemption substantially in the form of Exhibit B attached to this Agreement.

"NYSE" means the New York Stock Exchange.

"OP Unit" means a fractional share of the Partnership Interests of all Partners, but does not include any LTIP Unit, Class A Special Unit, Preferred Unit, Junior Unit or any other Partnership Unit specified in a Partnership Unit Designation as being other than an OP Unit; provided,  however,  that the General Partner Interest and the Limited Partner Interests shall have the differences in rights and privileges as specified in this Agreement.

"Outside Interest" has the meaning set forth in Section 5.03 hereof.

"Ownership Limit" means the applicable restriction or restrictions on ownership of shares of the General Partner imposed under the Charter.

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"Partner" means the General Partner or a Limited Partner, and "Partners" means the General Partner and the Limited Partners.

"Partner Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704‑2(i)(3).

"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section 1.704‑2(b)(4).

"Partner Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704‑2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704‑2(i)(2).

"Partnership" means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto.

"Partnership Interest" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of OP Units, Class A Special Units, Preferred Units, Junior Units or other Partnership Units.

"Partnership Minimum Gain" has the meaning set forth in Regulations Section 1.704‑2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704‑2(d).

"Partnership Record Date" means a record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.01 hereof, which record date shall generally be the same as the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution.

"Partnership Unit" means an OP Unit, a Class A Special Unit, a Preferred Unit, a Junior Unit or any other fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.01,  4.02 or 4.03 hereof.

"Partnership Unit Designation" has the meaning set forth in Section 4.02 hereof.

"Partnership Year" means the fiscal year of the Partnership and the Partnership's taxable year for federal income tax purposes, each of which shall be the calendar year unless otherwise required under the Code.

"Percentage Interest" means, as to a Partner holding a class or series of Partnership Interests, its interest in such class or series as determined by dividing the Partnership Units of such

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class or series owned by such Partner by the total number of Partnership Units of such class then outstanding as specified in Exhibit A attached hereto, as such Exhibit A may be amended from time to time. If the Partnership issues additional classes or series of Partnership Interests other than as contemplated herein, the interest in the Partnership among the classes or series of Partnership Interests shall be determined as set forth in the amendment to the Partnership Agreement setting forth the rights and privileges of such additional classes or series of Partnership Interest, if any, as contemplated by Section 4.02.

"Person" means an individual or a corporation, partnership (general or limited), trust, estate, custodian, nominee, unincorporated organization, association, limited liability company or any other individual or entity in its own or any representative capacity.

"Preferred Share" means a share of capital stock of the General Partner now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the REIT Shares.

"Preferred Unit" means a fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.01,  4.02 or 4.03 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the OP Units.

"Properties" means any assets and property of the Partnership such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Partnership may hold from time to time and "Property" shall mean any one such asset or property.

"Publicly Traded" means listed or admitted to trading on the NYSE, the NYSE MKT LLC, the NASDAQ Stock Market or another national securities exchange or any successor to the foregoing.

"Qualified REIT Subsidiary" means any Subsidiary of the General Partner that is a "qualified REIT subsidiary" within the meaning of Code Section 856(i).

"Qualified Transferee" means an "Accredited Investor" as defined in Rule 501 promulgated under the Securities Act.

"Recourse Liabilities" means the amount of liabilities owed by the Partnership (other than Nonrecourse Liabilities and liabilities to which Partner Nonrecourse Deductions are attributable in accordance with Section 1.704‑(2)(i) of the Regulations).

"Redemption" has the meaning set forth in Section 8.06(a) hereof.

"Regulations" means the applicable income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

"Regulatory Allocations" has the meaning set forth in Section 6.03(a)(vii) hereof.

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"REIT" means a real estate investment trust qualifying under Code Section 856.

"REIT Payment" has the meaning set forth in Section 15.11 hereof.

"REIT Requirements" has the meaning set forth in Section 5.01 hereof.

"REIT Share" means a share of the General Partner's common stock, par value $0.0001 per share. Where relevant in this Agreement, "REIT Share" includes shares of the General Partner's common stock, par value $0.0001 per share, issued upon conversion of Preferred Shares or Junior Shares.

"REIT Shares Amount" means a number of REIT Shares equal to the product of (a) the number of Tendered Units and (b) the Adjustment Factor in effect on the Specified Redemption Date with respect to such Tendered Units; provided,  however,  that in the event that the General Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the General Partner's stockholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "Rights"), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the General Partner in good faith.

"Rights" has the meaning set forth in the definition of "REIT Shares Amount."

"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"Services Agreement" means any management, development or advisory agreement with a property and/or asset manager for the provision of property management, asset management, leasing, development and/or similar services with respect to the Properties and any agreement for the provision of services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, developers, financial advisors and other professional services.

"Specified Redemption Date" means the 10th Business Day following receipt by the General Partner of a Notice of Redemption; provided,  that, if the REIT Shares are not Publicly Traded, the Specified Redemption Date means the 30th Business Day following receipt by the General Partner of a Notice of Redemption.

"Subsidiary" means, with respect to any Person, any other Person (which is not an individual) of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person.

"Substituted Limited Partner" means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.04 hereof.

"Successor Entity" has the meaning set forth in the definition of "Adjustment Factor."

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"Tax Items" has the meaning set forth in Section 6.04(a) hereof.

"Tendered Units" has the meaning set forth in Section 8.06(a) hereof.

"Tendering Partner" has the meaning set forth in Section 8.06(a) hereof.

"Terminating Capital Transaction" means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership.

"Termination Transaction" has the meaning set forth in Section 11.02(b) hereof.

"Transfer," when used with respect to a Partnership Unit, or all or any portion of a Partnership Interest, means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided,  however,  that when the term is used in Article XI hereof, "Transfer" does not include (a) any Redemption of Partnership Units by the Partnership or the General Partner, or acquisition of Tendered Units by the General Partner, pursuant to Section 8.06 hereof or (b) any redemption of Partnership Units pursuant to any Partnership Unit Designation. The terms "Transferred" and "Transferring" have correlative meanings.

"Value" means, on any date of determination with respect to a REIT Share, the average of the daily Market Prices for ten consecutive trading days immediately preceding the date of determination except that, as provided in Section 4.04(b) hereof, the Market Price for the trading day immediately preceding the date of exercise of a stock option under any Equity Incentive Plan shall be substituted for such average of daily market prices for purposes of Section 4.04 hereof; provided,  however,  that for purposes of Section 8.06, the "date of determination" shall be the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day. The term "Market Price" on any date shall mean, with respect to any class or series of outstanding REIT Shares, the Closing Price for such REIT Shares on such date. The "Closing Price" on any date shall mean the last sale price for such REIT Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such REIT Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Market or, if such REIT Shares are not listed or admitted to trading on the New York Stock Market, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such REIT Shares are listed or admitted to trading or, if such REIT Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the principal other automated quotation system that may then be in use or, if such REIT Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such REIT Shares selected by the Board of Directors of the General Partner or, in the event that no trading price is available for such REIT Shares, the fair market value of the REIT Shares, as determined in good faith by the Board of Directors of the General Partner.

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In the event that the REIT Shares Amount includes Rights that a holder of REIT Shares would be entitled to receive, then the Value of such Rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.

ARTICLE II

ORGANIZATIONAL MATTERS

Section 2.01.   Organization. The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes.

Section 2.02.   Name. The name of the Partnership is "Sutherland Partners, L.P.". The Partnership's business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words "Limited Partnership," "LP," "L.P.," "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners.

Section 2.03.   Registered Office and Agent; Principal Office. The address of the registered office of the Partnership in the State of Delaware is located at Corporation Service Company, 2711 Centerville Road, Wilmington, Delaware 19808, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is Corporation Service Company. The principal office of the Partnership is located at 1140 Avenue of the Americas, 7th Floor, New York, New York 10036 or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable.

Section 2.04.   Power of Attorney.

(a)        Each Limited Partner and each Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:

(i)         execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable

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law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner or the Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article XI, Article XII or Article XIII hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and

(ii)       execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or the Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner or the Liquidator, to effectuate the terms or intent of this Agreement.

Nothing contained herein shall be construed as authorizing the General Partner or the Liquidator to amend this Agreement except in accordance with Article XIV hereof or as may be otherwise expressly provided for in this Agreement.

(b)        The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of all or any portion of such Limited Partner's or Assignee's Partnership Units or Partnership Interest and shall extend to such Limited Partner's or Assignee's heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the General Partner's or the Liquidator's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.

Section 2.05.   Term. Pursuant to Sections 17‑201(b) and 17‑801 of the Act, the term of the Partnership commenced on May 24, 2011 and shall continue perpetually, unless it is dissolved pursuant to the provisions of Article XIII hereof or as otherwise provided by law.

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Section 2.06.    Partnership Interests as Securities. All Partnership Interests shall be securities within the meaning of, and governed by, (i) Article 8 of the Delaware Uniform Commercial Code and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction.

ARTICLE III

PURPOSE

Section 3.01.   Purpose and Business. The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the Act; provided,  however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit the General Partner, in its sole and absolute discretion, at all times to be classified as a REIT unless the General Partner, in accordance with its Charter and Bylaws, in its sole discretion has chosen to cease to qualify as a REIT or has chosen not to attempt to qualify as a REIT for any reason or for reasons whether or not related to the business conducted by the Partnership. Without limiting the General Partner's right in its sole discretion to cease qualifying as a REIT, the Partners acknowledge that the qualification of the General Partner as a REIT inures to the benefit of all Partners and not solely to the General Partner, the General Partner or its Affiliates. In connection with the foregoing, the Partnership shall have full power and authority to enter into, perform and carry out contracts of any kind, to borrow and lend money and to issue and guarantee evidence of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien and, directly or indirectly, to acquire and construct additional Properties necessary, useful or desirable in connection with its business.

Section 3.02.   Powers.

(a)        The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership.

(b)        The Partnership may contribute from time to time Partnership capital to one or more newly formed entities solely in exchange for equity interests therein (or in a wholly owned subsidiary entity thereof).

(c)        Notwithstanding any other provision in this Agreement, the General Partner may cause the Partnership not to take, or to refrain from taking, any action that, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to continue to qualify as a REIT, (ii) could subject the General Partner to any additional taxes under Code Section 857 or Code Section 4981 or any other related or successor provision of the Code or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner, its securities or the Partnership.

Section 3.03.   Partnership Only for Partnership Purposes Specified. This Agreement shall not be deemed to create a company, venture or partnership between or among the Partners with respect to any activities whatsoever other than the activities within the purposes of the

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Partnership as specified in Section 3.01 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, and the Partnership shall not be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act.

Section 3.04.   Representations and Warranties by the Parties.

(a)        Each Partner (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner, respectively) represents and warrants to each other Partner that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any material agreement by which such Partner or any of such Partner's property is bound, or any statute, regulation, order or other law to which such Partner is subject, (ii) subject to the last sentence of this Section 3.04(a), such Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such Partner does not own, directly or indirectly, (a) 9.8% or more of the total combined voting power of all classes of stock entitled to vote, or 9.8% or more of the total number of shares of all classes of stock, of any corporation that is a tenant of either (I) the General Partner or any Qualified REIT Subsidiary, (II) the Partnership or (III) any partnership, venture or limited liability company of which the General Partner, any Qualified REIT Subsidiary or the Partnership is a member or (b) an interest of 9.8% or more in the assets or net profits of any tenant of either (I) the General Partner or any Qualified REIT Subsidiary, (II) the Partnership or (III) any partnership, venture, or limited liability company of which the General Partner, any Qualified REIT Subsidiary or the Partnership is a member and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. Notwithstanding anything contained herein to the contrary, in the event that the representation contained in the foregoing clause (ii) would be inaccurate if given by a Partner, such Partner shall not be required to make and shall not be deemed to have made such representation, if it delivers to the General Partner an IRS Form W‑8BEN or analogous form establishing its non‑U.S. status. Any Partner who provides such form to the General Partner agrees that it is subject to, and hereby authorizes the General Partner to withhold, all withholdings to which such a "foreign person" or "foreign partner," as applicable, is subject under the Code and hereby agrees to cooperate fully with the General Partner with respect to such withholdings, including by effecting the timely completion and delivery to the General Partner of all governmental forms required in connection therewith.

(b)        Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) represents, warrants and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment purposes only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, and not with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Partner further represents and warrants that it is a sophisticated investor, able and accustomed

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to handling sophisticated financial and tax matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment.

(c)        The representations and warranties contained in Sections 3.04(a) and 3.04(b) hereof shall survive the execution and delivery of this Agreement by each Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, liquidation and termination of the Partnership.

(d)        Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by the General Partner, any Partner or any employee or representative or Affiliate of the General Partner or any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied.

(e)        Provision of Information. Each Partner agrees to provide the Partnership with any information and documentation reasonably requested by the Partnership for the purpose of reducing any withholding on payments to the Partnership or otherwise complying with the requirements of any tax laws to which the Partnership is subject.

ARTICLE IV

CAPITAL CONTRIBUTIONS

Section 4.01.   Capital Contributions of the Partners.

(a)        Capital Contributions. Each Partner has made a Capital Contribution to the Partnership and, effective as of the Effective Date in connection with the Merger Agreement, owns Partnership Units in the amount and designation set forth for such Partner on Exhibit A, as the same may be amended from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges, conversions or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on a Partner's ownership of Partnership Units. Except as provided by law or in Section 4.03,  10.04 or 13.02(d) hereof, the Partners shall have no obligation or right to make any additional Capital Contributions or loans to the Partnership.

(b)        General Partnership Interest. A number of Partnership Units held by the General Partner equal to one percent (1%) of all outstanding OP Units shall be deemed to be the General Partner Interest of the General Partner. All other Partnership Units held by the General Partner shall be deemed to be Limited Partner Interests and shall be held by the General Partner in its capacity as a Limited Partner in the Partnership.

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Section 4.02.   Issuances of Additional Partnership Interests.

(a)        General. The General Partner may cause the Partnership to issue additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose, at any time or from time to time, to the Partners (including the General Partner) or to other Persons, and to admit such Persons as Additional Limited Partners, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners; provided, that the General Partner shall not be authorized to cause the Partnership to issue any additional Class A Special Units after the Effective Date without the consent of the Class A Special Unit Holder listed on Exhibit A to this Agreement. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (i) upon the conversion, redemption or exchange of any Debt, Partnership Units or other securities issued by the Partnership, (ii) for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interest of the General Partner's stockholders and the Partnership and (iii) in connection with any merger of any other Person into the Partnership or any Subsidiary of the Partnership if the applicable merger agreement provides that Persons are to receive Partnership Units in exchange for their interests in the Person merging into the Partnership or any Subsidiary of the Partnership. Subject to Delaware law, any additional Partnership Interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the General Partner, in its sole and absolute discretion without the approval of any Limited Partner, and set forth in a written document thereafter attached to and made an exhibit to this Agreement (each, a "Partnership Unit Designation"). Without limiting the generality of the foregoing, the General Partner shall have authority to specify (a) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (b) the right of each such class or series of Partnership Interests to share in Partnership distributions; (c) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; (d) the voting rights, if any, of each such class or series of Partnership Interests; and (e) the conversion, redemption or exchange rights applicable to each such class or series of Partnership Interests. Nothing in this Agreement shall prohibit the General Partner from issuing Partnership Units for less than fair market value if the General Partner concludes in good faith that such issuance is in the best interest of the Partnership and the General Partner's stockholders. Upon the issuance of any additional Partnership Interest, the General Partner shall amend Exhibit A as appropriate to reflect such issuance.

(b)        Issuances to the General Partner. No additional Partnership Units shall be issued to the General Partner unless (i) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests with respect to the class of Partnership Units so issued, (ii) (a) the additional Partnership Units are (x) OP Units issued in connection with an issuance of REIT Shares or (y) Partnership Units (other than OP Units) issued in connection with an issuance of Preferred Shares, Junior Shares, New Securities or other interests in the General Partner (other than REIT Shares), which Preferred Shares, Junior Shares, New Securities or other interests have designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of the additional Partnership Units issued to the General Partner and (b) the General Partner directly or indirectly contributes or otherwise causes to be transferred to the Partnership the cash proceeds or other

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consideration, if any, received in connection with the issuance of such REIT Shares, Preferred Shares, Junior Shares, New Securities or other interests in the General Partner or (iii) the additional Partnership Units are issued upon the conversion, redemption or exchange of Debt, Partnership Units or other securities issued by the Partnership. In the event that the Partnership issues additional Partnership Units pursuant to this Section 4.02(b), the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Sections 6.02(b) and 8.06) as it determines are necessary to reflect the issuance of such additional Partnership Interests.

(c)        No Preemptive Rights. No Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest.

Section 4.03.   Additional Funds and Capital Contributions.

(a)        General. The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds ("Additional Funds") for the acquisition or development of additional Properties, for the redemption of Partnership Units or for such other purposes as the General Partner may determine in its sole and absolute discretion. Additional Funds may be obtained by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.03 without the approval of any Limited Partners.

(b)        Additional Capital Contributions. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by accepting Capital Contributions from any Partners or other Persons. In connection with any such Capital Contribution (of cash or property), the General Partner is hereby authorized to cause the Partnership from time to time to issue additional Partnership Units (as set forth in Section 4.02 above) in consideration therefor and the Percentage Interests of the General Partner and the Limited Partners shall be adjusted to reflect the issuance of such additional Partnership Units.

(c)        Loans by Third Parties. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to any Person upon such terms as the General Partner determines appropriate, including making such Debt convertible, redeemable or exchangeable for Partnership Units; provided,  however,  that the Partnership shall not incur any such Debt if any Partner would be personally liable for the repayment of such Debt (unless such Partner otherwise agrees).

(d)        General Partner Loans. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt with the General Partner (a "General Partner Loan"), if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Debt incurred by the General Partner, the net proceeds of which are loaned to the Partnership to provide such Additional Funds or (ii) such Debt is on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party; provided,  however,  that the Partnership shall not incur any such Debt if (a) a breach, violation or default of such Debt would be deemed to occur by virtue of the

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Transfer by any Limited Partner of any Partnership Interest or (b) such Debt is recourse to any Partner (unless the Partner otherwise agrees).

(e)        Issuance of Securities by the General Partner. The General Partner shall not issue any additional REIT Shares, Preferred Shares, Junior Shares or New Securities unless the General Partner contributes directly or indirectly the cash proceeds or other consideration, if any, received from the issuance of such additional REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, and from the exercise of the rights contained in any such additional New Securities, to the Partnership in exchange for (x) in the case of an issuance of REIT Shares, Partnership Units or (y) in the case of an issuance of Preferred Shares, Junior Shares or New Securities, Partnership Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Shares, Junior Shares or New Securities; provided,  however,  that notwithstanding the foregoing, the General Partner may issue REIT Shares, Preferred Shares, Junior Shares or New Securities (a) pursuant to Section 4.04 or 8.06(b) hereof, (b) pursuant to a dividend or distribution (including any stock split) wholly or partly of REIT Shares, Preferred Shares, Junior Shares or New Securities to all of the holders of REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d) upon a conversion of Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or exercise of New Securities or, (f) pursuant to share grants or awards made pursuant to any Equity Incentive Plan of the General Partner. In the event of any issuance of additional REIT Shares, Preferred Shares, Junior Shares or New Securities by the General Partner, and the direct or indirect contribution to the Partnership, by the General Partner, of the cash proceeds or other consideration received from such issuance, if any, the Partnership shall pay the General Partner's expenses associated with such issuance, including any underwriting discounts or commissions (it being understood that if the proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter's discount or other expenses paid or incurred by the General Partner in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount of the gross proceeds of such issuance and the Partnership shall be deemed simultaneously to have reimbursed the General Partner pursuant to Section 7.04(b) for the amount of such underwriter's discount or other expenses). Nothing in this Agreement shall prohibit the General Partner from issuing Partnership Units for less than fair market value if the General Partner concludes in good faith that such issuance is in the best interest of the Partnership and the General Partner's stockholders.

Section 4.04.   Equity Incentive Plan.

(a)        Options Granted to General Partner Employees and Independent Directors. If at any time or from time to time, in connection with an Equity Incentive Plan, a stock option granted to a General Partner Employee or Independent Director is duly exercised:

(i)         the General Partner shall, as soon as practicable after such exercise, make or cause to be made directly or indirectly a Capital Contribution to the Partnership in an amount equal to the exercise price paid to the General Partner by such exercising party in connection with the exercise of such stock option.

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(ii)       Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 4.04(a)(i) hereof, the General Partner shall be deemed to have contributed directly or indirectly to the Partnership, as a Capital Contribution, in consideration of an additional Limited Partner Interest (expressed in and as additional Partnership Units), an amount equal to the Value of a REIT Share as of the date of exercise multiplied by the number of REIT Shares then being issued in connection with the exercise of such stock option.

(iii)      An equitable Percentage Interest adjustment shall be made in which the General Partner shall be treated as having made a cash contribution equal to the amount described in Section 4.04(a)(ii) hereof.

(b)        Special Valuation Rule. For purposes of this Section 4.04, in determining the Value of a REIT Share, only the trading date immediately preceding the exercise of the relevant stock option under the Equity Incentive Plan shall be considered.

(c)        Future Equity Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the General Partner from adopting, modifying or terminating any Equity Incentive Plan, for the benefit of employees, directors or other business associates of the General Partner, the Partnership or any of their Affiliates. The Limited Partners acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the General Partner, amendments to this Section 4.04 may become necessary or advisable and that any approval or consent of the Limited Partners required pursuant to the terms of this Agreement in order to effect any such amendments requested by the General Partner shall not be unreasonably withheld or delayed.

Section 4.05.  Initial Issuance of Class A Special Unit. Concurrently with the execution of this Agreement and pursuant to and in accordance with the Merger Agreement, the General Partner is causing the Partnership to effect the issuance of the Class A Special Unit to the Manager. There was no obligation to contribute any capital in connection with the issuance of the Class A Special Unit to the Manager.

Section 4.06.    No Interest; No Return. No Partner shall be entitled to interest on its Capital Contribution or on such Partner's Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.

Section 4.07.   Other Contribution Provisions. In the event that any Partner is admitted to the Partnership and is given a Capital Account in exchange for services rendered to the Partnership, unless otherwise determined by the General Partner in its sole and absolute discretion, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership had compensated such partner in cash and such Partner had contributed the cash to the capital of the Partnership. In addition, with the consent of the General Partner, one or more Limited Partners may enter into contribution agreements with the Partnership which have the effect of providing a guarantee of certain obligations of the Partnership.

Section 4.08.   Not Publicly Traded. The General Partner, on behalf of the Partnership, shall use its best efforts not to take any action which would result in the Partnership being a

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"publicly traded partnership" under and as such term is defined in Code Section 7704(b), and by reason thereof, taxable as a corporation.

Section 4.09.   No Third Party Beneficiary. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. In addition, it is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner. Without limiting the generality of the foregoing, a deficit Capital Account of a Partner shall not be deemed to be a liability of such Partner nor an asset or property of the Partnership.

ARTICLE V

DISTRIBUTIONS

Section 5.01.   Requirement and Characterization of Distributions. Subject to the distributions to be made to the Class A Special Unit Holder in accordance with Section 5.02 and subject to the terms of any Partnership Unit Designation, the General Partner may cause the Partnership to distribute at least quarterly all, or such portion as the General Partner may in its sole and absolute discretion determine, of Available Cash generated by the Partnership during such quarter to the Holders of Partnership Units on such Partnership Record Date with respect to such quarter: (1) first, with respect to any Partnership Interests that are entitled to any preference in distribution, in accordance with the rights of such class(es) of Partnership Interests (and, within such class(es), pro rata in proportion to the respective Percentage Interests on such Partnership Record Date) and (2) second, with respect to any Partnership Interests that are not entitled to any preference in distribution, in accordance with the rights of such class of Partnership Interests (and, within such class, pro rata in proportion to the respective Percentage Interests on such Partnership Record Date). At the election of the General Partner, distributions payable with respect to any Partnership Units that were not outstanding during the entire quarterly period in respect of which any distribution is made may be prorated based on the portion of the period that such Partnership Units were outstanding.

The General Partner in its sole and absolute discretion may distribute to the Holders Available Cash on a more frequent basis and provide for an appropriate Partnership Record Date. Notwithstanding anything herein to the contrary, the General Partner shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the General Partner's qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable

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the General Partner to pay stockholder dividends that will (a) satisfy the requirements for its qualification as a REIT under the Code and Regulations (the "REIT Requirements") and (b) except to the extent otherwise determined by the General Partner, in its sole and absolute discretion, avoid any federal income or excise tax liability of the General Partner.

Section 5.02.    Class A Special Unit Distributions. The General Partner shall cause the Partnership to make distributions (an "Incentive Distribution") to the Class A Special Unit Holder in respect of such holder's Class A Special Unit 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) Core Earnings of the 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 REIT Share of the General Partner or OP Units in the Partnership (without double counting) in all of their offerings multiplied by the weighted average number of REIT Shares outstanding (including any restricted shares of common stock and any other shares of common stock underlying awards granted under the 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 the Class A Special Unit Holder with respect to the first three calendar quarters of such previous four quarters; provided, however, that no Incentive Distribution is payable with respect to any calendar quarter unless Core Earnings is greater than zero for the most recently completed 12 calendar quarters, or the number of completed calendar quarters since the Effective Date, whichever is less. For purposes of calculating the Incentive Distribution prior to the completion of a 12‑month period following the Effective Date, Core Earnings will be calculated on an annualized basis. Core Earnings for the initial quarter will be calculated from the Effective Date on an annualized basis. In addition, for purposes of the calculating the Incentive Distribution, the Effective Date Issued Stock and Units (as defined below) shall be deemed to be issued at the per share price equal to (i) the sum of (A) the weighted average of the issue price per share of Ready Capital Corporation common stock or Company Operating Partnership units (without double counting) issued prior to the Effective Date multiplied by the number of shares of Ready Capital Corporation common stock outstanding and Company Operating Partnership units (without double counting) issued prior to the Effective Date plus (B) the amount by which the net book value of the General Partner as of the Effective Date (after giving effect to the closing of the Merger Agreement) exceeds the amount of the net book value of Ready Capital Corporation immediately preceding the Effective Date, divided by (ii) all of the REIT Shares of the General Partner and OP Units issued and outstanding as of Effective Date (including the Effective Date Issued Stock and Units). "Effective Date Issued Stock and Units" means the REIT Shares of the General Partner and OP Units issued on the Effective Date in connection with the Merger Agreement. The Incentive Distribution is payable 50% in cash and 50% in either REIT Shares of the General Partner or OP Units, as determined by the General Partner in its discretion, within five business days after delivery to the General Partner of the written statement from the Class A Special Unit Holder setting forth the computation of the Incentive Distribution for such quarter. The price of the REIT Shares of the General Partner for purposes of determining the number of shares payable as part of the Incentive Distribution will be (i) if the shares are Publicly Traded, the closing price of such shares on the last trading day prior to the approval by Board of Directors of the Incentive Distribution or (ii) if the shares are not Publicly Traded, then the price per share as so determined in good faith by a majority of Board of Directors, including a majority of the Independent Directors. The Class A Special Unit Holder may not sell or otherwise dispose of any portion of the Incentive Distribution issued to it in REIT Shares of the General Partner or OP Units until after the

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three-year anniversary of the date that such REIT Shares of the General Partner or OP Units were issued to the Class A Special Unit Holder.

Section 5.03.  Interests in Property Not Held Through the Partnership. To the extent amounts distributed by the Partnership are attributable to amounts received from a property in which the General Partner or any Affiliate of the General Partner holds a direct or indirect interest (other than through the Partnership) (an "Outside Interest"), (i) such amounts distributed to the General Partner will be reduced so as to take into account amounts received pursuant to the Outside Interest and (ii) the amounts distributed to the Limited Partners will be increased to the extent necessary so that the overall effect of the distribution is to distribute what would have been distributed had such Outside Interest been held through the Partnership (treating any distribution made in respect of the Outside Interest as if such distribution had been received by the General Partner).

Section 5.04.   Distributions In‑Kind. No right is given to any Partner to demand and receive property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in‑kind of Partnership assets to the Holders, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles V,  VI and X  hereof.

Section 5.05.   Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.04 hereof with respect to any allocation, payment or distribution to any Holder shall be treated as amounts paid or distributed to such Holder pursuant to Section 5.01 hereof for all purposes under this Agreement.

Section 5.06.   Distributions Upon Liquidation. Notwithstanding the other provisions of this Article V, net proceeds from a Terminating Capital Transaction, and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership, shall be distributed to the Holders in accordance with Section 13.02 hereof.

Section 5.07.   Distributions to Reflect Issuance of Additional Partnership Units. In the event that the Partnership issues additional Partnership Units pursuant to the provisions of Article IV hereof, subject to Section 7.03(d), the General Partner may make such revisions to this Article V  as it determines are necessary or desirable to reflect the issuance of such additional Partnership Units, including, without limitation, making preferential distributions to certain classes of Partnership Units.

Section 5.08.   Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Holder on account of its Partnership Interest or interest in Partnership Units if such distribution would violate Section 17‑607 of the Act or other applicable law.

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ARTICLE VI

ALLOCATIONS

Section 6.01.   Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Partnership Year of the Partnership as of the end of each such year. Except as otherwise provided in this Article VI, and subject to Section 11.06(c) hereof, an allocation to a Holder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss.

Section 6.02.   General Allocations.

(a)        Allocations of Net Income and Net Loss.

(i)         Net Income. Except as otherwise provided herein, Net Income for any Partnership Year or other applicable period shall be allocated in the following order and priority:

(A)       First, to the General Partner until the cumulative Net Income allocated to the General Partner pursuant to this subparagraph (i)(A) equals the cumulative Net Loss allocated to the General Partner pursuant to subparagraph (ii)(E) below;

(B)       Second, to the holders of any Partnership Interests that are entitled to any preference in distribution upon liquidation until the cumulative Net Income allocated under this subparagraph (i)(B) equals the cumulative Net Loss allocated to such Partners under subparagraph (ii)(D);

(C)       Third, to the holders of any Partnership Units that are entitled to any preference in distribution in accordance with the rights of any other class of Partnership Units until each such Partnership Unit has been allocated, on a cumulative basis pursuant to this subparagraph (i)(C), Net Income equal to the amount of distributions received which are attributable to the preference of such class of Partnership Unit (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is made); and

(D)       Fourth, to the Class A Special Unit Holder, until the Class A Special Unit Holder has received an amount equal to the sum of the distributions received or to be received pursuant to Section 5.02;

(E)       Thereafter, with respect to Partnership Units that are not entitled to any preference in distribution or with respect to which distributions are not limited to any preference in distribution, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made).

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(ii)       Net Loss. Except as otherwise provided herein, Net Loss for any Partnership Year or other applicable period shall be allocated in the following order and priority:

(A)       First, to each holder of Partnership Units in proportion to and to the extent of the amount by which the cumulative Net Income allocated to such Partner pursuant to subparagraph (i)(E) above exceeds, on a cumulative basis, the sum of (a) distributions with respect to such Partnership Units pursuant to clause (2) of Section 5.01 and (b) Net Loss allocated to such Partner pursuant to this subparagraph (ii)(A);

(B)       Second, in proportion to and to the extent of the amount by which the cumulative Net Income allocated to such Class A Special Unit Holder pursuant to subparagraph (i)(D) exceeds the sum of (1) distributions with respect to the Class A Special Unit pursuant to Section 5.02 and (2) Net Loss allocated to such Class A Special Unit Holder pursuant to this subparagraph (ii)(B);

(C)       Third, with respect to classes of Partnership Units that are not entitled to any preference in distribution or with respect to which distributions are not limited to any preference in distribution, pro rata to each such class in accordance with the terms of such class (and within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); provided,  that Net Loss shall not be allocated to any Partner pursuant to this subparagraph (ii)(C) to the extent that such allocation would cause such Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case (1) with respect to a Partner who also holds classes of Partnership Units that are entitled to any preferences in distribution upon liquidation, by subtracting from such Partners' Adjusted Capital Account the amount of such preferred distribution to be made upon liquidation and (2) by not including in the Partners' Adjusted Capital Accounts any amount that a Partner is obligated to contribute to the Partnership with respect to any deficit in its Capital Account pursuant to Section 13.02(d)) at the end of such Partnership Year or other applicable period; and

(D)       Fourth, with respect to classes of Partnership Units that are entitled to any preference in distribution upon liquidation, in reverse order of the priorities of each such class (and within each such class, pro rata in proportion to their respective Percentage Interests as of the last day of the period for which such allocation is being made); provided,  that Net Loss shall not be allocated to any Partner pursuant to this subparagraph (ii)(D) to the extent that such allocation would cause such Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case by not including in the Partners' Adjusted Capital Accounts any amount that a Partner is obligated to contribute to the Partnership with respect to any deficit in its Capital Account pursuant to Section 13.02(d)) at the end of such Partnership Year or other applicable period;

(E)       Thereafter, to the General Partner.

(b)        Allocations to Reflect Issuance of Additional Partnership Units. In the event that the Partnership issues additional Partnership Units pursuant to the provisions of Article IV hereof, the General Partner may make such revisions to this Section 6.02 as it

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determines are necessary or desirable to reflect the terms of the issuance of such additional Partnership Units.

Section 6.03.  Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article VI:

(a)        Regulatory Allocations.

(i)         Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704‑2(f), notwithstanding the provisions of Section 6.02 hereof, or any other provision of this Article VI, if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Holder shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704‑2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704‑2(f)(6) and 1.704‑2(j)(2). This Section 6.03(a)(i) is intended to qualify as a "minimum gain chargeback" within the meaning of Regulations Section 1.704‑2(f) and shall be interpreted consistently therewith.

(ii)       Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704‑2(i)(4) or in Section 6.03(a)(i) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Holder who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704‑2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704‑2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner, Limited Partner and other Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704‑2(i)(4) and 1.704‑2(j)(2). This Section 6.03(a)(ii) is intended to qualify as a "chargeback of partner nonrecourse debt minimum gain" within the meaning of Regulations Section 1.704‑2(i) and shall be interpreted consistently therewith.

(iii)      Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holders of OP Units in accordance with their OP Units. Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704‑2(i).

(iv)       Qualified Income Offset. If any Holder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704‑1(b)(2)(ii)(d)(4), (5), or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704‑1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to

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the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible. It is intended that this Section 6.03(a)(iv) qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(v)        Gross Income Allocation. In the event that any Holder has an Adjusted Capital Account Deficit at the end of any Partnership Year, each such Holder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible.

(vi)       Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704‑1(b)(2)(iv)(m)(2) or Regulations Section 1.704‑1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Holder in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their Partnership Units in the event that Regulations Section 1.704‑1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such distribution was made in the event that Regulations Section 1.704‑1(b)(2)(iv)(m)(4) applies.

(vii)     Curative Allocations. The allocations set forth in Sections 6.03(a)(i),  (ii),  (iii),  (iv),  (v), and (vi) hereof (the "Regulatory Allocations") are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704‑1(b) and 1.704‑2. Notwithstanding the provisions of Section 6.01 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders of Partnership Units so that to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder of a Partnership Unit shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred.

(b)        Gross Income Allocations in Year of Liquidation. In the Fiscal Year that the Partnership liquidates, if the aggregate amount of distributions the Class A Special Unit Holder has received or will receive pursuant to Section 5.01 exceeds the sum of (i) the aggregate amount of Net Income allocated to the Class A Special Unit Holder pursuant to Section 6.02(a)(i)(D) plus (ii) any amount that will be allocated to the Class A Special Unit Holder pursuant to Section 6.02(a)(i)(D) in such Fiscal Year less (iii) the aggregate Net Loss previously allocated to the Class A Special Unit Holder pursuant to Section 6.02(a)(ii)(B) or that will be allocated to the Class A Special Unit Holder pursuant to Section 6.02(a)(ii)(B) in such Fiscal Year, the Class A Special Unit Holder shall be specially allocated items of Partnership income and gain in the amount necessary to eliminate such deficit.

(c)        Allocation of Excess Nonrecourse Liabilities. The Partnership shall allocate "nonrecourse liabilities" (within the meaning of Regulations Section 1.752‑1(a)(2)) of the Partnership that are secured by multiple Properties under any reasonable method chosen by the

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General Partner in accordance with Regulations Section 1.752‑3(a)(3) and (b). The Partnership shall allocate "excess nonrecourse liabilities" of the Partnership under any method approved under Regulations Section 1.752‑3(a)(3) as chosen by the General Partner.

(d)        Allocations to Reflect Outside Interests. Any income or loss to the Partnership associated with an Outside Interest shall be specially allocated so as to take into account amounts received by, and income or loss allocated to, the General Partner or any Affiliate of the General Partner with respect to such Outside Interest so that the overall effect is to allocate income or loss in the same manner as would have occurred had such Outside Interest been held through the Partnership (treating any allocation in respect of the Outside Interest as if such allocation had been made to the General Partner).

Section 6.04.   Tax Allocations.

(a)        In General. Except as otherwise provided in this Section 6.04, for income tax purposes under the Code and the Regulations each Partnership item of income, gain, loss and deduction (collectively, "Tax Items") shall be allocated among the Holders of Partnership Units in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.02 and 6.03 hereof.

(b)        Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section 6.04(a) hereof, Tax Items with respect to Property that is contributed to the Partnership with a Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the date of contribution shall be allocated among the Holders of Partnership Units for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Partnership shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the General Partner. In the event that the Gross Asset Value of any partnership asset is adjusted pursuant to subsection (b) of the definition of "Gross Asset Value" (provided in Article I  hereof), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations or under any method approved under Code Section 7.04(c) and the applicable Regulations as chosen by the General Partner, including the aggregation methods applicable to securities partnerships, to the extent applicable and to the extent the General Partner decides to apply such methods.

ARTICLE VII

MANAGEMENT AND OPERATIONS OF BUSINESS

Section 7.01.   Management.

(a)        Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners, except with the consent of the General Partner. In addition

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to the powers now or hereafter granted to a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to the other provisions hereof including Section 7.03, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.02 hereof and to effectuate the purposes set forth in Section 3.01 hereof, including, without limitation:

(i)         the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money or selling assets to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (so long as the General Partner desires to maintain or restore its qualification as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Code Section 4981) and to make distributions to its stockholders sufficient to permit the General Partner to maintain or restore REIT qualification or otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership's assets) and the incurring of any obligations that it deems necessary for the conduct of the activities of the Partnership;

(ii)       the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership, the registration of any class of securities of the Partnership under the Exchange Act and the listing of any debt securities of the Partnership on any exchange;

(iii)      subject to Section 11.02 hereof, the acquisition, sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of the Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity;

(iv)       the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that it sees fit, including, without limitation, the financing of the operations and activities of the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Partnership's Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which the Partnership has an equity investment, and the making of capital contributions to and equity investments in the Partnership's Subsidiaries;

(v)        the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the General Partner and its Subsidiaries and the

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Partnership's Subsidiaries) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which the Partnership has an equity investment and the making of capital contributions to its Subsidiaries;

(vi)       the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property, including, without limitation, any Contributed Property, or other asset of the Partnership or any Subsidiary, whether pursuant to a Services Agreement or otherwise;

(vii)     the negotiation, execution and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership's operations or the implementation of the General Partner's powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership's assets;

(viii)    the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership and the collection and receipt of revenues, rents and income of the Partnership;

(ix)       the maintenance of such insurance for the benefit of the Partnership and the Partners as the General Partner deems necessary or appropriate, including, without limitation, (i) casualty, liability and other insurance on the Properties and (ii) liability insurance for the Indemnitees hereunder;

(x)        the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures or other relationships that the General Partner deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, any Subsidiary and any other Person in which it has an equity investment from time to time); provided,  however,  that as long as the General Partner has determined to continue to qualify as a REIT, the General Partner may not engage in any such formation, acquisition or contribution that would cause it to fail to qualify as a REIT within the meaning of Code Section 856(a) (so long as the General Partner desires to maintain its qualification as a REIT);

(xi)       the filing of applications, communicating and otherwise dealing with any and all governmental agencies having jurisdiction over, or in any way affecting, the Partnership's assets or any other aspect of the Partnership business;

(xii)     the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other

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forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law;

(xiii)    the undertaking of any action in connection with the Partnership's direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons);

(xiv)     except as otherwise specifically set forth in this Agreement, the determination of the fair market value of any Partnership property distributed in‑kind using such reasonable method of valuation as it may adopt; provided,  that such methods are otherwise consistent with the requirements of this Agreement;

(xv)      the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner's contribution of property or assets to the Partnership;

(xvi)     the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power-of-attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership;

(xvii)   the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person;

(xviii)  the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person;

(xix)     the making, execution and delivery of any and all deeds, leases, notes, deeds to secure Debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement;

(xx)      the issuance of additional Partnership Units, as appropriate and in the General Partner's sole and absolute discretion, in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article IV hereof;

(xxi)     the selection and dismissal of employees (including, without limitation, employees having titles or offices such as president, vice president, secretary and treasurer), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner, the determination of their compensation and other terms of employment or hiring and the delegation to any such employees the authority to conduct the business of the Partnership in accordance with the terms of this Agreement;

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(xxii)   the distribution of cash to acquire Partnership Units held by a Limited Partner in connection with a Limited Partner's exercise of its Redemption right under Section 8.06 hereof;

(xxiii)  the amendment and restatement of Exhibit A hereto to reflect accurately at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment to this Agreement, as long as the matter or event being reflected in Exhibit A hereto otherwise is authorized by this Agreement;

(xxiv)   the determination regarding whether a payment to a Partner who exercises its Redemption Right under Section 8.06 that is assumed by the General Partner will be paid in the form of the Cash Amount or the REIT Shares Amount, except as such determination may be limited by Section 8.06;

(xxv)    the collection and receipt of revenues and income of the Partnership;

(xxvi)   the registration of any class of securities of the Partnership under the Securities Act or the Exchange Act, and the listing of any debt securities of the Partnership on any exchange;

(xxvii) an election to dissolve the Partnership pursuant to Section 13.01(b) hereof; and

(xxviii)  the taking of any action necessary or appropriate to enable the General Partner to qualify as a REIT (so long as the General Partner desires to maintain its qualification as a REIT).

(b)        Each of the Limited Partners agrees that, except as provided in Section 7.03 hereof, the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement, the Act or any applicable law, rule or regulation.

(c)        At all times from and after the Effective Date, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time.

(d)        In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by it. Except as may be provided in a separate written agreement between the Partnership and the Limited Partners, the General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by

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the General Partner pursuant to its authority under this Agreement provided,  that the General Partner has acted in good faith and pursuant to its authority under this Agreement.

Section 7.02.   Certificate of Limited Partnership. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Partnership may elect to do business or own property. Except as otherwise required under the Act, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property.

Section 7.03.   Restrictions on General Partner's Authority.

(a)        The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written consent of a Majority in Interest of the Outside Limited Partners and may not perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act.

(b)        The General Partner shall not, without the written consent of a Majority in Interest of the Limited Partners, terminate this Agreement.

(c)        The General Partner shall have the exclusive power, without the prior consent of the Limited Partners, to amend this Agreement, including, without limitation, as may be required to facilitate or implement any of the following purposes:

(i)         to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;

(ii)       to reflect the admission, substitution or withdrawal of Partners or the termination of the Partnership in accordance with this Agreement, and to amend Exhibit A in connection with such admission, substitution or withdrawal;

(iii)      to reflect a change that is of an inconsequential nature or does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;

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(iv)       to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law;

(v)        to set forth in this Agreement the designations, rights, powers, duties and preferences of the holders of any additional Partnership Units issued pursuant to this Agreement;

(vi)       (a) to reflect such changes as are reasonably necessary for the General Partner to maintain or restore its qualification as a REIT or to satisfy the REIT Requirements; or (b) to reflect the Transfer of all or any part of a Partnership Interest among the General Partner and any Qualified REIT Subsidiary;

(vii)     to modify either or both the manner in which items of Net Income or Net Loss are allocated pursuant to Article VI or the manner in which Capital Accounts are adjusted, computed or maintained (but only to the extent set forth in the definition of "Capital Account" or contemplated by the Code or the Regulations);

(viii)    to issue additional Partnership Interests in accordance with Section 4.02;

(ix)       (A) to the extent that the General Partner has elected that the assets of the Partnership should not constitute "plan assets" for purposes of ERISA to take such actions as may be necessary or appropriate to avoid the assets of the Partnership being treated for any purpose of ERISA or Section 4975 of the Code as assets of any "employee benefit plan" as defined in and subject to ERISA or of any plan or account subject to Section 4975 of the Code (or any corresponding provisions of succeeding law) or (B) to avoid the Partnership's engaging in a prohibited transaction as defined in Section 406 of ERISA or Section 4975(c) of the Code; and

(x)        to reflect any other modification to this Agreement as is reasonably necessary for the business or operations of the Partnership or the General Partner.

The General Partner will provide notice to the Limited Partners whenever any action under this Section 7.03(c) is taken.

(d)        No action may be taken by the General Partner, without the consent of each Partner adversely affected thereby, if such action would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), or (ii) modify the limited liability of a Limited Partner.

(e)        To the extent the assets of the Partnership constitute "plan assets" for purposes of ERISA, the General Partner Parties shall, as applicable, administer the Partnership subject to the requirements of ERISA.

Section 7.04.   Reimbursement of the General Partner.

(a)        Except as provided in this Section 7.04 and elsewhere in this Agreement (including the provisions of Articles V  and VI regarding distributions, payments and allocations

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to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.

(b)        The Partnership shall be responsible for and shall pay all the administrative and operating costs and expenses incurred by the Partnership in acquiring and holding the General Partner's assets, and the General Partner's administrative costs and expenses, and such expenses will be treated as expenses of the Partnership. Such expenses will include:

(i)         all expenses relating to the General Partner's formation and continuity of existence;

(ii)       all expenses relating to any offerings and registrations of securities;

(iii)      all expenses associated with the General Partner's preparation and filing of any periodic reports under federal, state or local laws or regulations;

(iv)       all expenses associated with the General Partner's compliance with applicable laws, rules and regulations; and

(v)        all other operating or administrative costs of the General Partner's incurred in the ordinary course of its business.

The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. Except to the extent provided in this Agreement, the General Partner and its Affiliates shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses that the General Partner and its Affiliates incur relating to the ownership and operation of, or for the benefit of, the Partnership (including, without limitation, administrative expenses); provided,  that the amount of any such reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership. The Partners acknowledge that all such expenses of the General Partner are deemed to be for the benefit of the Partnership. Such reimbursement shall be in addition to any reimbursement made as a result of indemnification pursuant to Section 7.07 hereof. In the event that certain expenses are incurred for the benefit of the Partnership and other entities (including the General Partner), such expenses will be allocated to the Partnership and such other entities in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner.

(c)        If the General Partner shall elect to purchase from its stockholders REIT Shares for the purpose of delivering such REIT Shares to satisfy an obligation under any dividend reinvestment program adopted by the General Partner, any employee stock purchase plan adopted by the General Partner or any similar obligation or arrangement undertaken by the General Partner in the future or for the purpose of retiring such REIT Shares, the purchase price paid by the General Partner for such REIT Shares and any other expenses incurred by the General Partner in connection with such purchase shall be considered expenses of the Partnership and shall be advanced to the General Partner or reimbursed to the General Partner, subject to the condition that: (1) if such

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REIT Shares subsequently are sold by the General Partner, the General Partner shall pay or cause to be paid to the Partnership any proceeds received by the General Partner for such REIT Shares (which sales proceeds shall include the amount of dividends reinvested under any dividend reinvestment or similar program; provided,  that a transfer of REIT Shares for Partnership Units pursuant to Section 8.06 would not be considered a sale for such purposes); and (2) if such REIT Shares are not retransferred by the General Partner within 30 days after the purchase thereof, or the General Partner otherwise determines not to retransfer such REIT Shares, the General Partner shall cause the Partnership to redeem a number of Partnership Units held by the General Partner equal to the number of such REIT Shares, as adjusted (x) pursuant to Section 7.07 (in the event the General Partner acquires material assets, other than on behalf of the Partnership) and (y) for stock dividends and distributions, stock splits and subdivisions, reverse stock splits and combinations, distributions of rights, warrants or options, and distributions of evidences of indebtedness or assets relating to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership (in which case such advancement or reimbursement of expenses shall be treated as having been made as a distribution in redemption of such number of Partnership Units held by the General Partner).

(d)        As set forth in Section 4.02, the General Partner shall be treated as having made a Capital Contribution in the amount of all expenses that it incurs relating to its offering of REIT Shares, Preferred Shares, Junior Shares or New Securities.

(e)        If and to the extent any reimbursements to the General Partner pursuant to this Section 7.04 constitute gross income of the General Partner (as opposed to the repayment of advances made by the General Partner on behalf of the Partnership), such amounts shall constitute guaranteed payments with respect to capital within the meaning of Code Section 707(c), shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners' Capital Accounts.

Section 7.05.   Outside Activities of the General Partner. Without limiting the other powers granted to the General Partner under this Agreement, the General Partner and its officers, directors, employees, agents, trustees, Affiliates and members shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partner shall have any rights by virtue of this Agreement in any business ventures of the General Partner.

Section 7.06.   Contracts with Affiliates.

(a)        The Partnership may lend or contribute funds or other assets to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person.

(b)        The Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or

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thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes to be advisable.

(c)        Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable.

(d)        The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership or any of the Partnership's Subsidiaries.

(e)        The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, any Services Agreement with Affiliates of any of the Partnership or the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable.

Section 7.07.   Indemnification.

(a)        To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership ("Actions") as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided,  however,  that the Partnership shall not indemnify an Indemnitee (1) for willful misconduct or a knowing violation of the law, (2) for any transaction for which such Indemnitee received an improper personal benefit in violation or breach of any provision of this Agreement, or (3) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.07 in favor of any Indemnitee having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.07(a). The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.07(a) with respect to the subject matter of such proceeding. Any

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indemnification pursuant to this Section 7.07 shall be made only out of the assets of the Partnership and any insurance proceeds from the liability policy covering the General Partner and any Indemnitees, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.07.

(b)        To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (1) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.07(b) has been met and (2) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.

(c)        The indemnification provided by this Section 7.07 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified.

(d)        The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

(e)        Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership or the General Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.07, unless such liabilities arise as a result of (1) such Indemnitee's intentional misconduct or knowing violation of the law, (2) any transaction in which such Indemnitee received a personal benefit in violation or breach of any provision of this Agreement or applicable law, or (3) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful.

(f)        In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.

(g)        An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.07 because the Indemnitee had an interest in the transaction with respect to which

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the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

(h)        The provisions of this Section 7.07 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.07 or any provision hereof shall be prospective only and shall not in any way affect the obligations of the Partnership or the limitations on the Partnership's liability to any Indemnitee under this Section 7.07 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

(i)         If and to the extent any payments to the General Partner pursuant to this Section 7.07 constitute gross income to the General Partner (as opposed to the repayment of advances made on behalf of the Partnership) such amounts shall be treated as "guaranteed payments" for the use of capital within the meaning of Code Section 707(c), shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners' Capital Accounts.

Section 7.08.   Liability of the General Partner.

(a)        Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner or any of its members or officers shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the General Partner or such member, director or officer acted in good faith.

(b)        The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and its own stockholders collectively and that the General Partner is under no obligation to give priority to the separate interests of the Limited Partners or its own stockholders (including, without limitation, the tax consequences to Limited Partners, Assignees or its own stockholders) in deciding whether to cause the Partnership to take (or decline to take) any actions. If there is a conflict between the interests of the stockholders of the General Partner on one hand and the Limited Partners on the other, the Limited Partners expressly acknowledge that the General Partner will fulfill its fiduciary duties to such Limited Partners by acting in the best interests of the stockholders of the General Partner. The General Partner shall not be liable under this Agreement to the Partnership or to any Partner for monetary damages for losses sustained, liabilities incurred, or benefits not derived by Limited Partners in connection with such decisions; provided,  that the General Partner has acted in good faith.

(c)        Subject to its obligations and duties as General Partner set forth in Section 7.01(a) hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the General Partner).

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The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.

(d)        To the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, the General Partner shall not be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement.

(e)        Notwithstanding anything herein to the contrary, except for fraud, willful misconduct or gross negligence, or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partner(s), for the debts or liabilities of the Partnership or the Partnership's obligations hereunder, and the full recourse of the other Partner(s) shall be limited to the interest of that Partner in the Partnership. To the fullest extent permitted by law, no officer, or member of the General Partner shall be liable to the Partnership for money damages except for (1) active and deliberate dishonesty established by a nonappealable final judgment or (2) actual receipt of an improper benefit or profit in money, property or services. Without limitation of the foregoing, and except for fraud, willful misconduct or gross negligence, or pursuant to any such express indemnity, no property or assets of any Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partner(s) and arising out of, or in connection with, this Agreement. This Agreement is executed by the members of the General Partner solely as members of the same and not in their own individual capacities.

(f)        Any amendment, modification or repeal of this Section 7.08 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's, and its officers' and members', liability to the Partnership and the Limited Partners under this Section 7.08 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

Section 7.09.   Other Matters Concerning the General Partner.

(a)        The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.

(b)        The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the General Partner reasonably believe to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

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(c)        The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder.

(d)        Notwithstanding any other provision of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (1) to protect the ability of the General Partner to continue to qualify as a REIT, (2) for the General Partner otherwise to satisfy the REIT Requirements, or (3) to avoid the General Partner incurring any taxes under Code Section 857 or Code Section 4981, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

Section 7.10.   Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held.

Section 7.11.   Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying in good faith thereon or claiming thereunder that (1) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (2) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership, and (3) such certificate, document or

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instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.

ARTICLE VIII

RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

Section 8.01.   Limitation of Liability. The Limited Partners shall have no liability under this Agreement (other than for breach thereof) except as expressly provided in Section 10.04,  13.02(d) or under the Act.

Section 8.02.   Management of Business. No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, member, employee, partner, agent or director of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative, stockholder or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.

Section 8.03.   Outside Activities of Limited Partners. Subject to any agreements entered into pursuant to Section 7.06(e) hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or any Affiliate thereof (including, without limitation, any employment agreement), any Limited Partner and any Assignee, officer, director, employee, agent, trustee, Affiliate, member or shareholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partner shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner, to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.06(e) hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or any Affiliate thereof, to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.

Section 8.04.   Return of Capital. Except pursuant to the rights of Redemption set forth in Section 8.06 hereof, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement, upon termination of the Partnership as provided herein or upon a merger of the General Partner or a sale by the General Partner of all or substantially all of its assets pursuant to Section 7.01(a)(iii) hereof. Except to the extent provided in Article VI hereof or otherwise expressly provided in this

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Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.

Section 8.05.   Adjustment Factor. The Partnership shall notify any Limited Partner, on request, of the then current Adjustment Factor or any change made to the Adjustment Factor.

Section 8.06.   Redemption Rights.

(a)        On or after the date specified in any agreement to which OP Units are issued, each Limited Partner shall have the right (subject to the terms and conditions set forth herein and in any other such agreement, as applicable) to cause the Partnership to purchase all or a portion of the OP Units held by such Limited Partner (such OP Units being hereafter referred to as "Tendered Units") in exchange for the Cash Amount (a "Redemption") unless the terms of such OP Units or a separate agreement entered into between the Partnership and the holder of such OP Units provide that such OP Units are not entitled to a right of Redemption. The Tendering Partner shall have no right, with respect to any OP Units so redeemed, to receive any distributions paid on or after the Specified Redemption Date. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Limited Partner who is exercising the right (the "Tendering Partner"). The Cash Amount shall be payable to the Tendering Partner on the Specified Redemption Date.

(b)        Notwithstanding Section 8.06(a) above, if a Limited Partner has delivered to the General Partner a Notice of Redemption then the General Partner may, in its sole and absolute discretion, (subject to the limitations on ownership and transfer of REIT Shares set forth in the Charter) elect to assume and satisfy the Partnership's Redemption obligation and acquire some or all of the Tendered Units from the Tendering Partner in exchange for the REIT Shares Amount (as of the Specified Redemption Date) and, if the General Partner so elects, the Tendering Partner shall sell the Tendered Units to the General Partner in exchange for the REIT Shares Amount. In such event, the Tendering Partner shall have no right to cause the Partnership to redeem such Tendered Units. The General Partner shall give such Tendering Partner written notice of its election on or before the close of business on the fifth Business Day after the its receipt of the Notice of Redemption.

(c)        The REIT Shares Amount, if applicable, shall be delivered as duly authorized, validly issued, fully paid and nonassessable REIT Shares and, if applicable, free of any pledge, lien, encumbrance or restriction, other than those provided in the Charter or the Bylaws of the General Partner, the Securities Act, relevant state securities or blue sky laws and any applicable registration rights agreement with respect to such REIT Shares entered into by the Tendering Partner. Notwithstanding any delay in such delivery (but subject to Section 8.06(e)), the Tendering Partner shall be deemed the owner of such REIT Shares for all purposes, including without limitation, rights to vote or consent, and receive dividends, as of the Specified Redemption Date. In addition, the REIT Shares for which the Partnership Units might be exchanged shall also bear such restrictive legends that the General Partner determines are appropriate to mark transfer, ownership or other restrictions and limitations applicable to the REIT Shares.

(d)        Each Limited Partner covenants and agrees with the General Partner that all Tendered Units shall be delivered to the General Partner free and clear of all liens, claims and

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encumbrances whatsoever and should any such liens, claims and/or encumbrances exist or arise with respect to such Tendered Units, the General Partner shall be under no obligation to acquire the same. Each Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Tendered Units to the General Partner (or its designee), such Limited Partner shall assume and pay such transfer tax.

(e)        Notwithstanding the provisions of Section 8.06(a),  8.06(b),  8.06(c) or any other provision of this Agreement, a Limited Partner (i) shall not be entitled to effect a Redemption for cash or an exchange for REIT Shares to the extent the ownership or right to acquire REIT Shares pursuant to such exchange by such Partner on the Specified Redemption Date could cause such Partner or any other Person to violate the restrictions on ownership and transfer of REIT Shares set forth in the Charter of the General Partner and (ii) shall have no rights under this Agreement to acquire REIT Shares which would otherwise be prohibited under the Charter. To the extent any attempted Redemption or exchange for REIT Shares would be in violation of this Section 8.06(e), it shall be null and void ab initio and such Limited Partner shall not acquire any rights or economic interest in the cash otherwise payable upon such Redemption or the REIT Shares otherwise issuable upon such exchange.

(f)        Notwithstanding anything herein to the contrary (but subject to Section 8.06(e)), with respect to any Redemption or exchange for REIT Shares pursuant to this Section 8.06: (i) a portion of the OP Units acquired by the General Partner pursuant thereto shall automatically, and without further action required, be converted into and deemed to be General Partner Interests and all other OP Units shall be deemed to be Limited Partner Interests and held by the General Partner in its capacity as a Limited Partner in the Partnership such that, immediately after such Redemption, the requirements of Section 4.01(b) continue to be met; (ii) without the consent of the General Partner, each Limited Partner may effect a Redemption only one time in each fiscal quarter; (iii) without the consent of the General Partner, each Limited Partner may not effect a Redemption for less than 1,000 OP Units or, if the Limited Partner holds less than 1,000 OP Units, all of the OP Units held by such Limited Partner; (iv) without the consent of the General Partner, each Limited Partner may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution; (v) the consummation of any Redemption or exchange for REIT Shares shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (vi) each Tendering Partner shall continue to own all OP Units subject to any Redemption or exchange for REIT Shares, and be treated as a Limited Partner with respect to such OP Units for all purposes of this Agreement, until such OP Units are transferred to the General Partner and paid for or exchanged on the Specified Redemption Date. Until a Specified Redemption Date, the Tendering Partner shall have no rights as a stockholder of the General Partner with respect to such Tendering Partner's OP Units.

(g)        In the event that the Partnership issues additional Partnership Interests to any Additional Limited Partner pursuant to Section 4.03, the General Partner shall make such revisions to this Section 8.06 as it determines are necessary to reflect the issuance of such additional Partnership Interests.

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Section 8.07.   Repurchase of the Class A Special Unit. If the Management Agreement is terminated under circumstances in which the General Partner is obligated under the Management Agreement to make a termination payment to the Manager, the Partnership shall repurchase, concurrently with such termination, the Class A Special Unit for an amount equal to three times the average annual amount of the Incentive Distribution paid or payable in respect of the Class A Special Unit during the 24‑month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. If the Management Agreement is terminated under circumstances under which the General Partner is not obligated to make a termination payment to the Manager, then the Partnership shall repurchase the Class A Special Unit for $100.00.

ARTICLE IX

BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 9.01.   Records and Accounting.

(a)        The General Partner shall keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnership's business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 8.05 or 9.03 hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form for, magnetic tape, photographs, micrographics or any other information storage device; provided,  that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles.

(b)        The books of the Partnership shall be maintained, for financial reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership and the General Partner may operate with integrated or consolidated accounting records, operations and principles. The Partnership also shall maintain its tax books on the accrual basis.

Section 9.02.   Partnership Year. The Partnership Year of the Partnership shall be the calendar year.

Section 9.03.   Reports.

(a)        As soon as practicable, but in no event later than the date on which the General Partner mails its annual report to its stockholders, the General Partner shall cause to be mailed to each Limited Partner an annual report, as of the close of the most recently ended Partnership Year, containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the Partnership, for such Partnership Year, presented in accordance with generally accepted accounting principles, such

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statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner.

(b)        If and to the extent that the General Partner mails quarterly reports to its stockholders, as soon as practicable, but in no event later than the date on such reports are mailed, the General Partner shall cause to be mailed to each Limited Partner a report containing unaudited financial statements, as of the last day of such fiscal quarter, of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the Partnership, and such other information as may be required by applicable law or regulations, or as the General Partner determines to be appropriate.

(c)        The General Partner shall have satisfied its obligations under Section 9.03(a) and 9.03(b) hereof by posting or making available the reports required by this Section 9.03 on the website maintained from time to time by the Partnership provided that such reports are able to be printed or downloaded from such website.

(d)        At the request of any Limited Partner, the General Partner shall provide access to the books, records and work paper upon which the reports required by this Section 9.03 are based, to the extent required by the Act.

ARTICLE X

TAX MATTERS

Section 10.01. Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all returns with respect to Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable effort to furnish, within 90 days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal and state income tax reporting purposes. The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time.

Section 10.02. Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including, but not limited to, the election under Code Section 754 and the election to use the "recurring item" method of accounting provided under Code Section 461(h) with respect to property taxes imposed on the Partnership's Properties. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Sections 461(h) and 754) upon the General Partner's determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.

Section 10.03. Tax Matters Partner.

(a)        The General Partner shall be the "tax matters partner" of the Partnership for federal income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership in

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addition to any reimbursement pursuant to Section 7.04 hereof. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.

(b)        The tax matters partner is authorized, but not required:

(i)         to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners;

(ii)       in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a "final adjustment") is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Partnership's principal place of business is located;

(iii)      to intervene in any action brought by any other Partner for judicial review of a final adjustment;

(iv)       to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request;

(v)        to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and

(vi)       to take any other action on behalf of the Partners in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations.

The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.07 hereof shall be fully applicable to the tax matters partner in its capacity as such.

(c)        New Audit Rules. With respect to taxable years beginning after December 31, 2017, in accordance with Section 6223 of the Code, the General Partner may exercise any authority granted to the "partnership representative" under the Code. In particular, as "partnership representative", the General Partner may, in its sole discretion make any elections provided for under the new partnership audit rules enacted under the Bipartisan Budget Act of 2015 (the "New Audit Rules") and may, in its sole discretion, settle and/or litigate any audit adjustments proposed by the Internal Revenue Service in any partnership audit governed by the

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New Audit Rules. The General Partner is hereby authorized and empowered, without further vote or action of the Partners, to amend this Agreement as necessary to comply with the requirements of any election under the New Audit Rules, and shall have the authority to execute any such amendment by and on behalf of each Partner. The General Partner is authorized to the extent required by applicable U.S. federal income tax law to pay any imputed underpayment of taxes (together with interest and penalties) determined in accordance with Section 6225 of the Code that may from time to time be required to be made under Section 6232 of the Code. The Partners shall cooperate with the General Partner in minimizing the amount of any such imputed underpayment of taxes by supplying the General Partner with such information concerning their tax classification as the General Partner may reasonably request from time to time. The General Partner shall in its sole discretion allocate the amount of any such imputed underpayment of taxes among the Partners in a manner reasonably intended to reflect the nature of the income that is the subject of the adjustment giving rise to such imputed underpayment and the classification of the Partners for federal income tax purposes as corporations, individuals, or other types of taxpayers.

Section 10.04. Withholding. Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Code Sections 1441, 1442, 1445 or 1446 and Treasury Regulations thereunder. Any amount paid on behalf of or with respect to a Limited Partner, in excess of any withheld amounts shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within 15 days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the Available Cash of the Partnership that would, but for such payment, be distributed to the Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner's Partnership Interest to secure such Limited Partner's obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.04. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.04 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in The Wall Street Journal, plus four percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder.

Section 10.05. Organizational Expenses. The Partnership shall elect to amortize expenses, if any, incurred by it in organizing the Partnership ratably over a 180‑month period as provided in Code Section 709.

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ARTICLE XI

TRANSFERS AND WITHDRAWALS

Section 11.01. Transfer.

(a)        No part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.

(b)        No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article XI shall be null and void ab initio unless consented to by the General Partner in its sole and absolute discretion.

(c)        No Transfer of any Partnership Interest may be made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752‑4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability, without the consent of the General Partner in its sole and absolute discretion; provided,  that as a condition to such consent, the lender will be required to enter into an arrangement with the Partnership and the General Partner to redeem or exchange for REIT Shares any Partnership Units in which a security interest is held by such lender concurrently with such time as such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Code Section 752.

Section 11.02. Transfer of General Partner's Partnership Interest.

(a)        The General Partner may not transfer any of its Partnership Interests except in connection with (i) a transaction permitted under Section 11.02(b), (ii) any merger (including a triangular merger), consolidation or other combination with or into another Person following the consummation of which the equity holders of the surviving entity are substantially identical to the members of the General Partner, (iii) a transfer to a Qualified REIT Subsidiary or (iv) as otherwise expressly permitted under this Agreement, nor shall the General Partner withdraw as General Partner except in connection with a transaction permitted under Section 11.02(b) or any merger, consolidation, or other combination permitted under clause (ii) of this Section 11.02(a).

(b)        The General Partner shall not, without the Consent of a Majority in Interest of the Outside Limited Partners, engage in any merger (including, without limitation, a triangular merger), consolidation or other combination with or into another Person (other than any transaction permitted by Section 11.02(a)), sale of all or substantially all of its assets or any reclassification, recapitalization or change of outstanding REIT Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination as described in the definition of "Adjustment Factor") ("Termination Transaction"), unless (i) following such merger or other consolidation, substantially all of the assets of the surviving entity consist of Partnership Units or (ii) in connection with which (A) all Partners (other than the General Partner and the Class A Special Unit Holder) who hold Partnership Units either will receive, or will have

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the right to receive, for each Partnership Unit an amount of cash, REIT Shares or other securities having a fair market value, as determined in good faith by the Board of Directors of the General Partner, equal to the highest amount of consideration paid in respect of each REIT Share in the Termination Transaction; provided,  however,  that, if in connection with the Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the percentage required for the approval of mergers under the organizational documents of the General Partner, each holder of Partnership Units shall receive, or shall have the right to receive without any right of Consent set forth above in this Section 11.02(b), the amount of cash, REIT Shares or other securities which such holder would have received had it exercised the Redemption Right and received REIT Shares in exchange for its Partnership Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer, and (B) the Class A Special Unit Holder shall receive in such transaction an amount of cash, REIT Shares or other securities having a fair market value equal to Class A Special Unit Value.

(c)        The General Partner shall not enter into an agreement or other arrangement providing for or facilitating the creation of a General Partner other than the General Partner, unless the successor General Partner executes and delivers a counterpart to this Agreement in which such General Partner agrees to be fully bound by all of the terms and conditions contained herein that are applicable to a General Partner.

Section 11.03. Transfer of Limited Partners' Partnership Interests.

(a)        No Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the written consent of the General Partner, which consent may be withheld in its sole and absolute discretion.

(b)        Without limiting the generality of Section 11.03(a) hereof, it is expressly understood and agreed that the General Partner will not consent to any Transfer of all or any portion of any Partnership Interest pursuant to Section 11.03(a) above unless such Transfer meets each of the following conditions:

(i)         The transferee in such Transfer assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest; provided,  that no such Transfer (unless made pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its sole and absolute discretion. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any and all ownership limitations contained in the Charter that may limit or restrict such transferee's ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.05 hereof.

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(ii)       Such Transfer is effective as of the first day of a fiscal quarter of the Partnership.

(c)        If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner's estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.

(d)        In connection with any proposed Transfer of a Limited Partner Interest, the General Partner shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred.

(e)        Notwithstanding anything to the contrary in this Section 11.03, the Class A Special Unit Holder shall have the right, at any time, to transfer its Class A Special Unit to an Affiliate.

(f)        No Transfer by a Limited Partner of its Partnership Interests (including any Redemption, any other acquisition of Partnership Units by the Partnership or the General Partner) may be made to or by any person, without the consent of the General Partner in its sole discretion, if (i) in the opinion of legal counsel for the Partnership, there is a significant risk that it would result in the Partnership being treated as an association taxable as a corporation or would result in a termination of the Partnership under Code Section 708, (ii) such Transfer would be effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Code Section 7704, (iii) such Transfer would result in the Partnership being unable to qualify for one or more of the "safe harbors" set forth in Regulations Section 1.7704‑1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as "readily tradable on a secondary market (or the substantial equivalent thereof) "within the meaning of Section 7704 of the Code) (the "Safe Harbors") or (iv) in the opinion of legal counsel for the Partnership, there is a risk that such transfer would adversely affect the ability of the General Partner to continue to qualify as a REIT or subject the General Partner to any additional taxes under Code Section 857 or Code Section 4981.

Section 11.04. Substituted Limited Partners.

(a)        A transferee of the interest of a Limited Partner pursuant to a Transfer consented to by the General Partner pursuant to Section 11.03(a) may be admitted as a Substituted Limited Partner only with the consent of the General Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory

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to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee, and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee's admission as a Substituted Limited Partner.

(b)        A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article XI shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement.

(c)        Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address and number of Partnership Units of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and number of Partnership Units of the predecessor of such Substituted Limited Partner.

Section 11.05. Assignees. If the General Partner, in its sole and absolute discretion, does not consent to the admission of any transferee of any Partnership Interest as a Substituted Limited Partner in connection with a transfer permitted by the General Partner pursuant to Section 11.03(a), such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Units assigned to such transferee and the rights to Transfer the Partnership Units only in accordance with the provisions of this Article XI, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement, and shall not be entitled to effect a Consent or vote or effect a Redemption with respect to such Partnership Units on any matter presented to the Limited Partners for approval (such right to Consent or vote or effect a Redemption, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article XI to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units.

Section 11.06. General Provisions.

(a)        No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer of all of such Limited Partner's Partnership Units in accordance with this Article XI, with respect to which the transferee becomes a Substituted Limited Partner, or pursuant to a redemption (or acquisition by the General Partner) of all of its Partnership Units pursuant to a Redemption under Section 8.06 hereof and/or pursuant to any Partnership Unit Designation.

(b)        Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) consented to by the General Partner pursuant to this Article XI where such transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its rights to effect a redemption of all of its Partnership Units pursuant to a Redemption under Section 8.06 hereof and/or pursuant to any Partnership Unit Designation, or (iii) to the General Partner, whether or not pursuant to Section 8.06(b) hereof, shall cease to be a Limited Partner.

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(c)        If any Partnership Unit is Transferred in compliance with the provisions of this Article XI, or is redeemed by the Partnership, or acquired by the General Partner pursuant to Section 8.06 hereof, on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Partnership Year shall be allocated to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer or assignment other than a Redemption, to the transferee Partner, by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d) and the corresponding Regulations, using the "interim closing of the books" method or another permissible method selected by the General Partner (unless the General Partner in its sole and absolute discretion elects to adopt a daily, weekly or monthly proration period, in which case Net Income or Net Loss shall be allocated based upon the applicable method selected by the General Partner). All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer other than a Redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner.

(d)        In no event may any Transfer or assignment of a Partnership Interest by any Partner (including any Redemption, any acquisition of Partnership Units by the General Partner or any other acquisition of Partnership Units by the Partnership) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) in the event that such Transfer would cause the General Partner to cease to comply with the REIT Requirements; (v) except with the consent of the General Partner, if such Transfer, in the opinion of counsel to the Partnership or the General Partner, would create a significant risk that such transfer would cause a termination of the Partnership for federal or state income tax purposes; (vi) if such Transfer would, in the opinion of legal counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or acquisition by the General Partner) of all Partnership Units held by all Limited Partners); (vii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section 3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii) without the consent of the General Partner, to any benefit plan investor within the meaning of Department of Labor Regulations Section 2510.3‑101(f); (ix) if such Transfer would, in the opinion of legal counsel to the Partnership or the General Partner, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3‑101; (x) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (xi) except with the consent of the General Partner, if such transfer would be effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Code Section 7704, could cause the Partnership to become a "publicly traded partnership" as such term is defined in Sections 469(k)(2) or 7704(b) of the Code, or could cause the Partnership to fail one or more of the Safe Harbors; (xii) if such Transfer causes the Partnership (as opposed to the General Partner) to become a reporting company under the Exchange Act; or

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(xiii) if such Transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended.

ARTICLE XII

ADMISSION OF PARTNERS

Section 12.01. Admission of Successor General Partner. A successor to all of the General Partner's General Partner Interest pursuant to Section 11.02 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to such Transfer. Any such successor shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. Concurrently with, and as evidence of, the admission of an Additional Limited Partner, the General Partner shall amend Exhibit A and the books and records of the Partnership to reflect the name, address and number of Partnership Units of such Additional Limited Partner.

Section 12.02. Admission of Additional Limited Partners.

(a)        After the Effective Date, a Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.04 hereof, (ii) a counterpart signature page to this Agreement executed by such Person, and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person's admission as an Additional Limited Partner and the satisfaction of all the conditions set forth in this Section 12.02.

(b)        Notwithstanding anything to the contrary in this Section 12.02, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.

(c)        If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Partners and Assignees for such Partnership Year shall be allocated pro rata among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year in accordance with Code Section 706(d), using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner, in accordance with the principles described in

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Section 11.06(c) hereof. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner.

Section 12.03. Amendment of Agreement and Certificate of Limited Partnership. For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.04 hereof.

Section 12.04. Limit on Number of Partners. Unless otherwise permitted by the General Partner, no Person shall be admitted to the Partnership as an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have a number of Partners that would cause the Partnership to become a reporting company under the Exchange Act.

Section 12.05. Admission. A Person shall be admitted to the Partnership as a Limited Partner of the Partnership only upon strict compliance, and not upon substantial compliance, with the requirements set forth in this Agreement for admission to the Partnership as an Additional Limited Partner.

ARTICLE XIII

DISSOLUTION, LIQUIDATION AND TERMINATION

Section 13.01.  Dissolution. The Partnership shall not be dissolved by the admission of Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a "Liquidating Event"):

(a)        a final and nonappealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and nonappealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless, prior to the entry of such order or judgment, a Majority in Interest of the remaining Outside Limited Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a successor General Partner;

(b)        an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion, with or without the Consent of a Majority in Interest of the Outside Limited Partners, including in the event that an initial public offering of REIT Shares is not completed by the first anniversary of August 3, 2011, taking into account market conditions at such time;

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(c)        entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act;

(d)        the occurrence of a Terminating Capital Transaction;

(e)        the Redemption (or acquisition by the General Partner) of all Partnership Units other than Partnership Units held by the General Partner; or

(f)        the Incapacity or withdrawal of the General Partner, unless all of the remaining Partners in their sole and absolute discretion agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such Incapacity, of a substitute General Partner.

Section 13.02. Winding Up.

(a)        Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and Partners. After the occurrence of a Liquidating Event, no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership's business and affairs. The General Partner or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Outside Limited Partners (the General Partner or such other Person being referred to herein as the "Liquidator") shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership's liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the General Partner) shall be applied and distributed in the following order:

(i)         First, to the satisfaction of all of the Partnership's Debts and liabilities to creditors other than the Partners and their Assignees (whether by payment or the making of reasonable provision for payment thereof);

(ii)       Second, to the satisfaction of all of the Partnership's Debts and liabilities to the General Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.04 hereof;

(iii)      Third, to the satisfaction of all of the Partnership's Debts and liabilities to the other Partners and any Assignees (whether by payment or the making of reasonable provision for payment thereof); and

(iv)       The balance, if any, to the Partners in accordance with Sections 5.01 and 5.02.

The General Partner shall not receive any additional compensation for any services performed pursuant to this Article XIII.

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(b)        Notwithstanding the provisions of Section 13.02(a) hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.02(a) hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.

(c)        In the event that the Partnership is "liquidated" within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XIII to the Partners and Assignees that have positive Capital Accounts in compliance with Regulations Section 1.704‑1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive Capital Account balances. If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs) (a "Capital Account Deficit"), such Partner shall not be required to make any contribution to the capital of the Partnership with respect to such Capital Account Deficit and such Capital Account Deficit shall not be considered a debt owed to the Partnership or any other person for any purpose whatsoever.

(d)        Notwithstanding the foregoing, (i) if the General Partner has a Capital Account Deficit, the General Partner shall contribute to the capital of the Partnership the amount necessary to restore such Capital Account Deficit balance to zero; and (ii) the second sentence of Section 13.02(c) shall not apply with respect to any other Partner to the extent, but only to the extent, that such Partner previously has agreed in writing, with the consent of the General Partner, to undertake an express obligation to restore all or any portion of a deficit that may exist in its Capital Account upon a liquidation of the Partnership.

(e)        In the sole and absolute discretion of the General Partner or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Article XIII may be:

(i)         distributed to a trust established for the benefit of the General Partner and the Limited Partners for the purpose of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership and/or Partnership activities. The assets of any such trust shall be distributed to the General Partner and the Limited Partners, from time to time, in the reasonable discretion of the General Partner or the Liquidator, in the same proportions and amounts as would otherwise have been distributed to the General Partner and the Limited Partners pursuant to this Agreement; or

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(ii)       withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided,  that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and order of priority set forth in Section 13.02(a) hereof as soon as practicable.

Section 13.03. Deemed Distribution and Recontribution. Notwithstanding any other provision of this Article XIII, in the event that the Partnership is liquidated within the meaning of Regulations Section 1.704‑1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's Property shall not be liquidated, the Partnership's liabilities shall not be paid or discharged and the Partnership's affairs shall not be wound up. Instead, for federal income tax purposes the Partnership shall be deemed to have contributed all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership; and, immediately thereafter, distributed interests in the new partnership to the Partners in accordance with their respective Capital Accounts in liquidation of the Partnership, and the new partnership is deemed to continue the business of the Partnership. Nothing in this Section 13.03 shall be deemed to have constituted any Assignee as a Substituted Limited Partner without compliance with the provisions of Section 11.04 hereof.

Section 13.04. Rights of Limited Partners. Except as otherwise provided in this Agreement, (a) each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Limited Partner shall have the right or power to demand or receive property other than cash from the Partnership, and (c) no Limited Partner (other than any Limited Partner who holds Preferred Units, to the extent specifically set forth herein and in the applicable Partnership Unit Designation) shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions or allocations.

Section 13.05. Notice of Dissolution. In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Partners pursuant to Section 13.01 hereof, result in a dissolution of the Partnership, the General Partner shall, within 30 days thereafter, provide written notice thereof to each of the Partners and, in the General Partner's sole and absolute discretion or as required by the Act, to all other parties with whom the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner).

Section 13.06. Cancellation of Certificate of Limited Partnership. Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.02 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Partnership as a foreign limited partnership or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Partnership shall be taken.

Section 13.07. Reasonable Time for Winding‑Up. A reasonable time shall be allowed for the orderly winding‑up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.02 hereof, in order to minimize any losses otherwise attendant upon

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such winding‑up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation.

ARTICLE XIV

PROCEDURES FOR ACTIONS AND CONSENTS

OF PARTNERS; AMENDMENTS; MEETINGS

Section 14.01. Procedures for Actions and Consents of Partners. The actions requiring consent or approval of Limited Partners pursuant to this Agreement, including Section 7.03 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article XIV.

Section 14.02. Amendments. No amendment to this Agreement may be made without the consent of the General Partner. The General Partner may amend this Agreement in any respect without the consent of the Limited Partners, except where the consent of Limited Partners is otherwise required under the other provisions of this Agreement, in which event such amendment shall be made only with such required consent; provided that no amendment to this Agreement, including by merger consolidation or otherwise, that would adversely affect the rights and interests of the Class A Special Unit Holder may be made without the prior written consent of the Class A Special Unit Holder. The rights and interests of the Class Special Unit Holder shall not be deemed to be adversely affected by the issuance of Partnership Units of the Partnership as provided in Article IV.

Section 14.03. Meetings of the Partners.

(a)        Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by a Majority in Interest of the Outside Limited Partners. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven days nor more than 30 days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.03(b) hereof.

(b)        Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement for the action in question). Such approvals may be obtained by the General Partner by means of written notice to the Limited Partners requiring them to respond in the negative by a specified time, or to be deemed to have approved of the proposed action. Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.

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(c)        Each Limited Partner may authorize any Person or Persons to act for it by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership's receipt of written notice of such revocation from the Limited Partner executing such proxy. The use of proxies will be governed in the same manner as in the case of corporations organized under the Delaware General Corporation Law (including Section 212 thereof).

(d)        Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the General Partner's stockholders and may be held at the same time as, and as part of, the meetings of the General Partner's stockholders.

(e)        On matters on which Limited Partners are entitled to vote, each Limited Partner holding OP Units shall have a vote equal to the number of OP Units held.

(f)        Except as otherwise expressly provided in this Agreement, the Consent of Holders of Partnership Interests representing a majority of the Partnership Interests of the Limited Partners shall control.

ARTICLE XV

GENERAL PROVISIONS

Section 15.01. Addresses and Notice. Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including by telecopy, facsimile, or commercial courier service) to the Partner or Assignee at the address set forth in Exhibit A or such other address of which the Partner shall notify the General Partner in writing.

Section 15.02. Titles and Captions. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" or "Sections" are to Articles and Sections of this Agreement.

Section 15.03. Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

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Section 15.04. Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

Section 15.05. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

Section 15.06. Waiver.

(a)        No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition.

(b)        The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time to time and at any time.

Section 15.07. Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.

Section 15.08. Applicable Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non‑mandatory provision of the Act, the provisions of this Agreement shall control and take precedence.

Section 15.09. Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership.

Section 15.10. Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

Section 15.11. Limitation to Preserve REIT Qualification. Notwithstanding anything else in this Agreement, to the extent that the amount paid, credited, distributed or reimbursed by the Partnership to the General Partner or its officers, directors, members, employees or agents, whether as a reimbursement, fee, expense or indemnity (a "REIT Payment"), would constitute gross income to the General Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its discretion from among items of

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potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Partnership Year so that the REIT Payments, as so reduced, for or with respect to the General Partner, shall not exceed the lesser of:

(i)         an amount equal to the excess, if any, of (a) 4.9% of the General Partner's total gross income (but excluding the amount of any REIT Payments) for the Partnership Year that is described in subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the General Partner from sources other than those described in subsections (A) through (H) of Code Section 856(c)(2) (but not including the amount of any REIT Payments); or

(ii)       an amount equal to the excess, if any, of (a) 24% of the General Partner's total gross income (but excluding the amount of any REIT Payments) for the Partnership Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the General Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments); provided,  however,  that REIT Payments in excess of the amounts set forth in clauses (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts shall not adversely affect the General Partner's ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Partnership Year as a consequence of the limitations set forth in this Section 15.11, such REIT Payments shall carry over and shall be treated as arising in the following Partnership Year. The purpose of the limitations contained in this Section 15.11 is to prevent the General Partner from failing to qualify as a REIT under the Code by reason of the General Partner's share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.11 shall be interpreted and applied to effectuate such purpose.

Section 15.12. No Partition. No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Partners and their successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.

Section 15.13. No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Partners, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership (other than as expressly set forth herein with respect to Indemnitees) shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any

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purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners.

Section 15.14. No Rights as Members of the General Partner. Nothing contained in this Agreement shall be construed as conferring upon the Holders of Partnership Units any rights whatsoever as members of the General Partner, including without limitation any right to receive dividends or other distributions made to members of the General Partner, or to vote or to consent or receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the General Partner or any other matter.

Section 15.15. Creditors. Other than as expressly set forth herein with respect to Indemnitees, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.

[signature page follows]

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IN WITNESS WHEREOF, this Amended and Restated Agreement of Limited Partnership has been executed as of the date first written above.

GENERAL PARTNER:
READY CAPITAL CORPORATION
By:	/s/ Frederick C. Herbst
	Name: Frederick C. Herbst
	Title:Authorized Person

[Signature Page to OP Agreement]

SCHEDULE A

PARTNERS AND PARTNERSHIP UNITS

As of March 5,  2018

Name and Address of Partners Partnership Units
(Type and Amount) Address

A-2

EXHIBIT B

NOTICE OF REDEMPTION

To:       Ready Capital Corporation 1140 Avenue of the Americas, 7th Floor New York, New York 10036

The undersigned Limited Partner or Assignee hereby irrevocably tenders for Redemption OP Units in Sutherland Partners, L.P. in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of Sutherland Partners, L.P., dated as of October 31, 2016 (the "Agreement"), and the Redemption rights referred to therein. The undersigned Limited Partner or Assignee:

(a)        undertakes (i) to surrender such OP Units and any certificate therefor at the closing of the Redemption and (ii) to furnish to the General Partner, prior to the Specified Redemption Date, the documentation, instruments and information required under Section 8.06(g) of the Agreement;

(b)        directs that the certified check representing the Cash Amount, or the REIT Shares Amount, as applicable, deliverable upon the closing of such Redemption be delivered to the address specified below;

(c)        represents, warrants, certifies and agrees that:

(i)         the undersigned Limited Partner or Assignee is a Qualifying Party,

(ii)       the undersigned Limited Partner or Assignee has, and at the closing of the Redemption will have, good, marketable and unencumbered title to such OP Units, free and clear of the rights or interests of any other person or entity,

(iii)      the undersigned Limited Partner or Assignee has, and at the closing of the Redemption will have, the full right, power and authority to tender and surrender such Partnership Units as provided herein, and

(iv)       the undersigned Limited Partner or Assignee has obtained the consent or approval of all persons and entities, if any, having the right to consent to or approve such tender and surrender; and

(d)        acknowledges that he will continue to own such OP Units until and unless either (1) such OP Units are acquired by the General Partner pursuant to Section 8.06(b) of the Agreement or (2) such redemption transaction closes.

B-1

All capitalized terms used herein and not otherwise defined shall have the same meaning ascribed to them respectively in the Agreement.

Dated:
	Name of Limited Partner or Assignee:
	(Signature of Limited Partner or Assignee)
	(Street Address)
	(City) (State) (Zip Code)
	Signature Medallion Guaranteed by:
Issue Check Payable/REIT Shares to:
Name:
Please insert social security or identifying
number:

B-2

EXHIBIT C

CLASS A SPECIAL UNIT VALUE

The value of the consideration to be paid to the holders of the Class A Special Unit in a Terminating Transaction under the circumstances contemplated by Section 11.02(b) shall equal the "Class A Special Unit Value" which means the fair market value of the Class A Special Unit as determined in accordance with the following valuation procedures:

The holders of a majority in interest of the Class A Special Units and a special committee of independent directors of the board of directors of the Company shall first attempt to negotiate in good faith to determine the Class A Unit Special Value.

In the event that such holders and the special committee are unable to agree on such value, such holders shall select an independent nationally recognized valuation expert, and the special committee shall select an independent nationally recognized valuation expert. Those two independent valuation experts would then select a third nationally recognized independent valuation expert. All three independent valuation experts would provide their view of the Class A Unit Special Value. The amount of the Class A Unit Special Value will then be the average of the two experts' values that are closest to each other.

The special committee shall have the discretion to establish additional procedures providing for reasonable time periods allowed for negotiations and for the independent valuation experts to report on their views of the Class A Unit Special Value. Any such procedures shall be provided in writing to the holders of the Class A Special Units.

The holders of a majority in interest of the Class A Special Units shall have the discretion to appoint one or more representatives to act for such holders in the negotiations and in the selection of an independent valuation expert.

C-1

EX-10.9

Exhibit 10.9

Form of Indemnification Agreement

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the         day of         , 20       .

WHEREAS, Sutherland Asset Management Corporation will be renamed “Ready Capital Corporation”, and pursuant to Section 18(c) hereof, the Company desires to enter into this Agreement with the Indemnitee.

WHEREAS, at the request of the Company, Indemnitee currently serves as a director and/or officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of [his][her] service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such director and/or officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses; and

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.Definitions. For purposes of this Agreement:

(a)  “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if, after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person’s attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not individuals (A) who were directors as of the Effective Date or (B) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative vote of at least two-thirds of the directors then in office who were directors as of the Effective Date or whose election or nomination for election was previously so approved.

(b)   “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company. As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (i) of which a majority of the voting power or equity interest is owned directly or indirectly by the Company or (ii) the management of which is controlled directly or indirectly by the Company.

(c)   “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.

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(d)   “Effective Date” means the date set forth in the first paragraph of this Agreement.

(e)   “Expenses” means any and all reasonable and out-of-pocket attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties and any other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding. Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding including, without limitation, the premium, security for and other costs relating to any cost bond, supersedes bond or other appeal bond or its equivalent.

(f)   “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(g)   “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee. If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a Proceeding.

Section 2.Services by Indemnitee.  Indemnitee will serve as a director and/or officer of the Company. However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company. This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee.

Section 3.General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by the laws of the State of Maryland in effect on the Effective Date and as amended from time to time; provided, however, that no change in the laws of the State of Maryland shall have the effect of reducing the benefits available to Indemnitee hereunder based on the laws of the State of Maryland as in effect on the Effective Date. The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (the “MGCL”).

Section 4.Standard for Indemnification.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by [him][her] or on [his][her] behalf in connection with any such Proceeding unless it is established that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that [his][her] conduct was unlawful.

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Section 5.Certain Limits on Indemnification.  Notwithstanding any other provision of this Agreement (other than Section 6), Indemnitee shall not be entitled to:

(a)   indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is adjudged to be liable to the Company;

(b)   indemnification hereunder if Indemnitee is adjudged to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in the Indemnitee’s Corporate Status; or

(c)   indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee unless: (i) the Proceeding was brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Section 12 of this Agreement, or (ii) the Company’s charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 6.Court-Ordered Indemnification.  Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification in the following circumstances:

(a)   if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or

(b)   if it determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses.

Section 7.Indemnification for Expenses of a Party Who is Wholly or Partly Successful.  Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is, by reason of [his][her] Corporate Status, made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified for all Expenses actually and reasonably incurred by [him][her] or on [his][her] behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by [him][her] or on [his][her] behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis. For purposes of this Section 7 and, without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 8.Advance of Expenses for a Party.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct has not been met by Indemnitee and which have not been successfully resolved as described in Section 7 of this Agreement. To

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the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.Indemnification and Advance of Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of [his][her] Corporate Status, made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party, [he][she] shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by [him][her] or on [his][her] behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee.

Section 10.Procedure for Determination of Entitlement to Indemnification.

(a)   To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in [his][her] sole discretion. The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)   Upon written request by Indemnitee for indemnification pursuant to Section 10(a) above, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by the Indemnitee and approved by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL, which approval will not be unreasonably withheld; or (ii) if a Change in Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors or, if such a quorum cannot be obtained, then by a majority vote of a duly authorized committee of the Board of Directors consisting solely of one or more Disinterested Directors, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by the Indemnitee, which approval shall not be unreasonably withheld, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 10(b). Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

(c)   The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.

Section 11.Presumptions and Effect of Certain Proceedings.

(a)   In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of

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this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)   The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

(c)   The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement.

Section 12.Remedies of Indemnitee.

(a)   If (i) a determination is made pursuant to Section 10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the charter or Bylaws of the Company is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, of [his][her] entitlement to such indemnification or advance of Expenses. Alternatively, Indemnitee, at [his][her] option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce [his][her] rights under Section 7 of this Agreement. Except as set forth herein, the provisions of the laws of the State of Maryland (without regard to its conflicts of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b)   In any judicial proceeding or arbitration commenced pursuant to this Section 12, Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 8 of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed). The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement.

(c)   If a determination shall have been made pursuant to Section 10(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification.

(d)   In the event that Indemnitee, pursuant to this Section 12, seeks a judicial adjudication of or an award in arbitration to enforce [his][her] rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by [him][her] in such judicial adjudication or arbitration. If it

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shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

(e)   Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period commencing with the date on which the Company was requested to advance expenses in accordance with Section 8 of this Agreement or to make the determination of entitlement to indemnification under Section 12(a) above. Indemnitee requests indemnification, reimbursement or advance of any Expenses and ending on the date such payment is made to Indemnitee by the Company.

Section 13.Defense of the Underlying Proceeding.

(a)   Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding. The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)   Subject to the provisions of the last sentence of this Section 13(b) and of Section 13(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 13(a) above. The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee. This Section 13(b) shall not apply to a Proceeding brought by Indemnitee under Section 12 of this Agreement.

(c)   Notwithstanding the provisions of Section 13(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that [he][she] may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company. In addition, if the Company fails to  comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 12(d) of this Agreement), to represent Indemnitee in connection with any such matter.

Section 14.Non-Exclusivity; Survival of Rights; Subrogation.

(a)   The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. Unless consented to in writing by Indemnitee,

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no amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in [his][her] Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.

(b)   In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

Section 15.Insurance.  The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of [his][her] Corporate Status and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of [his][her] Corporate Status. Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in the previous sentence. The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies. If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.

Section 16.Coordination of Payments.  The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 17.Reports to Stockholders.  To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.

Section 18.Duration of Agreement; Binding Effect.

(a)   This Agreement shall continue until and terminate on the later of (i) ten years after the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding due to the lapse of all applicable statutes of limitations or otherwise (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement).

(b)   The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns

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(including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company, and shall inure to the benefit of Indemnitee and [his][her] spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)   The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

(d)   The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which [he][she] may be entitled. Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith. The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking.

Section 19.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 20.Identical Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 21.Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 22.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 23.Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)  If to Indemnitee, to the address set forth on the signature page hereto.

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(b)  If to the Company, to:

General Counsel

Two Bridge Avenue, Suite 322

Red Bank, New Jersey 07701-1106

Facsimile: (732) 978-7507

or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 24.Governing Law.  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

Section 25.Miscellaneous.  Use of the [masculine][feminine] pronoun shall be deemed to include usage of the [feminine][masculine] pronoun where appropriate.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

READY CAPITAL CORPORATION

By:

Name:

Title:

INDEMNITEE

Name: []

Address:

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EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

The Board of Directors of Ready Capital Corporation.

Re: Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated the     day of        , by and between Ready Capital Corporation, a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm my good belief that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of Expenses by the Company for reasonable attorneys’ fees and related Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this day of , 20.

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EX-21.1

Exhibit 21.1

Subsidiaries	Jurisdiction
Sutherland Partners, LP	Delaware
Sutherland Asset I, LLC	Delaware
ReadyCap Holdings, LLC	Delaware
ReadyCap Commercial, LLC	Delaware
ReadyCap Lending, LLC	Delaware
ReadyCap Lending SBL Depositor, LLC	Delaware
ReadyCap Lending Small Business Loan Trust 2015-1	Delaware
RL CIT 2014-01, LLC	Delaware
ReadyCap Warehouse Financing LLC	Delaware
Silverthread Capital, LLC	Delaware
Waterfall Commercial Depositor LLC	Delaware
Waterfall Victoria Mortgage Trust 2011-SBC1	Delaware
Waterfall Victoria Mortgage Trust 2010-SBC1 REO, LLC	Delaware
Waterfall Victoria Mortgage Trust 2011-SBC2	Delaware
Sutherland Warehouse Trust	Delaware
SBC Grantor Trust A	Delaware
Sutherland Grantor Trust, Series I	Delaware
Sutherland Grantor Trust, Series V	Delaware
Sutherland 2015-1 Grantor Trust	Delaware
Waterfall Commercial Depositor II, LLC	Delaware
ReadyCap Mortgage Trust 2014-01	Delaware
ReadyCap Mortgage Trust 2015-02	Delaware
ReadyCap Mortgage Trust 2016-03	Delaware
Sutherland Commercial Mortgage Depositor, LLC	Delaware
Sutherland Commercial Mortgage Loans 2015-SBC4, LLC	Delaware
Sutherland 2015-SBC4 REO I, LLC	Delaware
Sutherland Grantor Trust, Series II	Delaware
Sutherland Grantor Trust, Series III	Delaware
Sutherland Grantor Trust, Series IV	Delaware

Subsidiaries	Jurisdiction
Sutherland Grantor Trust, Series VII	Delaware
SAMC REO 2013-01, LLC	Delaware
Sutherland Asset II, LLC	Delaware
Cascade RE, LLC	Vermont
Skye Hawk RE, LLC	Vermont
Skyeburst IC, LLC	Vermont
Sutherland Grantor Trust, Series VI	Delaware
Ready Capital Mortgage Depositor, LLC	Delaware
ReadyCap Commercial Asset Depositor, LLC	Delaware
ReadyCap Commercial Mortgage Depositor, LLC	Delaware
Sutherland Asset Management, LLC	Delaware
SAMC Trust	Maryland
SAMC Honeybee Holdings, LLC	Delaware
SAMC Honeybee TRS, LLC	Delaware
GMFS, LLC	Delaware
Sutherland Asset III, LLC	Delaware
Ready Capital TRS I, LLC	Delaware
Ready Capital Partners I, LLC	Delaware
Ready Capital Subsidiary REIT I, LLC	Delaware
Ready Capital Mortgage Depositor II, LLC	Delaware
RCL Sub I, LLC	Delaware
Ready Capital Mortgage Financing 2017-FL1, LLC	Delaware
Sutherland 2016-1 JPM Grantor Trust	Delaware
Sutherland 2016 FCB Grantor Trust	Delaware
Sutherland Warehouse Trust II	Delaware
Sutherland Commercial Mortgage Depositor II, LLC	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-219213, 333-217810 and 333-196296 on Form S-3, Registration Statement No. 333-228769 on Form S-4, and Registration Statement No. 333-216988 on Form S-8 of our report dated March 13, 2019, relating to the financial statements of Ready Capital Corporation and its subsidiaries (the “Company”) appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2018. 

/s/ DELOITTE & TOUCHE LLP

New York, New York

March 13, 2019

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Thomas E. Capasse, certify that:

1. I have reviewed this annual report on Form 10-K of Ready Capital Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2019

By:	/s/ Thomas E. Capasse
Name: Thomas E. Capasse
Title: Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Frederick C. Herbst, certify that:

1. I have reviewed this annual report on Form 10-K of Ready Capital Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2019

By:	/s/ Frederick C. Herbst
Name: Frederick C. Herbst
Title: Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350

In connection with the annual report on Form 10-K of Ready Capital Corporation (the “Company”) for the period ended December 31, 2018 to be filed with the Securities and Exchange Commission on or about the date hereof (the “report”), I, Thomas E. Capasse, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

Date: March 13, 2019

By:	/s/ Thomas E. Capasse
Name: Thomas E. Capasse
Title: Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350

In connection with the annual report on Form 10-K of Ready Capital Corporation (the “Company”) for the period ended December 31, 2018 to be filed with the Securities and Exchange Commission on or about the date hereof (the “report”), I, Frederick C. Herbst, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

Date: March 13, 2019

By:	/s/ Frederick C. Herbst
Name: Frederick C. Herbst
Title: Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2018	Mar. 01, 2019	Jun. 30, 2018
Document and Entity Information
Entity Registrant Name	READY CAPITAL CORPORATION
Entity Central Index Key	0001527590
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2018
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding		32,124,966
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 296,481,510

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Assets
Cash and cash equivalents	$ 54,406	$ 63,425
Restricted cash	28,921	11,666
Loans, net (including $22,664 and $188,150 held at fair value)	1,193,392	1,017,920
Loans, held for sale, at fair value	115,258	216,022
Mortgage backed securities, at fair value	91,937	39,922
Loans eligible for repurchase from Ginnie Mae	74,180	95,158
Investment in unconsolidated joint venture	33,438	55,369
Derivative instruments	2,070	4,725
Servicing rights (including $93,065 and $72,295 held at fair value)	120,062	94,038
Receivable from third parties	8,888	6,756
Other assets	63,234	56,840
Assets of consolidated VIEs	1,251,057	861,662
Total Assets	3,036,843	2,523,503
Liabilities
Secured borrowings	834,547	637,393
Securitized debt obligations of consolidated VIEs, net	905,367	598,148
Convertible note, net	109,979	108,991
Senior secured notes, net	178,870	138,078
Corporate debt, net	48,457
Guaranteed loan financing	229,678	293,045
Contingent consideration	1,207	10,016
Liabilities for loans eligible for repurchase from Ginnie Mae	74,180	95,158
Derivative instruments	3,625	282
Dividends payable	13,346	12,289
Accounts payable and other accrued liabilities	73,512	74,636
Total Liabilities	2,472,768	1,968,036
Stockholders’ Equity
Common stock, $0.0001 par value, 500,000,000 shares authorized, 32,105,112 and 31,996,440 shares issued and outstanding, respectively	3	3
Additional paid-in capital	540,478	539,455
Retained earnings (deficit)	5,272	(3,385)
Accumulated other comprehensive income/ (loss)	(922)
Total Ready Capital Corporation equity	544,831	536,073
Non-controlling interests	19,244	19,394
Total Stockholders’ Equity	564,075	555,467
Total Liabilities and Stockholders’ Equity	$ 3,036,843	$ 2,523,503

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Parenthetical information
Loan receivable allowance	$ 22,664	$ 188,150
Servicing rights held at fair value	$ 93,065	$ 72,295
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized capital	500,000,000	500,000,000
Common stock, issued	32,105,112	31,996,440
Common stock, outstanding	32,105,112	31,996,440

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands									3 Months Ended								12 Months Ended
	Dec. 12, 2018	Sep. 11, 2018	Jun. 12, 2018	Mar. 14, 2018	Dec. 13, 2017	Sep. 12, 2017	Jun. 15, 2017	Mar. 14, 2017	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CONSOLIDATED STATEMENTS OF INCOME
Interest income																	$ 169,499	$ 138,305	$ 137,023
Interest expense																	(109,238)	(74,646)	(57,772)
Net interest income before provision for loan losses																	60,261	63,659	79,251
Provision for loan losses																	(1,701)	(2,363)	(7,819)
Net interest income after provision for loan losses									$ 13,833	$ 14,562	$ 15,848	$ 14,317	$ 14,562	$ 14,664	$ 15,859	$ 16,211	58,560	61,296	71,432
Non-interest income
Residential mortgage banking activities																	59,852	83,437	7,630
Net realized gain on financial instruments																	38,409	19,329	6,914
Net unrealized gain on financial instruments																	4,853	7,000	17,937
Other income																	5,586	7,410	9,161
Servicing income, net of amortization and impairment of $5,509, $6020 and $7,732																	27,075	22,994	8,658
Income from unconsolidated joint venture																	12,148	1,048
Gain on bargain purchase																			15,218
Total non-interest income									22,125	42,761	40,288	42,747	37,269	38,370	38,564	27,015	147,923	141,218	65,518
Non-interest expense
Employee compensation and benefits																	(56,602)	(55,039)	(24,827)
Allocated employee compensation and benefits from related party																	(4,200)	(3,843)	(3,668)
Variable expenses on residential mortgage banking activities																	(22,228)	(41,737)	(597)
Professional fees																	(6,999)	(8,921)	(13,420)
Management fees – related party																	(8,176)	(8,059)	(7,432)
Incentive fees – related party																	(1,143)
Loan servicing expense																	(15,545)	(10,323)	(4,611)
Other operating expenses																	(28,747)	(26,939)	(17,180)
Total non-interest expense									(29,209)	(38,859)	(39,587)	(35,983)	(39,025)	(41,001)	(42,201)	(32,635)	(143,640)	(154,861)	(71,735)
Income from continuing operations before provision for income taxes																	62,843	47,653	65,215
Provision for income taxes																	(1,386)	(1,839)	(9,651)
Net income from continuing operations																	61,457	45,814	55,564
Discontinued operations
Loss from discontinued operations (including loss on disposal of $2,695 in 2016)																			(3,538)
Income tax benefit																			1,380
Loss from discontinued operations																			(2,158)
Net income									9,486	17,569	15,884	18,518	12,730	12,374	11,153	9,557	61,457	45,814	53,406
Less: Net income attributable to non-controlling interest																	2,199	2,524	4,237
Net income attributable to Ready Capital Corporation									$ 9,177	$ 16,931	$ 15,296	$ 17,854	$ 12,097	$ 11,841	$ 10,496	$ 8,856	$ 59,258	$ 43,290	$ 49,169
Earnings (loss) per basic common share
Continuing operations									$ 0.30	$ 0.53	$ 0.48	$ 0.56	$ 0.38	$ 0.37	$ 0.34	$ 0.29	$ 1.84	$ 1.38	$ 1.93
Discontinued operations																			(0.08)
Earnings per common share - basic									0.30	0.53	0.48	0.56	0.38	0.37	0.34	0.29	1.84	1.38	1.85
Earnings (loss) per diluted common share
Continuing operations																	1.84	1.38	1.93
Discontinued operations																			(0.08)
Earnings per common share - diluted									0.30	0.53	0.48	0.56	0.38	0.37	0.34	0.29	$ 1.84	$ 1.38	$ 1.85
Weighted-average shares outstanding
Basic																	32,085,975	31,350,102	26,647,981
Diluted																	32,102,184	31,351,611	26,647,981
Dividends declared per share of common stock	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 1.57	$ 1.48	$ 1.61

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CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CONSOLIDATED STATEMENTS OF INCOME
Amortization and impairment of servicing rights	$ 5,509	$ 6,020	$ 7,732
Loss on disposal of discontinued operations			$ 2,695

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income	$ 61,457	$ 45,814	$ 53,406
Other comprehensive income (loss) - net change by component
Net change in hedging derivatives (cash flow hedges)	(954)
Other comprehensive income (loss)	(954)
Comprehensive income (loss)	60,503	45,814	53,406
Less: Comprehensive income attributable to non-controlling interests	(2,167)	(2,524)	(4,237)
Comprehensive income attributable to Ready Capital Corporation	$ 58,336	$ 43,290	$ 49,169

XML

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Thousands	Total Ready Capital Corporation Equity	Common Stock	Preferred stock	Additional Paid-in-Capital	Retained Earnings (Deficit)	Accumulated Other Comprehensive Loss	Noncontrolling Interests	Total
Balance at beginning of period at Dec. 31, 2015	$ 441,321	$ 2	$ 125	$ 447,093	$ (5,899)		$ 38,892	$ 480,213
Balance at beginning of period (in shares) at Dec. 31, 2015		25,739,847	125
Increase (Decrease) in Stockholders' Equity
Dividend declared on common stock ($1.57, $1.48 & $1.61 per share for Year ended 2018, 2017 and 2016, respectively)	(43,463)				(43,463)			(43,463)
Dividend declared on OP units							(3,707)	(3,707)
Conversion of OP units into common stock	458			458			(458)
Conversion of OP units into common stock (in shares)		27,240
Shares issued pursuant to reverse merger transaction	62,329	$ 1		62,328				62,329
Shares issued pursuant to reverse merger transaction (in shares)		4,651,424
Shares redeemed pursuant to reverse merger transaction	(1)			(1)				(1)
Shares redeemed pursuant to reverse merger transaction (in shares)		(66)
Dividend reinvestment in common stock	1,806			1,806				1,806
Dividend reinvestment in common stock (shares)		103,440
Incentive shares issued	482			482				482
Incentive shares issued (in shares)		27,199
Transfer of Additional Paid-In Capital	1,134			1,134			(1,134)
OP units issued pursuant to reverse merger transaction							816	816
Dividend declared on preferred stock	(8)				(8)			(8)
Redemption of preferred stock	(130)		$ (125)	(5)				(130)
Redemption of preferred stock (in shares)			(125)
Dividend reinvestment in OP units							359	359
Net Income	49,169				49,169		4,237	53,406
Balance at end of period at Dec. 31, 2016	513,097	$ 3		513,295	(201)		39,005	552,102
Balance at end of period (in shares) at Dec. 31, 2016		30,549,084
Increase (Decrease) in Stockholders' Equity
Dividend declared on common stock ($1.57, $1.48 & $1.61 per share for Year ended 2018, 2017 and 2016, respectively)	(46,474)				(46,474)			(46,474)
Dividend declared on OP units							(2,570)	(2,570)
Offering costs allocated to Additional Paid-In Capital	(68)			(68)			(2)	(70)
Equity component of 2017 convertible note issuance	2,065			2,065			74	2,139
Stock-based compensation	582			582				582
Conversion of OP units into common stock	19,581			19,581			(19,581)
Conversion of OP units into common stock (in shares)		1,171,494
Shares issued in exchange of litigation settlement	4,000			4,000				4,000
Shares issued in exchange of litigation settlement (in shares)		275,862
Distributions, net							(56)	(56)
Net Income	43,290				43,290		2,524	45,814
Balance at end of period at Dec. 31, 2017	536,073	$ 3		539,455	(3,385)		19,394	555,467
Balance at end of period (in shares) at Dec. 31, 2017		31,996,440
Increase (Decrease) in Stockholders' Equity
Dividend declared on common stock ($1.57, $1.48 & $1.61 per share for Year ended 2018, 2017 and 2016, respectively)	(50,601)				(50,601)			(50,601)
Dividend declared on OP units							(1,766)	(1,766)
Equity issuances	86			86				86
Equity issuances (shares)		5,000
Offering costs allocated to Additional Paid-In Capital	(103)			(103)				(103)
Contributions, net							38	38
Equity component of 2017 convertible note issuance	(322)			(322)			(12)	(334)
Stock-based compensation	320			320				320
Vesting of stock-based compensation	127			127				127
Vesting of stock-based compensation (shares)		48,617
Conversion of OP units into common stock	577			577			(577)
Conversion of OP units into common stock (in shares)		33,658
Manager incentive fee paid in stock	338			338				338
Manager incentive fee paid in stock (in shares)		21,397
Net Income	59,258				59,258		2,199	61,457
Unrealized losses on cash flow hedges	(922)					$ (922)	(32)	(954)
Balance at end of period at Dec. 31, 2018	$ 544,831	$ 3		$ 540,478	$ 5,272	$ (922)	$ 19,244	$ 564,075
Balance at end of period (in shares) at Dec. 31, 2018		32,105,112

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - $ / shares									3 Months Ended								12 Months Ended
	Dec. 12, 2018	Sep. 11, 2018	Jun. 12, 2018	Mar. 14, 2018	Dec. 13, 2017	Sep. 12, 2017	Jun. 15, 2017	Mar. 14, 2017	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement of Stockholders' Equity
Dividends declared per share of common stock	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 1.57	$ 1.48	$ 1.61

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CONSOLIDATED STATEMENTS OF CASH FLOWS shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) shares	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($) shares
Cash Flows From Operating Activities:
Net income	$ 61,457	$ 45,814	$ 53,406
Loss from discontinued operations			(2,158)
Net income (loss) from continuing operations	61,457	45,814	55,564
Adjustments to reconcile net income to net cash provided (used in) operating activities:
Discount accretion and premium amortization of financial instruments, net	(9,505)	(7,553)	(17,978)
Amortization of guaranteed loan financing, deferred financing costs, and intangible assets	24,975	22,078	19,457
Provision for loan losses	1,701	2,363	7,819
Charge off of real estate acquired in settlement of loans	1,086	756	1,833
Decrease in repair and denial reserve	(163)
Purchase of short-term investments		(839,425)	(1,569,614)
Proceeds from sale or maturity of short-term investments		1,159,819	1,569,992
Net settlement of derivative instruments	4,272	(1,256)	(2,058)
Purchase of loans, held for sale, at fair value	(17,481)	(11,195)
Origination of loans, held for sale, at fair value	(2,407,492)	(2,508,153)	(621,343)
Proceeds from disposition and principal payments of loans, held for sale, at fair value	2,586,724	2,571,583	645,954
Income on unconsolidated joint venture	1,047	(1,048)
Gain on sale of mortgages held for sale included in Residential mortgage banking activities	(36,240)	(63,024)	(2,943)
Gain (loss) on derivatives included in Residential mortgage banking activities	834	2,699	(126)
Creation of servicing rights, net of payoffs	(15,075)	(14,919)	(3,157)
Gain on bargain purchase			(15,218)
Net realized gains on financial instruments	(38,409)	(19,329)	(6,914)
Net unrealized gains on financial instruments	(4,853)	(7,000)	(17,937)
Net changes in operating assets and liabilities
Assets of consolidated VIEs (excluding loans, net), accrued interest and due from servicers	(12,088)	24,319	(21,817)
Receivable from third parties	(2,132)	464	(2,328)
Other assets	1,448	(13,898)	(12,284)
Accounts payable and other accrued liabilities	191	9,394	9,580
Net cash provided by operating activities	140,297	352,489	16,482
Net cash (used in) provided by operating activities of discontinued operations	0	0	(1,719)
Cash Flow From Investing Activities:
Origination of loans	(934,607)	(454,975)	(315,339)
Purchase of loans	(369,418)	(147,327)	(98,683)
Purchase of mortgage backed securities, at fair value	(73,305)	(14,448)	(17,388)
Purchase of real estate	(1,570)
Funding of unconsolidated joint venture		(54,321)
Purchase of servicing rights	(362)
Proceeds on unconsolidated joint venture in excess of earnings recognized	20,884
Payment of liability under participation agreements, net of proceeds received	(555)	(1,100)	(2,318)
Proceeds from disposition and principal payment of loans	746,162	422,064	479,965
Proceeds from sale and principal payment of mortgage backed securities, at fair value	30,381	9,577	297,250
Proceeds from sale of real estate	1,631	4,802	6,633
Cash and restricted cash acquired in connection with the reverse merger with ZFC			39,454
Net cash (used in) provided by investing activities	(580,759)	(235,728)	389,574
Cash Flows From Financing Activities:
Proceeds from secured borrowings	3,603,933	4,555,957	4,469,816
Proceeds from issuance of securitized debt obligations of consolidated VIEs	607,837	338,043	150,367
Proceeds from senior secured note offering	41,328	141,917
Proceeds from convertible note issuance		115,000
Proceeds from corporate debt	50,000
Payment of contingent consideration	(8,967)
Payment of secured borrowings	(3,406,779)	(4,853,403)	(4,649,987)
Payment of securitized debt obligations of consolidated VIEs	(297,774)	(227,800)	(122,988)
Payment of guaranteed loan financing	(74,980)	(110,945)	(122,603)
Payment of senior exchangeable note			(57,500)
Payment of deferred financing costs	(18,831)	(16,885)	(1,456)
Payment of offering costs		(70)
Redemption of preferred stock	(103)		(130)
Contributions	45
Distributions		(56)
Equity issuance	86
Dividend payments	(51,317)	(48,260)	(46,874)
Shares redeemed pursuant to reverse merger transaction			(1)
Net cash (used in) provided by financing activities	444,478	(106,502)	(381,356)
Net increase (decrease) in cash, cash equivalents, and restricted cash	4,016	10,259	22,981
Cash, cash equivalents, and restricted cash at beginning of period	90,954	80,695	57,714
Cash, cash equivalents, and restricted cash at end of period	94,970	90,954	80,695
Supplemental disclosure of operating cash flow
Cash paid for interest	95,946	62,106	54,686
Cash paid (received) for income taxes	898	3,773	6,161
Stock-based compensation	447	582
Supplemental disclosure of non-cash investing activities
Loans transferred from Loans, held for sale, at fair value to Loans, net	644	366	482
Loans transferred from Loans, net to Loans, held for sale, at fair value	$ 1,147	4,493	11,499
Supplemental disclosure of non-cash financing activities
Shares issued in exchange of litigation settlement		4,000
Dividend reinvestment in common stock			1,806
Dividend reinvestment in OP units			359
Common stock issued in connection with the reverse merger with ZAIS Financial Corp			$ 62,329
Incentive shares issued to investment manager pursuant to management agreement | shares	338		482
Cash and restricted cash reconciliation
Cash and cash equivalents	$ 54,406	63,425	$ 59,566
Restricted cash	28,921	11,666	20,190
Cash, cash equivalents and restricted cash in Assets of consolidated VIEs	11,643	15,863	939
Cash, cash equivalents, and restricted cash at end of period	$ 94,970	$ 90,954	$ 80,695

XML

Organization

12 Months Ended

Dec. 31, 2018

Organization

Organization

READY CAPITAL CORPORATION

NOTES TO the CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization

On September 26, 2018, Sutherland Asset Management Corporation filed Articles of Amendment to its charter (the “Articles of Amendment”) with the State Department of Assessments and Taxation of Maryland, to change its name to Ready Capital Corporation (the “Company” or “Ready Capital” and together with its subsidiaries “we”, “us” and “our”), a Maryland corporation. In connection with the name change, the Company’s trading symbol on the New York Stock Exchange changed from “SLD” to “RC” for shares of the Company’s common stock.

Sutherland Partners, LP (the “Operating Partnership”) holds substantially all of our assets and conducts substantially all of our business. As of December 31, 2018 and 2017, the Company owned approximately 96.6% and 96.5%, of the operating partnership units (“OP units”) of the Operating Partnership, respectively. The Company, as sole general partner of the Operating Partnership, has responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of the Operating Partnership, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Therefore, the Company consolidates the Operating Partnership.

The Company is a specialty-finance company which acquires, originates, manages, services and finances small to medium balance commercial (“SBC”) loans, Small Business Administration (“SBA”) loans, residential mortgage loans, and to a lesser extent, mortgage backed securities (“MBS”) collateralized primarily by SBC loans, or other real estate-related investments.

SBC loans represent a special category of commercial loans, sharing both commercial and residential loan characteristics. SBC loans are generally secured by first mortgages on commercial properties, but because SBC loans are also often accompanied by collateralization of personal assets and subordinate lien positions, aspects of residential mortgage credit analysis are utilized in the underwriting process.

The Company reports its results of operations through the following four business segments: i) Loan Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking, with the remaining amounts recorded in Corporate-Other. Our acquisition and origination platforms consist of the following four operating segments:

· Loan Acquisitions.  We acquire performing and non-performing SBC loans as part of our business strategy. We hold performing SBC loans to term, and we 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 (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns.

· SBC Originations. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial, LLC (“RCC”). Additionally, as part of this segment, we originate and service multi-family loan products under the Federal Home Loan Mortgage Corporation (“Freddie Mac” and the “Freddie Mac program”). Originated stabilized and transitional loans are generally held-for-investment or placed into securitization structures, while originated Freddie Mac loans are held-for-sale and sold to Freddie Mac.

· SBA Originations, Acquisitions, and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the SBA under its Section 7(a) loan program (the “SBA Section 7(a) Program”) through our wholly-owned subsidiary, ReadyCap Lending (“RCL”). We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA. We will generally hold 25% of the originated loan as held-for-investment, while the 75% portion of the loan is held-for-sale.

· Residential Mortgage Banking. In connection with our merger with ZAIS Financial on October 31, 2016, we added a residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS, LLC ("GMFS"). GMFS originates residential mortgage loans eligible to be purchased, guaranteed or insured by the Federal National Mortgage Association (“Fannie Mae”), Freddie Mac, Federal Housing Administration (“FHA”), U.S. Department of Agriculture (“USDA”) and U.S. Department of Veterans Affairs (“VA”) through retail, correspondent and broker channels. These originated loans are then sold to third parties.

On November 7, 2018, the Company entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Owens Realty Mortgage, Inc. (“ORM”), a specialty finance company that focuses on the origination, investment, and management of commercial real estate loans, primarily in the Western U.S. Pursuant to the Merger Agreement, the Company will acquire ORM in a stock-for-stock transaction, whereby each outstanding share of ORM common stock will be converted into the right to receive 1.441 shares of Company common stock, based on a fixed exchange ratio. The estimated total consideration transferred of $182.6 million, represents the current value of the Company’s common stock, adjusted for the exchange ratio, based on a November 7, 2018 closing price. Upon the closing of the transaction, which is conditioned on shareholder approval, Ready Capital stockholders will own approximately 72.4% of the combined company’s stock, while Owens Realty Mortgage stockholders will own approximately 27.6%  of the combined company’s stock. The transaction is expected to close during the first quarter of 2019 and is subject to regulatory approvals and customary closing conditions. The stockholder base resulting from the acquisition of ORM is expected to enhance the trading volume and liquidity for our stockholders.

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with its first taxable year ended December 31, 2011. To maintain its tax status as a REIT, the Company distributes at least 90% of its taxable income in the form of distributions to shareholders.

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Basis of Presentation

12 Months Ended

Dec. 31, 2018

Basis of Presentation

Basis of Presentation

Note 2 – Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”)—as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the U.S. Securities and Exchange Commission.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 3 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Consolidation

The accompanying consolidated financial statements of the Company include the accounts and results of operations of the Operating Partnership and other consolidated subsidiaries and VIEs in which we are the primary beneficiary. The consolidated financial statements are prepared in accordance with ASC 810, Consolidations. Intercompany accounts and transactions have been eliminated.

Reclassifications

Certain amounts reported for the prior periods in the accompanying consolidated financial statements have been reclassified in order to conform to the current period’s presentation.

As described in Note 4, the impact of the retrospective adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash, resulted in revisions to prior period numbers to conform with the updated accounting standard and our current period’s presentation.

As described in further below, effective during the fourth quarter of 2018, the Company revised its presentation of residential mortgage banking activities and variable expenses on residential mortgage banking activities within our Consolidated Statements of Income and Note 9, which no longer presents these amounts as a net amount. Prior period numbers were revised to conform to the new presentation and to be consistent with our current period’s presentation.

As described in Note 25, effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. These organizational changes resulted in securitization activities on originated SBC and SBA loans being transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on the loan type. These organizational changes also resulted in the Company presenting Corporate- Other amounts separately and no longer reflecting these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

Cash and Cash Equivalents

The Company has accounted for cash and cash equivalents in accordance with ASC 305, Cash and Cash Equivalents.The Company defines cash and cash equivalents as cash, demand deposits, and short-term, highly liquid investments with original maturities of 90 days or less when purchased. Cash and cash equivalents are exposed to concentrations of credit risk. We deposit our cash with institutions that we believe to have highly valuable and defensible business franchises, strong financial fundamentals, and predictable and stable operating environments.

As of December 31, 2018 and 2017, the Company had $0.6 million and $0.6 million, respectively, in money market mutual funds, and substantially all of the Company’s cash and cash equivalents not held in money market funds were comprised of cash balances with banks that are in excess of the Federal Deposit Insurance Corporation insurance limits.

Restricted Cash

Restricted cash represents cash held by the Company as collateral against its derivatives, borrowings under repurchase agreements, borrowings under credit facilities with counterparties, construction and mortgage escrows, as well as cash held for remittance on loans serviced for third parties. Restricted cash is not available for general corporate purposes, but may be applied against amounts due to counterparties under existing swaps and repurchase agreement borrowings, or returned to the Company when the restriction requirements no longer exist or at the maturity of the swap or repurchase agreement. 

Short term investments

The Company accounts for short-term investments as trading securities under ASC 320, Investments-Debt and Equity Securities. Short-term investments consist of U.S. Treasury Bills with original maturities of less than a year but greater than three months. The Company holds short-term investments at fair value. Interest received and accrued as well as the accretion of purchase discount in connection with short-term investments is recorded as interest income on the consolidated statements of income. Changes in the fair value of short-term investments are recorded as net unrealized gain (loss) on the consolidated statements of income.

Loans, net

Loans, net consists of loans, held-for-investment, net of allowance for loan losses, and loans, held at fair value.

Loans, held-for-investment

Loans, held-for-investment are loans acquired from third parties (“acquired loans”), loans originated by ReadyCap that we do not intend to sell, or securitized loans that were previously originated by ReadyCap. Securitized loans remain on the Company’s balance sheet because the securitization vehicles are consolidated under ASC 810.

Acquired loans are recorded at cost at the time they are acquired. Acquired loans are accounted for in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) and referred to as “purchased credit impaired loans” (PCI loans) if both of the following conditions are met as of the acquisition date: (i) there is evidence of deterioration in credit quality of the loan since its origination and (ii) it is probable that we will not collect all contractual cash flows on the loan.

Acquired loans without evidence of these conditions, securitized loans, and loans originated by ReadyCap that we do not intend to sell are accounted for under ASC 310-10, Receivables-Overall, (“ASC 310-10”) and are referred to as “Non-purchased credit impaired loans” (non-PCI loans).

Purchased Credit Impaired (PCI) Loans

The estimated cash flow expected for each loan is estimated at the time the loan is acquired. The excess of the cash flows expected to be collected on PCI loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected is referred to as the non-accretable difference and is not accreted over time.

The Company estimates expected cash flows to be collected over the life of individual PCI loans on a quarterly basis. If the Company determines that discounted expected cash flows have decreased, the PCI loans would be considered impaired, which would result in a provision for loan loss and a corresponding increase in the allowance for loan losses.

If discounted expected cash flows have increased, or improved, in subsequent evaluations, the increase in cash flows is first used to reverse the amount of any related allowance for loan losses before the yield is adjusted. Additionally, the Company will increase the accretable yield to account for the increase in expected cash flows.

The estimate of the amount and timing of cash flows for our PCI loans is based on historical information available and expected future performance of the loans, and may include the timing of expected future cash flows, prepayment speed, default rates, loss severities, delinquency rates, percentage of non-performing loans, extent of credit support available, Fair Isaac Corporation scores at loan origination, year of origination, loan-to-value ratios, geographic concentrations, as well as reports by credit rating agencies, such as Moody’s, Standard & Poor’s Corporation, or Fitch, general market assessments and dialogue with market participants. As a result, substantial judgment is used in the analysis to determine the expected cash flows.

Non-PCI Loans

The Company uses the interest method to recognize, as a constant effective yield adjustment, the difference between the initial recorded investment in the loan and the principal amount of the loan. The calculation of the constant effective yield necessary to apply the interest method uses the payment terms required by the loan contract, and prepayments of principal are not anticipated to shorten the loan term.

For non-PCI loans, recognition of interest income is suspended when any loans are placed on non-accrual status. Generally, all classes of loans are placed on non-accrual status when principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Interest income accrued, but not collected, at the date loans are placed on non-accrual status is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.

Loans, held at fair value

Loans, held at fair value represent certain loans originated by ReadyCap for which the Company has elected the fair value option. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. Changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income.

Allowance for loan losses

The allowance for loan losses is intended to provide for credit losses inherent in the loans, held-for-investment portfolio and is reviewed quarterly for adequacy considering credit quality indicators, including probable and historical losses, collateral values, loan-to-value ratio and economic conditions. The allowance for loan losses is increased through provisions for loan losses charged to earnings and reduced by charge-offs, net of recoveries.

We determine the allowance for loan losses by measuring credit impairment on (1) an individual basis for non-accrual status loans, and (2) on a collective basis for all other loans with similar risk characteristics. The allowance for loan losses on an individual basis is assessed when a loan is on non-accrual and the recoverability of the loan is less than its carrying value. The Company considers the loans to be collateral dependent and relies on the current fair value of the collateral as the basis for determining impairment. Loans that are not assessed individually for impairment are assessed on a collective basis. For the acquired loans we perform a historical analysis on both cumulative defaults and severity upon default for all loans that were current as of November 4, 2013 when the Company was formed or acquired thereafter. We calculated the cumulative default and loss severity on the acquired loans with delinquency statuses of 90+ days and applied those factors to the current acquired loan population. For the originated loans, our historical data shows a minimal number of defaults, therefore we used an analysis performed on the latest ReadyCap securitization to determine the likelihood of default and to determine loss severity we stressed collateral value to the current principal balance based on the total valuation decline of SBC properties from the peak valuation in 2007 through their post-crisis low in 2010.

The determination of allowances for SBA loans is based upon the assignment of a probability of default on a rating scale. Each loan rating is re-evaluated at least annually for loan performance, underlying borrower financial performance or data from third party credit bureaus. The probability of default is compared to the underlying collateral value securing each loan and compared to each loan carrying value to calculate a loss estimate. Collectively the estimated probability of default and recovery value is compared to actual portfolio default and recovery rates as well as economic factors and adjusted when needed.

The determination of whether an allowance for loan loss is necessary is based on whether or not there is a decrease in cash flows based on consideration of factual information available at the time of assessment as well as management’s estimates of the future performance and projected amount and timing of cash flows expected to be collected on the loan.

While we have a formal methodology to determine the adequate and appropriate level of the allowance for loan 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 loan 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 loan losses.

Non-accrual loans

Non-accrual loans are the loans for which we are not accruing or accreting interest income. Non-accrual loans include non-PCI loans when principal or interest has been delinquent for 90 days or more or when it is determined that full collection of contractual cash flows is not probable. Additionally, PCI loans for which the Company is unable to reasonably estimate the timing and amount of expected cash flows are considered to be non-accrual loans. 

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, we grant concessions for a period of time to the borrower that we would not otherwise consider, the related loans are classified as troubled debt restructurings (“TDR”). These modified terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of collateral. For modifications where we forgive principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs, are considered impaired loans. Other than resolutions such as foreclosures and sales, we may remove loans held-for-investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.

Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.

Impaired loans

The Company considers a loan to be impaired when the Company does not expect to collect all of the contractual interest and principal payments as scheduled in the loan agreements. This includes certain non-PCI loans where we do not expect to collect all of the contractual interest and principal payments, as well as PCI loans, which experienced credit deterioration prior to acquisition.

Loans, held for sale, at fair value

Loans, held for sale, at fair value are loans that are expected to be sold to third parties in the near term. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. For loans originated by our SBC originations and SBA originations segments, changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income. For originated SBA loans, the guaranteed portion is held for sale, at fair value. For loans originated by GMFS, changes in fair value are reported as residential mortgage banking activities on the consolidated statements of income. 

Mortgage backed securities, at fair value

The Company accounts for MBS as trading securities and are carried at fair value under ASC 320, Investments-Debt and Equity Securities. Our MBS portfolio is comprised of asset-backed securities collateralized by interest in or obligations backed by pools of SBC loans.

Purchases and sales of MBS are recorded on the trade date. Our MBS securities pledged as collateral against borrowings under repurchase agreements are included in mortgage backed securities, at fair value on our consolidated balance sheets.

MBS are recorded at fair value as determined by market prices provided by independent broker dealers or other independent valuation service providers. The fair values assigned to these investments are based upon available information and may not reflect amounts that may be realized. We generally intend to hold our investment in MBS to generate interest income; however, we have and may continue to sell certain of our investment securities as part of the overall management of our assets and liabilities and operating our business.

Loans eligible for repurchase from Ginnie Mae

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company then records the right to repurchase the loan as an asset and liability in its consolidated balance sheets. Such amounts reflect the unpaid principal balance of the loans.

Derivative instruments, at fair value

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we utilize derivative financial instruments, currently comprised of credit default swaps (“CDSs”), interest rate swaps, and interest rate lock commitments (“IRLCs”) as part of our risk management. The Company accounts for derivative instruments under ASC 815, Derivatives and Hedges.

All derivatives are reported as either assets or liabilities on the consolidated balance sheets at the estimated fair value with the changes in the fair value recorded in earnings unless hedge accounting is elected.

Although permitted under certain circumstances, generally the Company does not offset cash collateral receivable or payables against our gross derivative positions. As of December 31, 2018 and 2017, the cash collateral receivable held for derivatives is $11.6 million and $0.8 million, respectively, and is included in restricted cash on the consolidated balance sheets.

Interest Rate Swap Agreements

An interest rate swap is an agreement between two counterparties to exchange periodic interest payments where one party to the contract makes a fixed-rate payment in exchange for a floating-rate payment from the other party. The dollar amount each party pays is an agreed-upon periodic interest rate multiplied by some pre-determined dollar principal (notional amount). No principal (notional amount) is exchanged between the two parties at trade initiation date. Only interest payments are exchanged. Interest rate swaps are classified as Level 2 in the fair value hierarchy. The fair value adjustments, along with the related interest income or interest expense, are reported as net gain/(loss) on financial instruments.

Interest Rate Lock Commitments (“IRLCs”)

IRLCs are agreements under which GMFS agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Unrealized gains and losses on the IRLCs, reflected as derivative assets and derivative liabilities, respectively, are measured based on the value of the underlying mortgage loan, quoted government-sponsored enterprise (Fannie Mae, Freddie Mac, and the Government National Mortgage Association ((“Ginnie Mae”), collectively, “GSEs”) or MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The realized and unrealized gains or losses are reported on the consolidated statements of income as residential mortgage banking activities. IRLCs are classified as Level 3 in the fair value hierarchy.

CDS

CDS are contracts between two parties, a protection buyer who makes fixed periodic payments, and a protection seller, who collects the premium in exchange for making the protection buyer whole in the case of default. The fair value adjustments, along with the related interest income or interest expense, are reported as gain/(loss) on financial instruments. CDS are classified as Level 2 in the fair value hierarchy.

Hedge Accounting

      We account for our hedging activities in accordance with ASC 815, Derivatives and Hedging. As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk, such as interest rate risk, that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability, or forecasted transaction that may affect earnings.

     To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged. We use cash flow hedges to hedge the exposure to variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations. ASC 815-20-25-15(a) defines a forecasted transaction as: 1) a single transaction, or 2) a group of individual transactions that share the same risk exposures for which they are designated as being hedged. Hedges of forecasted transactions are considered cash flow hedges since the price is not fixed, hence involve variability of cash flows.

     For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income/(loss) ("OCI") and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income / (loss) ("AOCI") is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast (including an additional two month window), any related derivative values recorded in AOCI are immediately recognized in earnings. Hedge accounting is generally terminated at the debt issuance date because we are no longer exposed to cash flow variability subsequent to issuance. Accumulated amounts recorded in AOCI at that date are then released to earnings in future periods to reflect the difference in 1) the fixed rates economically locked in at the inception of the hedge and 2) the actual fixed rates established in the debt instrument at issuance. Because of the effects of the time value of money, the actual interest expense reported in earnings will not equal the effective yield locked in at hedge inception multiplied by the par value. Similarly, this hedging strategy does not actually fix the interest payments associated with the forecasted debt issuance.

Servicing rights

Servicing rights initially represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the servicing right asset against contractual servicing and ancillary fee income.

Servicing rights are recognized upon sale of loans, including a securitization of loans accounted for as a sale in accordance with GAAP, if servicing is retained. For servicing rights, gains related to servicing rights retained is included in net realized gain/(loss) on the consolidated statements of income. For residential mortgage servicing rights, gains on servicing rights retained upon sale of a loan are included in residential mortgage banking activities on the consolidated statements of income.

The Company treats its servicing rights and residential mortgage servicing rights as two separate classes of servicing assets based on the class of the underlying mortgages and it treats these assets as two separate pools for risk management purposes. Servicing rights relating to the Company’s servicing of loans guaranteed by the SBA under its Section 7(a) loan program and servicing rights related to the Freddie Mac program are accounted for under ASC 860, Transfers and Servicing, while the Company’s residential mortgage servicing rights are accounted for under the fair value option under ASC 825, Financial Instruments.

Servicing rights – SBA and Freddie Mac

SBA and Freddie Mac servicing rights are initially recorded at fair value and subsequently carried at amortized cost. We capitalize the value expected to be realized from performing specified servicing activities for others. Servicing rights are amortized in proportion to and over the period of estimated servicing income, and are evaluated for potential impairment quarterly.

For purposes of testing our servicing rights 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 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 leverage all available relevant market data to determine the fair value of our recognized servicing assets. Since quoted market prices for servicing rights are not readily available, we estimate the fair value of servicing rights by determining the present value of future expected servicing cash flows using modeling techniques that incorporate management's best estimates of key variables including estimates regarding future net servicing cash flows, forecasted loan prepayment rates, delinquency rates, and return requirements commensurate with the risks involved. Cash flow assumptions are modeled using our internally forecasted revenue and expenses, and where possible, the reasonableness of assumptions is periodically validated through comparisons to market data. Prepayment speed estimates are determined from historical prepayment rates or obtained from third-party industry data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread. We also consider other factors that can impact the value of the servicing rights, such as surety provider termination clauses and servicer terminations that could result if we failed to materially comply with the covenants or conditions of our servicing agreements and did not remedy the failure. Since many factors can affect the estimate of the fair value of servicing rights, we regularly evaluate the major assumptions and modeling techniques used in our estimate and review these assumptions against market comparables, if available. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and prepayment experience to modeled estimates.

Servicing rights - Residential (carried at fair value)

The Company’s residential mortgage servicing rights consist of conforming conventional residential loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Government insured loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veterans Affairs.

The Company has elected to account for its portfolio of residential MSRs at fair value. For these assets, the Company uses a third-party vendor to assist management in estimating the fair value. The third-party vendor uses a discounted cash flow approach which consists of projecting servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment rates, discount rates, default rates, and cost of servicing rates. Residential MSRs are classified as Level 3 in the fair value hierarchy. 

Intangible assets

Intangible assets are accounted for under ASC 350, Intangibles-Goodwill and Other. As of December 31, 2018 and 2017, the Company’s identifiable intangible assets include SBA license for our lending operations as well as a trade name, a favorable lease, and other licenses relating to our residential mortgage banking segment, obtained as part of the ZAIS Financial merger transaction. The Company determined that its SBA license has an indefinite life, while the other intangibles acquired as part of the ZAIS Financial merger transaction are finite-lived. The Company amortizes intangible assets with identified estimated useful lives on a straight-line basis over their estimated useful lives. The Company initially records its intangible assets at cost and subsequently tests for impairment on an annual basis. Intangible assets are included within other assets on the consolidated balance sheets.

Investment in unconsolidated joint venture

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, which the Company has a 50% interest. According to ASC 323, Equity Method and Joint Ventures, investors in unincorporated entities such as partnerships and unincorporated joint ventures generally shall account for their investments using the equity method of accounting if the investor has the ability to exercise significant influence over the investee. Under the equity method, we recognize our share of the earnings or losses of the investment monthly in earnings and adjust the carrying amount for our share of the distributions that exceed our earnings.

Pursuant to the consolidation guidance, we determined our interest in the entity is a VIE, however, we do not consolidate the entity as we determined that we are not the primary beneficiary. The Company is determined to be the primary beneficiary only when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Deferred financing costs

Costs incurred in connection with our secured borrowings are accounted for under ASC 340, Other Assets and Deferred Costs. Deferred costs are capitalized and amortized using the effective interest method over the respective financing term with such amortization reflected on our consolidated statements of income as a component of interest expense. Our deferred financing costs may include legal, accounting and other related fees. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Pursuant to the adoption of ASU 2015-03, unamortized deferred financing costs related to securitizations and note issuances are presented on the consolidated balance sheets as a direct deduction from the associated liability.

Due from Servicers

The loan-servicing activities of the Company’s SBC Loan Acquisitions and SBC Originations reportable segments are performed primarily by third-party servicers. SBA loans originated by and held at RCL are internally serviced. Residential mortgage loans originated by and held at GMFS are both serviced by third-party servicers and internally serviced. The Company’s servicers hold substantially all of the cash owned by the Company related to loan servicing activities. These amounts include principal and interest payments made by borrowers, net of advances and servicing fees. Cash is generally received within thirty days of recording the receivable.

The Company is subject to credit risk to the extent any servicer with whom the Company conducts business is unable to deliver cash balances or process loan-related transactions on the Company’s behalf. The Company monitors the financial condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

Secured borrowings

Secured borrowings include borrowings under credit facilities, borrowings under repurchase agreements, and promissory notes.

Borrowings under credit facilities

The Company accounts for borrowings under credit facilities under ASC 470, Debt. The Company partially finances its loans, net through credit agreements with various counterparties. These borrowings are collateralized by loans, held-for-investment, and loans, held for sale, at fair value and have maturity dates within two years from the consolidated balance sheet date. If the fair value (as determined by the applicable counterparty) of the collateral securing these borrowings decreases, we may be subject to margin calls during the period the borrowings are outstanding. In instances where we do not satisfy the margin calls within the required time frame, the counterparty may retain the collateral and pursue collection of any outstanding debt amount from us. Interest paid and accrued in connection with credit facilities is recorded as interest expense on the consolidated statements of income.

Borrowing under repurchase agreements

Borrowings under repurchase agreements are accounted for under ASC 860, Transfers and Servicing. Investment securities financed under repurchase agreements are treated as collateralized borrowings, unless they meet sale treatment or are deemed to be linked transactions. Through December 31, 2018, none of our repurchase agreements have been accounted for as components of linked transactions. All securities financed through a repurchase agreement have remained on our consolidated balance sheets as an asset and cash received from the lender was recorded on our consolidated balance sheets as a liability. Interest paid and accrued in connection with our repurchase agreements is recorded as interest expense on the consolidated statements of income.

Securitized debt obligations of consolidated VIEs, net

Since 2011, we have engaged in several securitization transactions, which the Company accounts for under ASC 810. Securitization involves transferring assets to an SPE, or securitization trust, to convert all or a portion of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt instruments. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The consolidation of the SPE includes the issuance of senior securities to third parties, which are shown as securitized debt obligations of consolidated VIEs on the consolidated balance sheets.

Debt issuance costs related to securitizations are presented as a direct deduction from the carrying value of the related debt liability. Debt issuance costs are amortized using the effective interest method and are included in interest expense on the consolidated financial statements.

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the convertible senior notes have been reflected within additional paid-in capital in our consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our consolidated balance sheets.

Senior secured notes, net

The Company accounts for secured debt offerings under ASC 470, Debt. Pursuant to the adoption of ASU 2015-03, the Company’s senior secured notes are is presented net of debt issuance costs. These senior secured notes are collateralized by loans, MBS, and retained interests of consolidated VIE’s. Interest paid and accrued in connection with senior secured notes is recorded as interest expense on the consolidated statements of income.

Corporate debt, net

The Company accounts for corporate debt offerings under ASC 470, Debt. The Company’s corporate debt is presented net of debt issuance costs. Interest paid and accrued in connection with corporate debt is recorded as interest expense on the consolidated statements of income.

Guaranteed loan financing

Certain partial loan sales do not qualify for sale accounting under ASC 860, Transfers and Servicing because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated balance sheets and the proceeds from the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

Contingent consideration

Contingent consideration represents future payments of cash or equity interests to the former owners of GMFS, which was acquired on October 31, 2016. The contingent consideration was initially recorded on the date of acquisition at fair value in the consolidated balance sheet and is subsequently remeasured each reporting period at fair value with the change in the fair value recorded in earnings in the accompanying consolidated statements of income.

Repair and denial reserve

The repair and denial reserve represents the potential liability to the SBA in the event that we are required to make the SBA whole for reimbursement of the guaranteed portion of SBA loans. We may be responsible for the guaranteed portion of SBA loans if there are lien and collateral issues, unauthorized use of proceeds, liquidation deficiencies, undocumented servicing actions or denial of SBA eligibility. This reserve is calculated using an estimated frequency of a repair and denial event upon default, as well as an estimate of the severity of the repair and denial as a percentage of the guaranteed balance.

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The entity that has a financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. An entity is deemed to be the primary beneficiary of a VIE if the entity has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

In determining whether we are the primary beneficiary of a VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE, such as our role establishing the VIE and our ongoing rights and responsibilities, the design of the VIE, our economic interests, servicing fees and servicing responsibilities, and other factors.

We perform ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of our involvement with the entity result in a change to the VIE designation or a change to our consolidation conclusion. 

Non-controlling Interests

Non-controlling interests, which are presented on the consolidated balance sheets and the consolidated statements of income, represent direct investment in the Operating Partnership by Sutherland OP Holdings II, Ltd., which is managed by our Manager, and third parties.

Fair Value Option

The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.

We have elected the fair value option for certain loans held-for-sale originated by ReadyCap that the Company intends to sell in the near term. The fair value elections for loans, held for sale, at fair value originated by ReadyCap were made due to the short-term nature of these instruments.

We have elected the fair value option for loans held-for-sale originated by GMFS that the Company intends to sell in the near term. We have elected the fair value option for certain residential mortgage servicing rights acquired as part of the merger transaction.

Earnings per Share

We present both basic and diluted earnings per share (“EPS”) amounts in our consolidated financial statements of income. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted stock awards (“RSAs”), as well as “in-the-money” conversion options associated with our outstanding convertible senior notes. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

All of the Company’s unvested RSUs and unvested RSAs contain rights to receive non-forfeitable dividends and, thus, are participating securities. Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities.

Income Taxes

GAAP establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s consolidated financial statements or tax returns. We assess the recoverability of deferred tax assets through evaluation of carryback availability, projected taxable income and other factors as applicable. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns as well as the recoverability of amounts we record, including deferred tax assets.

We provide for exposure in connection with uncertain tax positions, which requires significant judgment by management including determination, based on the weight of the tax law and available evidence, that it is more-likely-than-not that a tax result will be realized. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense on our consolidated statements of income. As of December 31, 2018 and 2017, we accrued no taxes, interest or penalties related to uncertain tax positions. In addition, we do not anticipate a change in this position in the next 12 months. 

Revenue Recognition

On January 1, 2018, new accounting rules regarding revenue recognition became effective for public companies with a calendar fiscal year.  Under the new accounting rules regarding revenue, revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized through the following five-step process:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Since the updated guidance does not apply to revenue associated with financial instruments, including interest income, realized or unrealized gains on financial instruments, loan servicing fees, loan origination fees, among other revenue streams, the adoption of this standard did not have a material impact on our consolidated financial statements. The revenue recognition guidance also included revisions to existing accounting rules regarding the determination of whether a company is acting as a principal or agent in an arrangement and accounting for sales of nonfinancial assets where the seller has continuing involvement.  These additional revisions also did not materially impact the Company.

Interest Income

Interest income on non-PCI loans, held-for-investment, loans, held at fair value, loans, held for sale, at fair value, and MBS, at fair value is accrued based on the outstanding principal amount and contractual terms of the instrument. Discounts or premiums associated with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on contractual cash flows through the maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to the accrual status of the asset. If the asset has been delinquent for the previous 90 days, the asset status will turn to non-accrual, and recognition of interest income will be suspended until the asset resumes contractual payments for three consecutive months. For PCI loans, the excess of the cash flows expected to be collected on these loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion.

Realized Gains (Losses)

Upon the sale or disposition (not including the prepayment of outstanding principal balance) of loans or securities, the excess (or deficiency) of net proceeds over the net carrying value or cost basis of such loans or securities is recognized as a realized gain/loss.

Origination Income and Expense

Origination income represents fees received for origination of either loans, held at fair value, loans, held for sale, at fair value, or loans, held-for-investment. For loans held, at fair value, and loans, held for sale, at fair value, pursuant to ASC 825, the Company reports origination fee income as revenue and fees charged and costs incurred as expenses. These fees and costs are excluded from the fair value. For originated loans, held-for-investment, under ASC 310-10, the Company defers these origination fees and costs at origination and amortizes them under the effective interest method over the life of the loan. Origination fees and expenses for ReadyCap loans, held at fair value and loans, held for sale, at fair value, are presented in the consolidated statements of income in other income and operating expenses. Origination fees for residential mortgage loans originated by GMFS are presented in the consolidated statements of income in residential mortgage banking activities, while origination expenses are presented within variable expenses on residential mortgage banking activities. The amortization of net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of income in interest income.

Residential Mortgage Banking Activities

Residential mortgage banking activities, reflects revenue within our residential mortgage banking business directly related to loan origination and sale activity. This primarily consists of the realized gains on sales of residential loans held for sale and loan origination fee income, Residential mortgage banking activities also consists of unrealized gains and losses associated with the changes in fair value of the loans held for sale, the fair value of retained MSR additions, and the realized and unrealized gains and losses from derivative instruments.

Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and is included in residential mortgage banking activities, in the consolidated statements of income. Sales proceeds reflect the cash received from investors from the sale of a loan plus the servicing release premium if the related MSR is sold. Gains and losses also includes the unrealized gains and losses associated with the mortgage loans held for sale and the realized and unrealized gains and losses from IRLCs.

Loan origination fee income represents revenue earned from originating mortgage loans held for sale and are reflected in residential mortgage banking activities, when loans are sold.

Variable Expenses on Residential Mortgage Banking Activities

Loan expenses include indirect costs related to loan origination activities, such as correspondent fees, and are expensed as incurred and are included within variable expenses on residential mortgage banking activities on the Company’s consolidated statements of income. The provision for loan indemnification includes the fair value of the incurred liability for mortgage repurchases and indemnifications recognized at the time of loan sale and any other provisions recorded against the loan indemnification reserve. Loan origination costs directly attributable to the processing, underwriting, and closing of a loan are included in the gain on sale of mortgage loans held for sale when loans are sold. 

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Recently Issued Accounting Pronouncements

12 Months Ended

Dec. 31, 2018

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Note 4 – Recently Issued Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Standards adopted during 2018

Standard	Summary of guidance		Effects on financial statements
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)		Outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.		Since the guidance does not apply to revenue associated with financial instruments, including loans and securities, and other contractual rights or obligations within the scope of ASC 860, Transfers and Servicing, the adoption of this standard on a modified retrospective basis on January 1, 2018 did not have a material impact on our consolidated financial statements.
Issued May 2014
ASU 2017-09, Compensation—Stock Compensation (Topic 718) Scope of Modification Accounting		Provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.		The adoption of this standard had no impact on our consolidated financial statements since there were no modifications. This ASU required prospective adoption, therefore, any future award changes will be evaluated under the amended guidance.
Issued May 2017
ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments		Provides guidance on the disclosure and classification of certain items within the statement of cash flows, including beneficial interests obtained in a securitization of financial assets, debt prepayment or extinguishment costs, and distributions received from equity-method investees.		The retrospective adoption of this standard did not have a material impact on our consolidated financial statements.  We chose the cumulative earnings approach for distributions received from equity method investees, which did not result in any changes in the way we account for such distributions since there were no equity method investments held prior to Q4 of 2017.
Issued August 2016
ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory		Requires that an entity recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of the transfer instead of deferring the tax consequences until the asset has been sold to an outside party, as current GAAP requires.		The modified retrospective adoption of this standard did not have a material impact on our consolidated financial statements.
Issued October 2016
ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business		This ASU results in most real estate acquisitions no longer being considered business combinations and instead being accounted for as asset acquisitions.		The adoption of this standard did not have a material impact on our consolidated financial statements. This ASU required prospective adoption, therefore, any future acquisitions will be evaluated under the amended guidance.
Issued January 2017
ASU 2017-05, Other Income – Gains and Losses from the De-recognition of Nonfinancial Assets		Requires that all entities account for the de-recognition of a business in accordance with ASC 810, including instances in which the business is considered in substance real estate.		The retrospective adoption of this standard did not have a material impact on our consolidated financial statements.
Issued February 2017
ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash		Requires that restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.		The adoption of this standard on a retrospective basis resulted in reclassifying restricted cash out of investing activities (and financing activities for restricted cash within consolidated variable interest entities) and is now included within cash and cash equivalents on the consolidated statement of cash flows. The following table shows the impact of the adoption of this guidance.
Issued November 2016

On January 1, 2018, Ready Capital adopted Accounting Standard Update No. 2016-18: Statement of Cash Flows—Restricted Cash ("ASU 2016-18"). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The adoption of the ASU 2016-18 amendments resulted in a change to the consolidated statement of cash flows for the years ended December 31, 2017 and 2016. The following table provides information regarding Ready Capital's cash flows for the years ended December 31, 2017 and 2016, adjusted to reflect ASU 2016-18 (in thousands):

(In Thousands)	Year Ended December 31, 2017		Year Ended December 31, 2016
Net cash provided by operating activities	$	352,489	$	16,482
Net cash (used in) provided by operating activities of discontinued operations		-		(1,719)
Net cash (used in) provided by investing activities		(235,728)		389,574
Net cash (used in) provided by financing activities		(106,502)		(381,356)
Net increase (decrease) in cash, cash equivalents and restricted cash		10,259		22,981
Cash, cash equivalents and restricted cash - beginning of year		80,695		57,714
Cash, cash equivalents and restricted cash - end of year	$	90,954	$	80,695

FASB Standards issued, but not yet adopted

Standard	Summary of guidance		Effects on financial statements
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments		Requires the use of an “expected loss” credit model for estimating future credit losses of certain financial instruments instead of the “incurred loss” credit model that existing GAAP currently requires.		Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018.
Issued June 2016		The “expected loss” model requires the consideration of possible credit losses over the life of an instrument compared to only estimating credit losses upon the occurrence of a discrete loss event in accordance with the current “incurred loss” methodology.		The Company is evaluating the impact ASU 2016-13 will have on our consolidated financial statements.
ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)—Accounting for Certain Financial Instruments with Down Round Features		Provides guidance which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.		Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2018. Early adoption is permitted.
Issued July 2017		When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock.		This standard currently would not have an impact on our consolidated financial statements. None of our issued equity or debt (in particular our convertible notes), contain down round features.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities		Provides guidance on simplifying the accounting and presentation for hedging activities.		Required effective date: For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
Issued August 2017				This standard currently would have a minimal impact on our financial statements, as the change would simplify hedge documentation requirements and presentation associated with hedging activities, but would not affect the financial statement impact of hedge accounting.
ASU 2018-11, Leases (Topic 842): Targeted Improvements to Accounting for Leases		Provides guidance on increasing the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions.		Required effective date: The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842.
Issued July 2018				Based on the implementation efforts to date, the Company expects a gross up of approximately $2.1 million its consolidated balance sheet upon recognition of the right-of-use assets and lease liabilities.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement		Provides guidance on increasing the transparency and comparability of the disclosure requirements for fair value measurement.		Required effective date: The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
Issued August 2018				The Company is evaluating the impact ASU 2018-13 will have on our consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract		Provides guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.		Required effective date: The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and interim periods within those fiscal years.
		An intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred.		The Company is evaluating the impact ASU 2018-15 will have on our consolidated financial statements. Based on our implementation efforts to date, we do not believe this update will have a material impact on our consolidated financial statements.

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Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2018

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 5 – Loans and Allowance for Loan Losses

The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Company accounts for loans based on the following loan program categories:

· Originated or purchased loans held-for-investment, other than PCI loans – originated transitional loans, originated conventional SBC and SBA loans that have been securitized, or acquired loans with no signs of credit deterioration at time of purchase.

· Loans at fair value – certain originated conventional SBC loans for which the Company has elected the fair value option

· Loans, held-for-sale, at fair value – originated or acquired that we intend to sell in the near term

· PCI loans held-for-investment – acquired loans with signs of credit deterioration at time of purchase

Loan Portfolio

The following table summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs:

	December 31, 2018				December 31, 2017
Loans (In Thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Acquired SBA 7(a) loans	$	264,308	$	283,423	$	331,083	$	353,556
Acquired loans		206,983		215,213		191,327		209,694
Originated Transitional loans		272,981		275,237		246,076		248,190
Originated SBC loans, at fair value		22,664		22,325		188,150		182,045
Originated SBC loans		345,100		342,751		27,610		27,349
Originated SBA 7(a) loans		85,569		89,733		41,208		43,439
Originated Residential Agency loans		1,899		1,900		2,013		2,014
Total Loans, before allowance for loan losses	$	1,199,504	$	1,230,582	$	1,027,467	$	1,066,287
Allowance for loan losses	$	(6,112)		—	$	(9,547)		—
Total Loans, net	$	1,193,392	$	1,230,582	$	1,017,920	$	1,066,287
Loans in consolidated VIEs
Loans
Originated SBC loans	$	432,308	$	422,897	$	382,873	$	373,996
Acquired loans		343,156		354,794		189,545		204,497
Acquired SBA 7(a) loans		55,966		74,554		69,523		95,605
Originated Transitional loans		391,752		393,116		196,438		196,070
Total Loans, in consolidated VIEs, before allowance for loan losses	$	1,223,182	$	1,245,361	$	838,379	$	870,168
Allowance for loan losses on loans in consolidated VIEs	$	(2,208)		—	$	(2,199)		—
Total Loans, net, in consolidated VIEs	$	1,220,974	$	1,245,361	$	836,180	$	870,168
Total Loans, net, and Loans, net in consolidated VIEs	$	2,414,366	$	2,475,943	$	1,854,100	$	1,936,455
Loans, held for sale, at fair value
Originated Residential Agency loans	$	67,775	$	65,586	$	129,096	$	124,758
Originated Freddie Mac loans		23,322		22,973		67,591		66,642
Originated SBA 7(a) loans		21,153		19,669		16,791		15,472
Acquired loans		3,008		2,935		2,544		2,662
Total Loans, held for sale, at fair value	$	115,258	$	111,163	$	216,022	$	209,534
Total Loan portfolio	$	2,529,624	$	2,587,106	$	2,070,122	$	2,145,989

Credit Quality Indicators

The Company monitors credit quality of our loan portfolio based on primary credit quality indicators. Delinquency rates are a primary credit quality indicator for our types of loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear that the borrower is likely either unable or unwilling to pay.

The following tables display delinquency information on loans, net as of the consolidated balance sheet dates:

	December 31, 2018
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	299,080	$	14,943	$	4,465	$	318,488	$	17,916	$	1,043
Acquired loans		524,930		7,213		13,552		545,695		11,447		3,811
Originated Transitional loans		659,103		5,630		—		664,733		—		—
Originated SBC loans, at fair value		22,664		—		—		22,664		—		—
Originated SBC loans		748,146		12,367		16,895		777,408		16,895		—
Originated SBA 7(a) loans		83,076		2,178		162		85,416		1,666		—
Originated Residential Agency loans		337		—		1,562		1,899		1,562		—
Total Loans, before general allowance for loans losses	$	2,337,336	$	42,331	$	36,636	$	2,416,303	$	49,486	$	4,854
General allowance for loan losses							$	(1,937)
Total Loans, net							$	2,414,366
Percentage of outstanding		96.7%		1.8%		1.5%		100%		2.0%		0.2%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

	December 31, 2017
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	376,102	$	15,953	$	5,542	$	397,597	$	16,782	$	176
Acquired loans		348,271		6,891		19,263		374,425		16,405		4,090
Originated Transitional loans		435,252		7,263		—		442,515		—		—
Originated SBC loans, at fair value		188,150		—		—		188,150		—		—
Originated SBC loans		402,004		7,702		608		410,314		608		—
Originated SBA 7(a) loans		40,871		311		—		41,182		671		—
Originated Residential Agency loans		1,226		—		787		2,013		289		498
Total Loans, before allowance for loans losses	$	1,791,876	$	38,120	$	26,200	$	1,856,196	$	34,755	$	4,764
General allowance for loan losses							$	(2,096)
Total Loans, net							$	1,854,100
Percentage of outstanding		96.5%		2.1%		1.4%		100%		1.9%		0.3%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

      In addition to delinquency rates, the current estimated LTV ratio is another indicator that can provide insight into a borrower’s continued willingness to pay, as the delinquency rate of high LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, property price changes and specific events such as natural disasters, will affect credit quality. The Company monitors the loan-to-value ratio and associated risks on a monthly basis.

      The following tables presents quantitative information on the credit quality of loans, net as of December 31, 2018 and December 31, 2017:

	Loan-to-Value  (a)
(In Thousands)	0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total
December 31, 2018
Loans(1) (2)
Acquired SBA 7(a) loans	$	6,337	$	38,150	$	100,578	$	93,411	$	33,750	$	46,262	$	318,488
Acquired loans		118,198		165,567		136,206		70,017		40,003		15,704		545,695
Originated Transitional loans		—		29,245		178,861		348,967		101,513		6,147		664,733
Originated SBC loans, at fair value		—		8,600		—		6,328		7,736		—		22,664
Originated SBC loans		—		48,259		271,311		457,838		—		—		777,408
Originated SBA 7(a) loans		393		3,200		10,642		24,387		16,473		30,321		85,416
Originated Residential Agency loans		—		—		111		952		734		102		1,899
Total Loans, before general allowance for loans losses	$	124,928	$	293,021	$	697,709	$	1,001,900	$	200,209	$	98,536	$	2,416,303
General allowance for loan losses													$	(1,937)
Total Loans, net													$	2,414,366
December 31, 2017
Loans(1) (2)
Acquired SBA 7(a) loans	$	8,978	$	37,880	$	125,234	$	106,199	$	56,676	$	62,630	$	397,597
Acquired loans		54,463		102,498		114,010		67,037		18,745		17,672		374,425
Originated Transitional loans		—		26,735		171,227		212,830		21,639		10,084		442,515
Originated SBC loans, at fair value		—		17,294		31,245		115,653		21,245		2,713		188,150
Originated SBC loans		2,661		49,281		192,796		158,047		7,529		—		410,314
Originated SBA 7(a) loans		52		954		5,227		15,583		5,766		13,600		41,182
Originated Residential Agency loans		—		60		166		609		823		355		2,013
Total Loans, before allowance for loans losses	$	66,154	$	234,702	$	639,905	$	675,958	$	132,423	$	107,054	$	1,856,196
General allowance for loan losses													$	(2,096)
Total Loans, net													$	1,854,100
(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value
(1) Loan balances include specific allowance for loan loss reserves.
(2) Includes Loans, net in consolidated VIEs

As of December 31, 2018 and 2017, the Company’s total carrying amount of loans in the foreclosure process was $1.4 million and $0.4 million, respectively.

The following table displays the geographic concentration of the Company’s loans, net, secured by real estate recorded on our consolidated balance sheets.

Geographic Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
California	14.1	%	13.5	%
Texas	11.3		12.4
Florida	10.8		11.7
New York	6.3		6.8
Georgia	5.3		6.2
Arizona	5.0		5.1
Illinois	3.8		3.9
Pennsylvania	3.8		2.1
North Carolina	3.7		3.7
Ohio	2.8		2.7
Other	33.1		31.9
Total	100.0	%	100.0	%

The following table displays the collateral type concentration of the Company’s loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Multi-family	23.3	%	21.1	%
Retail	18.5		17.6
SBA(1)	18.1		25.4
Office	15.1		15.6
Mixed Use	9.6		6.3
Industrial	8.2		6.9
Lodging/Residential	2.4		2.9
Other	4.8		4.2
Total	100.0	%	100.0	%
(1) Further detail provided on SBA collateral concentration is included in table below.

The following table displays the collateral type concentration of the Company’s SBA loans within loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Offices of Physicians	17.7	%	16.0	%
Lodging	10.1		10.5
Child Day Care Services	9.9		12.3
Veterinarians	6.8		7.0
Eating Places	5.4		5.5
Grocery Stores	3.8		4.7
Hotels, Motels & Tourist Courts	3.8		0.9
Auto	2.7		3.2
Funeral Service & Crematories	2.3		2.2
Gasoline Service Stations	2.3		1.9
Other	35.2		35.8
Total	100.0	%	100.0	%

Allowance for Loan Losses

The allowance for loan losses represents the Company’s estimate of probable credit losses inherent in the Company’s held-for-investment loan portfolio. This is assessed by considering credit quality indicators, including probable and historical losses, collateral values, loan-to-value (“LTV”) ratios, and economic conditions. The allowance for loan losses includes an asset-specific component, a general formula-based component, and a component related to PCI loans.

The following tables detail the allowance for loan losses by loan product and impairment methodology as of the consolidated balance sheet dates:

	December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	11	$	353	$	608	$	532	$	433	$	1,937
Specific		-		-		1,012		823		153		1,988
PCI		-		-		3,432		963		-		4,395
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	468	$	-	$	819	$	518	$	291	$	2,096
Specific		169		-		586		1,564		27		2,346
PCI		-		-		5,859		1,445		-		7,304
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

The following tables detail the activity of the allowance for loan losses for loans:

	Year ended December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746
Provision for (Recoveries of) loan losses		(457)		353		1,843		(306)		268		1,701
Charge-offs and sales		(169)		-		(1,380)		(903)		-		(2,452)
Recoveries		-		-		(2,675)		-		-		(2,675)
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	Year ended December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	804	$	-	$	10,150	$	5,004	$	172	$	16,130
Provision for loan losses		(166)		-		2,387		(4)		146		2,363
Charge-offs and sales		-		-		(1,356)		(1,473)		-		(2,829)
Recoveries		(1)		-		(3,917)		-		-		(3,918)
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

Impaired Loans - Non-PCI loans

The Company considers a loan to be impaired when the Company does not expect to collect all the contractual and principal payments as scheduled in the loan agreements. Impaired loans include loans that have been modified in a TDR or loans that are placed on non-accrual status. All impaired loans are evaluated for an asset-specific allowance as described in Note 3.

(In Thousands)	December 31, 2018		December 31, 2017
Impaired loans
With an allowance	$	9,734	$	9,222
Without an allowance		33,082		12,659
Total recorded carrying value of impaired loans	$	42,816	$	21,881
Allowance for loan losses related to impaired loans	$	(1,989)	$	(2,346)
Unpaid principal balance of impaired loans	$	49,128	$	29,853
Impaired loans on non-accrual status	$	42,816	$	21,881
Average carrying value of impaired loans	$	36,675	$	28,693
	December 31, 2018		December 31, 2017
Interest income on impaired loans for the year ended	$	966	$	610

Troubled Debt Restructurings

If the borrower is determined to be in financial difficulty, then the Company will determine whether a financial concession has been granted to the borrower by analyzing the value of the loan as compared to the recorded investment, modifications of the interest rate as compared to market rates, modification of the stated maturity date, modification of the timing of principal and interest payments and the partial forgiveness of the loan. Modified loans that are classified as TDRs are individually evaluated and measured for impairment.

The following table summarizes the recorded investment of TDRs on the consolidated balance sheet dates by loan type.

	December 31, 2018						December 31, 2017
(In Thousands)	SBC		SBA		Total		SBC		SBA		Total
Recorded carrying value modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125
Allowance for loan losses on loans classified as TDRs	$	321	$	278	$	599	$	883	$	695	$	1,578
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	$	1,696	$	7,375	$	9,071	$	1,804	$	4,791	$	6,595
Carrying value of modified loans classified as TDRs on non-accrual status		129		9,969		10,098		1,923		7,607		9,530
Total carrying value of modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125

The following table summarizes the TDR activity that occurred during the years ended December 31, 2018 and 2017 and the financial effects of these modifications.

	Year Ended December 31, 2018							Year Ended December 31, 2017
(In Thousands, except number of loans)	SBC		SBA		Total			SBC		SBA		Total
Number of loans permanently modified		1		38		39			14		47		61
Pre-modification recorded balance (a)	$	3,444	$	7,214	$	10,658		$	3,518	$	6,187	$	9,705
Post-modification recorded balance (a)		3,444		7,266		10,710			3,041		6,132		9,173
Number of loans that remain in default as of December 31, 2018 (b)		1		11		12			10		18		28
Balance of loans that remain in default as of December 31, 2018 (b)	$	3,444	$	534	$	3,978		$	1,590	$	672	$	2,262
Concession granted (a):							PY
Term extension	$	-	$	6,844	$	6,844		$	413	$	4,931	$	5,344
Interest rate reduction		-		-		-			100		239		339
Principal reduction		-		7		7			601		286		887
Foreclosure		3,444		181		3,625			920		554		1,474
Total	$	3,444	$	7,032	$	10,476		$	2,034	$	6,010	$	8,044
(a) Represents carrying value.
(b) Represents the December 31, 2018 carrying values of the TDRs that occurred during the year ended December 31, 2018 and 2017 that remained in default as of December 31, 2018. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.  For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.

The Company does not believe the financial impact of the presented TDRs to be material. The other elements of the Company’s modification programs do not have a significant impact on financial results given their relative size, or do not have a direct financial impact as in the case of covenant changes.

Loans, held-for-investment are accounted for under ASC 310-10 or ASC 310-30 depending on whether there is evidence of credit deterioration at the time of acquisition. The outstanding carrying amount of our held-for-investment loan portfolio broken down by ASC 310-10 (non-PCI loans) and ASC 310-30 (PCI loans) is as follows:

	December 31, 2018				December 31, 2017
	Non-PCI		PCI		Non-PCI		PCI
(In Thousands)	Loans		Loans		Loans		Loans
Unpaid principal balance	$	2,361,155	$	92,463	$	1,624,395	$	130,015
Non-accretable discount		-		(6,040)		—		(8,336)
Accretable discount		(31,533)		(16,023)		(44,629)		(23,749)
Loans, held-for-investment		2,329,622		70,400		1,579,766		97,930
Allowance for loan losses		(3,925)		(4,395)		(4,442)		(7,304)
Loans, held-for-investment	$	2,325,697	$	66,005	$	1,575,324	$	90,626

PCI Loans

The following table details the activity of the accretable yield on PCI loans, held-for-investment. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable loans.

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning accretable discount- PCI loans	$	23,749	$	26,978
Purchases/Originations		514		1,234
Sales		(2,554)		(2,835)
Accretion		(5,123)		(4,735)
Other		726		1,466
Transfers		(1,289)		1,641
Ending accretable discount- PCI loans	$	16,023	$	23,749

In 2017, the Company acquired credit impaired loans with contractually required principal and interest payments receivable of $12.5 million; expected cash flows of $8.9 million; and a fair value (initial carrying amount) of $6.2 million. In 2018, the Company acquired credit impaired loans with contractually required principal and interest payments receivable of $4.1 million; expected cash flows of $1.8 million; and a fair value (initial carrying amount) of $1.4 million.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Fair Value Measurements

Fair Value Measurements

Note 6 – Fair Value Measurements

The Company adopted the provisions of ASC 820 Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2018:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	586	$	—	$	—	$	586
Loans, held for sale, at fair value		—		115,258		—		115,258
Loans, net, at fair value		—		—		22,664		22,664
Mortgage backed securities, at fair value		—		79,789		12,148		91,937
Derivative instruments, at fair value		—		294		1,776		2,070
Residential mortgage servicing rights, at fair value		—		—		93,065		93,065
Total assets	$	586	$	195,341	$	129,653	$	325,580
Liabilities:
Derivative instruments, at fair value	$	—	$	3,625	$	—	$	3,625
Contingent consideration		—		—		1,207		1,207
Total liabilities	$	—	$	3,625	$	1,207	$	4,832

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2017:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	632	$	—	$	—	$	632
Loans, held for sale, at fair value		—		216,022		—		216,022
Loans, net, at fair value		—		—		188,150		188,150
Mortgage backed securities, at fair value		—		31,859		8,063		39,922
Derivative instruments, at fair value		—		2,898		1,827		4,725
Residential mortgage servicing rights, at fair value		—		—		72,295		72,295
Total assets	$	632	$	250,779	$	270,335	$	521,746
Liabilities:
Derivative instruments, at fair value	$	—	$	282	$	—	$	282
Contingent consideration		—		—		10,016		10,016
Total liabilities	$	—	$	282	$	10,016	$	10,298

The following table presents a summary of changes in the fair value of loans, held at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	188,150	$	81,592
Realized gains (losses), net		46		(90)
Unrealized gains (losses), net		(720)		5,328
Originations		150		152,339
Sales		—		—
Principal payments		(19,188)		(10,114)
Transfer to loans, held for sale, at fair value		—		—
Transfer to loans, held-for-investment		(145,774)		(40,905)
Ending Balance	$	22,664	$	188,150

Unrealized gains on loans, held at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $0.3 million and $6.0 million, respectively.

The following table presents a summary of changes in the fair value of loans, held for sale, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	—	$	17,312
Realized gains, net		—		9,005
Unrealized gains, net		—		2,595
Originations		—		352,975
Sales		—		(284,707)
Principal payments		—		(10,429)
Transfer from Level 3		—		(86,751)
Ending Balance	$	—	$	—

Unrealized gains on loans, held for sale at fair value held on December 31, 2017 and classified as Level 3 were $0.1 million. There were no loans, held for sale classified as Level 3 on December 31, 2018.

The following table presents a summary of changes in the fair value of MBS, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	8,063	$	32,391
Accreted discount, net		84		224
Realized gains, net		271		522
Unrealized gains (losses), net		2,866		1,344
Purchases		—		14,448
Sales / Principal payments		(977)		(7,785)
Transfer to (from) Level 3		1,841		(33,081)
Ending Balance	$	12,148	$	8,063

Unrealized losses on MBS, at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $0.1 million and $0.3 million, respectively.

Refer to “Note 8 – Servicing rights” for activity relating to the changes in the fair value of the Company’s residential mortgage servicing rights. Unrealized gains (losses) on residential mortgage servicing rights, at fair value held on December 31, 2018 and 2017 and classified as Level 3 were $8.6 million and $(8.5) million, respectively.

The following table presents a summary of changes in the fair value of derivatives instruments, at fair value classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	1,827	$	2,690
Unrealized gains (losses)		(51)		(863)
Ending Balance	$	1,776	$	1,827

Unrealized gains (losses) on derivatives held on December 31, 2018 and 2017 and classified as Level 3 were $1.8 million and $(1.7) million, respectively.

The following table presents a summary of changes in the fair value of contingent consideration classified as Level 3:

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	10,016	$	14,487
Adjustment for legal settlement		—		(5,744)
Earn-out payments		(8,967)		—
Amortization and adjustment for earn-out payments		158		1,273
Ending Balance	$	1,207	$	10,016

As of December 31, 2018 and 2017, there was no unrealized gain (loss) on contingent consideration.

The Company’s policy is to recognize transfers in and transfers out as of the end of the period of the event or the date of the change in circumstances that caused the transfer. Transfers between Level 2 and Level 3 generally relate to whether there were changes in the significant relevant observable and unobservable inputs that are available for the fair value measurements of such financial instruments. Transfers into or out of Level 3 of the fair value hierarchy are recorded at the end of the reporting period.

Valuation Process for Fair Value Measurements

The Company establishes valuation processes and procedures designed so that fair value measurements are appropriate and reliable, that they are based on observable inputs where possible, and that valuation approaches are consistently applied and the assumptions and inputs are reasonable. The Company has also established processes to provide that the valuation methodologies, techniques and approaches for investments that are categorized within Level 3 of the fair value hierarchy are fair, consistent and verifiable. The Company’s processes provide a framework that ensures the oversight of the Company’s fair value methodologies, techniques, validation procedures, and results.

The Company designates a valuation committee (the “Committee”) to oversee the entire valuation process of the Company’s Level 3 investments. The Committee is comprised of various personnel who are responsible for developing the Company’s written valuation policies, processes and procedures, conducting periodic reviews of the valuation policies, and performing validation procedures on the overall fairness and consistent application of the valuation policies and processes and that the assumptions and inputs used in valuation are reasonable.

The validation procedures overseen by the Committee are also intended to provide that the values received from external third-party pricing sources are consistent with the Company’s Valuation Policy and are carried at fair value. To the extent that there is no exchange pricing, vendor marks or broker quotes readily available, the Company may use an internal valuation model or other valuation methodology that may be based on unobservable market inputs to fair value the investment.

The values provided by a third-party pricing service are calculated based on key inputs provided by the Company including collateral values, unpaid principal balances, cash flow velocity, contractual status and anticipated disposition timelines. In addition, the Company performs an internal valuation used to assess and review the reasonableness and validity of the fair values provided by a third party. The Company also performs analytical procedures, which include automated checks consisting of prior-period variance analysis, comparisons of actual prices to internally calculate expected prices based on observable market changes, analysis of changes in pricing ranges, and relative value and yield comparisons using the Company’s proprietary valuation models.

Upon completion of the review process described above, the Company may provide additional quantitative and qualitative data to the third-party pricing service to consider in valuing certain financial assets and liabilities, as applicable. Such data may include deal specific information not included in the data tape provided to the third party, outliers when compared to the unpaid principal balance and collateral value and knowledge of any impending liquidation of an investment. If deemed necessary by the third party and management, the investments are re-valued by the third party to account for the updated information.

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 using third party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	22,664	SingleExternal Source	Third Party Mark	$	99.41 – 105.21	$	101.52
Mortgage backed securities, at fair value		12,033	Broker Quotes	Third Party Mark		44.65 – 97.50		80.17
Mortgage backed securities, at fair value		115	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		93,065	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		1,207	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2017 using third-party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	188,150	Single External Source	Third Party Mark	$	101.05 – 104.00	$	103.35
Mortgage backed securities, at fair value (b)		7,937	Broker Quotes	Third Party Mark		70.92 – 70.92		70.92
Mortgage backed securities, at fair value		126	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		72,295	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		10,016	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

(b)Price ranges and weighted averages exclude interest-only strips with a fair value of $1.5 million as of December 31, 2017.

The fair value measurements of these assets are sensitive to changes in assumptions regarding prepayment, probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or developments in the real estate market. Significant changes in any of those inputs in isolation may result in significantly higher or lower fair value measurements. Generally, an increase in the probability of default and loss severity in the event of default would result in a lower fair value measurement. A decrease in these assumptions would have the opposite effect. Conversely, an assumption that the home prices will increase would result in a higher fair value measurement. A decrease in the assumption for home prices would have the opposite effect.

Financial instruments not carried at fair value

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the consolidated balance sheets and are classified as Level 3:

	December 31, 2018				December 31, 2017
(In Thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Loans, net	$	2,391,702	$	2,434,185	$	1,665,950	$	1,737,361
Servicing rights		26,997		28,441		21,743		23,432
Total assets	$	2,418,699	$	2,462,626	$	1,687,693	$	1,760,793
Liabilities:
Secured borrowings	$	834,547	$	834,547	$	637,393	$	637,393
Securitized debt obligations of consolidated VIEs, net		905,367		918,536		598,148		613,676
Senior secured note, net		178,870		176,981		138,078		144,376
Guaranteed loan financing		229,678		236,804		293,045		306,964
Convertible notes, net		109,979		101,581		108,991		108,301
Total liabilities	$	2,258,441	$	2,268,449	$	1,775,655	$	1,810,710

Other assets totaling $14.5 million at December 31, 2018 and $16.5 million at December 31, 2017 are not carried at fair value and include Due from servicers and Accrued interest, which are reflected in Note 17. Receivable from third parties totaling $8.9 million at December 31, 2018 and $6.8 million at December 31, 2017 are not carried at fair value. For these instruments, carrying value approximates fair value and are classified as Level 3.

Accounts payable and other accrued liabilities totaling $16.8 million at December 31, 2018 and $12.4 million at December 31, 2017 are not carried at fair value and include Payable to related parties and Accrued interest payable which are included in Note 17. For these instruments, carrying value approximates fair value and are classified as Level 3.

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Mortgage Backed Securities

12 Months Ended

Dec. 31, 2018

Mortgage Backed Securities

Mortgage Backed Securities

Note 7 – Mortgage Backed Securities

The following table presents certain information about the Company’s MBS portfolio, which are classified as trading securities and carried at fair value, as of December 31, 2018 and 2017.

		Weighted
	Weighted	Average								Gross		Gross
	Average	Interest		Principal		Amortized				Unrealized		Unrealized
(In Thousands)	Maturity (a)	Rate (a)		Balance		Cost		Fair Value		Gains		Losses
December 31, 2018
Mortgage backed securities, at fair value
Freddie Mac Loans	05/2037	4.5	%	$	97,066	$	70,819	$	75,591	$	4,826	$	(54)
Commercial Loans	11/2049	5.5			20,666		16,228		16,231		30		(27)
Tax Liens	09/2026	6.0			116		116		115		—		(1)
Total Mortgage backed securities, at fair value	07/2039	4.7	%	$	117,848	$	87,163	$	91,937	$	4,856	$	(82)
December 31, 2017
Mortgage backed securities, at fair value
Freddie Mac Loans	12/2034	5.3	%	$	49,767	$	37,287	$	38,568	$	2,529	$	(1,248)
Commercial Loans	06/2043	5.5			4,513		1,054		1,228		174		—
Tax Liens	09/2026	6.0			127		127		126		—		(1)
Total Mortgage backed securities, at fair value	08/2035	5.3	%	$	54,407	$	38,468	$	39,922	$	2,703	$	(1,249)

(a) Weighted based on current principal balance

The following table presents certain information about the maturity of the Company’s MBS portfolio as of December 31, 2018 and 2017.

	Weighted
	Average
	Interest		Principal		Amortized
(In Thousands)	Rate (a)		Balance		Cost		Fair Value
December 31, 2018
Mortgage backed securities, at fair value
After five years through ten years	10.6	%	$	3,406	$	3,103	$	3,520
After ten years	4.5			114,442		84,060		88,417
Total Mortgage backed securities, at fair value	4.7	%	$	117,848	$	87,163	$	91,937
December 31, 2017
Mortgage backed securities, at fair value
After five years through ten years	8.9	%	$	8,919	$	8,205	$	8,904
After ten years	4.6			45,488		30,263		31,018
Total	5.3	%	$	54,407	$	38,468	$	39,922

(a) Weighted based on current principal balance

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Servicing rights

12 Months Ended

Dec. 31, 2018

Servicing rights

Servicing Rights

Note 8 – Servicing rights

The Company performs servicing activities for third parties, which primarily include collecting principal, interest and other payments from borrowers, remitting the corresponding payments to investors and monitoring delinquencies. The Company’s servicing fees are specified by pooling and servicing agreements.

The following table presents information about the Company’s portfolios of servicing rights:

	Year Ended December 31,
(In Thousands)	2018		2017
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	16,684	$	20,276
Additions due to loans sold, servicing retained		3,569		1,996
Acquisitions		362		—
Amortization		(3,418)		(4,034)
(Impairment)		(448)		(1,554)
Ending net carrying value of SBA servicing rights	$	16,749	$	16,684
Freddie Mac multi-family servicing rights, at amortized cost
Beginning net carrying amount	$	5,059	$	2,202
Additions due to loans sold, servicing retained		6,832		3,290
Amortization		(1,643)		(610)
Recovery		—		177
Ending net carrying value of Freddie Mac multi-family servicing rights	$	10,248	$	5,059
Ending net carrying value of SBA and Freddie Mac multi-family servicing rights, at amortized cost	$	26,997	$	21,743
Residential mortgage servicing rights, at fair value
Beginning Balance	$	72,295	$	61,376
Additions due to loans sold, servicing retained		20,974		20,565
Loan pay-offs		(5,899)		(5,646)
Unrealized gains (losses)		5,695		(4,000)
Ending fair value of residential mortgage servicing rights	$	93,065	$	72,295
Total servicing rights	$	120,062	$	94,038

Servicing rights – SBA and Freddie Mac multi-family

The Company’s SBA and Freddie Mac multi-family servicing rights are carried at the lower of cost or amortized cost. The Company estimates the fair value of the SBA and Freddie Mac multi-family servicing rights carried at amortized cost using a combination of internal models and data provided by third-party valuation experts. The assumptions used in our internal models include forward prepayment rates, forward default rates, discount rates, and servicing expenses.

The Company’s models calculate the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. We derive forward prepayment rates, forward default rates and discount rates from historical experience adjusted for prevailing market conditions. Components of the estimated future cash flows include servicing fees, late fees, other ancillary fees and cost of servicing.

The following table presents additional information about the Company’s SBA and Freddie Mac multi-family servicing rights:

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Carrying Value		Amount		Carrying Value
SBA	$	506,155	$	16,749	$	427,623	$	16,684
Freddie Mac multi-family		964,377		10,248		559,823		5,059
Total	$	1,470,532	$	26,997	$	987,446	$	21,743

The significant assumptions used in the December 31, 2018 and 2017 estimated valuation of the Company’s SBA and Freddie Mac multi-family servicing rights carried at amortized cost include:

		December 31, 2018						December 31, 2017
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights (at amortized cost)
	• Forward prepayment rate	3.8	-	20.2	%	9.2	%	2.4	-	20.5	%	11.5	%
	• Forward default rate	0.0	-	12.2	%	6.4	%	0.0	-	9.5	%	2.7	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.4	-	0.4	%	0.4	%	0.4	-	0.4	%	0.4	%
Freddie Mac multi-family servicing rights (at amortized cost)
	• Forward prepayment rate	0.0	-	35.0	%	5.0	%	0.0	-	13.0	%	4.2	%
	• Forward default rate	0.0	-	2.0	%	1.3	%	0.0	-	2.0	%	2.0	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.2	-	0.2	%	0.2	%	0.2	-	0.2	%	0.2	%

These assumptions can change between and at each reporting period as market conditions and projected interest rates change.

The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the carrying amount of the Company’s SBA and Freddie Mac multi-family servicing rights.

(In Thousands)	December 31, 2018		December 31, 2017
SBA servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(470)	$	(514)
20% adverse change		(915)		(998)
• Default rate
10% adverse change	$	(63)	$	(24)
20% adverse change		(125)		(48)
• Discount rate
10% adverse change	$	(579)	$	(520)
20% adverse change		(1,118)		(1,008)
Freddie Mac multi-family servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(63)	$	(43)
20% adverse change		(124)		(84)
• Default rate
10% adverse change	$	(11)	$	(6)
20% adverse change		(22)		(12)
• Discount rate
10% adverse change	$	(490)	$	(270)
20% adverse change		(791)		(518)

The estimated future amortization expense for the servicing rights is expected to be as follows:

(In Thousands)	December 31, 2018
2019	$	5,054
2020		4,324
2021		3,684
2022		3,126
2023		2,629
Thereafter		8,180
Total	$	26,997

Residential mortgage servicing rights

The Company's residential mortgage servicing rights consist of conforming conventional loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Similarly, the government loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veteran Affairs.

The following table presents additional information about the Company’s residential mortgage servicing rights carried at fair value:

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Fair Value		Amount		Fair Value
Fannie Mae	$	2,848,435	$	34,562	$	2,524,897	$	26,929
Ginnie Mae		2,350,301		29,586		2,134,772		24,135
Freddie Mac		2,267,943		28,917		1,898,786		21,231
Total	$	7,466,679	$	93,065	$	6,558,455	$	72,295

The significant assumptions used in the valuation of the Company’s residential mortgage servicing rights carried at fair include:

		December 31, 2018						December 31, 2017
		Range of input values				Weighted Average		Range of input values				Weighted Average
Residential mortgage servicing rights (at fair value)
	• Forward prepayment rate	6.1	-	13.9	%	8.4	%	7.0	-	29.2	%	8.8	%
	• Discount rate	9.0	-	11.1	%	9.7	%	10.5	-	13.0	%	10.9	%
	• Servicing expense	$ 70	-	$ 85		$ 75		$ 65	-	$ 75		$ 70

The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the fair value of the Company’s residential mortgage servicing rights.

(In Thousands)	December 31, 2018		December 31, 2017
Prepayment rate
10% adverse change	$	(3,281)	$	(2,721)
20% adverse change		(6,330)		(4,928)
Discount rate
10% adverse change	$	(3,716)	$	(3,029)
20% adverse change		(7,159)		(5,823)
Cost of servicing
10% adverse change	$	(1,683)	$	(1,230)
20% adverse change		(3,365)		(2,460)

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Residential mortgage banking activities and variable loan expenses

12 Months Ended

Dec. 31, 2018

Residential mortgage banking activities and variable loan expenses

Gains on residential mortgage banking activities, net of variable loan expenses

Note 9 – Residential mortgage banking activities and variable expenses on residential mortgage banking activities

Residential mortgage banking activities, reflects revenue within our residential mortgage banking business directly related to loan origination and sale activity. This primarily consists of the realized gains on sales of residential loans held for sale and loan origination fee income. Residential mortgage banking activities also consists of unrealized gains and losses associated with the changes in fair value of the loans held for sale, the fair value of retained MSR additions, and the realized and unrealized gains and losses from derivative instruments.

Variable expenses include correspondent fee expenses and other direct expenses relating to these loans, which vary based on loan origination volumes.

The following table presents the components of residential mortgage banking activities and variable expenses on residential mortgage banking activities recorded in the Company’s consolidated statements of operations.

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Realized and unrealized gains and losses of residential mortgage loans held for sale, at fair value	$	36,240	$	63,024	$	2,943
Creation of new mortgage servicing rights, net of payoffs		15,075		14,919		3,157
Loan origination fee income on residential mortgage loans		9,371		8,193		1,404
Unrealized gains (loss) on IRLCs and other derivatives		(834)		(2,699)		126
Residential mortgage banking activities	$	59,852	$	83,437	$	7,630
Variable expenses on residential mortgage banking activities	$	(22,228)	$	(41,737)	$	(597)

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Secured Borrowings

12 Months Ended

Dec. 31, 2018

Secured Borrowings

Secured Borrowings and Promissory Note

Note 10 – Secured Borrowings

The following tables present certain characteristics of our secured borrowings:

					Pledged Assets Carrying Value at				Carrying Value of Borrowing at
(In Thousands)	Maturity	Pricing	Facility Size		December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
Borrowings under credit facilities
JPMorgan - Commercial (1)	May 2019	1M L + 2.50%	$	225,000	$	85,393	$	107,697	$	68,417	$	60,459
Keybank - Commercial (2)	February 2019	1M L + 1.75%		125,000		23,322		67,589		22,973		66,642
East West - Commercial (3)	July 2020	Prime - 0.821 to + 0.029%		30,000		37,255		—		27,443		—
Comerica - Residential (4)	March 2019	1M L + 1.625 to 2.125%		125,000		35,860		71,035		40,231		67,336
Associated Bank - Residential (4)	August 2019	1M L + 1.75%		40,000		13,653		29,242		15,907		27,699
Origin Bank - Residential (4)	July 2019	1M L + 2.00%		40,000		16,831		27,891		12,870		26,538
East West - Residential (4)	September 2023	1M L + 2.50%		50,000		63,479		—		8,500		—
FCB - Commercial (5)	June 2021	2.75%		2,974		3,219		7,752		2,974		6,107
Total borrowings under credit facilities (10)			$	637,974	$	279,012	$	311,206	$	199,315	$	254,781
Borrowings under repurchase agreements
Deutsche Bank- Commercial (6)	February 2020	3M L + 2.30 to 2.80%	$	300,000	$	310,797	$	252,499	$	239,972	$	173,811
JPMorgan - Commercial (7)	December 2020	1M L + 2.25 to 4.00%		200,000		144,337		90,829		96,343		55,355
Citibank - Commercial (8)	June 2019	1M L + 2.125 to 2.50%		500,000		230,140		150,707		194,117		88,095
JPMorgan - MBS (9)	March 2019	3.63 to 5.22%		24,881		39,882		80,690		24,881		53,325
Deutsche Bank - MBS (8)	February 2019	4.36%		17,425		24,536		—		17,425		—
Citibank - MBS (9)	-	-		—		—		11,496		—		5,957
RBC - MBS (9)	April 2019	3.97 to 4.42%		62,494		83,818		8,778		62,494		6,069
Total borrowings under repurchase agreements (11)			$	1,104,800	$	833,510	$	594,999	$	635,232	$	382,612
Total secured borrowings			$	1,742,774	$	1,112,522	$	906,205	$	834,547	$	637,393

(1) Borrowings are used to finance SBC and SBA loan acquisitions, and SBA loan originations.

(2) Borrowings are used to finance Freddie Mac SBC loan originations.

(3) Borrowings are used to finance SBA loan acquisitions and loan originations.

(4) Borrowings are used to finance Residential Agency loan originations.

(5) Borrowings are used to finance SBC loan acquisitions.

(6) Borrowings are used to finance SBC loan originations.

(7) Borrowings are used to finance SBC loan originations, Transitional loan originations, and SBC loan acquisitions.

(8) Borrowings are used to finance SBC loan originations and SBC loan acquisitions.

(9) Borrowings are used to finance Mortgage backed securities and Retained interests in consolidated VIE's.

(10) The weighted average interest rate of borrowings under credit facilities was 4.6% and 3.9% as of December 31, 2018 and 2017, respectively.

(11) The weighted average interest rate of borrowings under repurchase agreements was 4.0% and 4.1% as of December 31, 2018 and 2017, respectively.

The following table presents the carrying value of the Company’s collateral pledged with respect to secured borrowings and promissory note payable outstanding with our lenders:

	Pledged Assets Carrying Value at
(In Thousands)	December 31, 2018		December 31,  2017
Collateral pledged - borrowings under credit facilities
Loans, net	$	215,533	$	310,885
Mortgage servicing rights		63,479		—
Real estate acquired in settlement of loans		—		321
Total collateral pledged on borrowings under credit facilities	$	279,012	$	311,206
Collateral pledged - borrowings under repurchase agreements
Loans, net	$	685,274	$	494,035
Mortgage backed securities		112,552		37,397
Retained interest in assets of consolidated VIEs		35,684		63,567
Total collateral pledged on borrowings under repurchase agreements	$	833,510	$	594,999
Total collateral pledged on secured borrowings	$	1,112,522	$	906,205

The agreements governing the Company’s secured borrowings and promissory note require the Company to maintain certain financial and debt covenants. The Company was in compliance with all debt and financial covenants as of December 31, 2018 and 2017.

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Senior secured notes, Convertible notes, and Corporate debt, net

12 Months Ended

Dec. 31, 2018

Senior secured notes, Convertible notes, and Corporate debt, net

Senior secured notes, Convertible notes, and Corporate debt

Note 11 – Senior secured notes, Convertible notes, and Corporate debt, net

Senior secured notes, net

During 2017, ReadyCap Holdings LLC, 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 and issue price) to the notes issued during 2017 (collectively “the Senior Secured Notes”). The additional $40.0 million in Senior Secured Notes were priced with a yield to par call date of 6.5%. Payments of the amounts due on the Senior Secured Notes are fully and unconditionally guaranteed by the Company and its subsidiaries: Sutherland Partners LP, Sutherland Asset I, LLC, and ReadyCap Commercial, LLC. The funds were used to fund new SBC and SBA loan originations and new SBC loan acquisitions.

As of December 31, 2018, we were in compliance with all covenants with respect to the Senior Secured Notes.

Convertible notes, net

On August 9, 2017, the Company closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023 (“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 notes will be convertible by holders into shares of the Company's common stock at an initial conversion rate of 1.4997 shares of common stock per $25 principal amount of the notes, which is equivalent to an initial conversion price of approximately $16.67 per share of common stock. Upon conversion, holders will receive, at the Company's discretion, cash, shares of the Company's common stock or a combination thereof.

The Company may redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, 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 the Company 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.

The Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occur.

At issuance, we allocated $112.7 million and $2.3 million of the carrying value of the Convertible Notes to its debt and equity components, respectively, before the allocation of deferred financing costs. As of December 31, 2018, we were in compliance with all covenants with respect to the Convertible Notes.

Corporate debt, net

On April 27, 2018, the Company completed the public offer and sale of $50,000,000 aggregate principal amount of its 6.50% Senior Notes due 2021 (“Corporate debt” or “Notes”). The Company issued the Notes under a base indenture, dated August 9, 2017, as supplemented by the second supplemental indenture, dated as of April 27, 2018, between the Company and U.S. Bank National Association, as trustee. The Notes bear 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, beginning on July 30, 2018. The Notes will mature on April 30, 2021, unless earlier redeemed or repurchased.

Prior to April 30, 2019, the Notes will not be redeemable by the Company. The Company may redeem for cash all or any portion of the Notes, at its option, on or after April 30, 2019 and before April 30, 2020 at a redemption price equal to 101% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. On or after April 30, 2020, the Company may redeem for cash all or any portion of the Notes, at its option, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a change of control repurchase event, holders may require it to purchase the Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 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 Indenture.

The Notes are the Company’s senior direct 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 Notes rank equal in right of payment to any of the Company’s existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its 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 the Company) preferred stock, if any, of its subsidiaries.

As of December 31, 2018, we were in compliance with all covenants with respect to the corporate debt.

The following table presents the components of the Senior Secured Notes, Convertible Notes, and Corporate debt, including the carrying value for the aggregate contractual maturities, on the consolidated balance sheet:

(in thousands, except rates)	Coupon Rate		Maturity Date	December 31, 2018
Senior secured notes principal amount(1)	7.50	%	2/15/2022	$	180,000
Unamortized premium - Senior secured notes					2,389
Unamortized deferred financing costs - Senior secured notes					(3,519)
Total Senior secured notes, net				$	178,870
Convertible notes - principal amount (2)	7.00	%	8/15/2023		115,000
Unamortized discount - Convertible notes (3)					(1,805)
Unamortized deferred financing costs - Convertible notes					(3,216)
Total Convertible notes, net				$	109,979
Corporate debt principal amount(4)	6.50	%	4/30/2021	$	50,000
Unamortized deferred financing costs - Corporate debt					(1,543)
Total Corporate debt, net				$	48,457
Total carrying amount of debt components				$	337,306
Total carrying amount of conversion option of equity components recorded in equity				$	1,805

(1) Interest on the Senior Secured Notes is payable semiannually on each February 15 and August 15, beginning on August 15, 2017.

(2) Interest on the Convertible Notes is payable quarterly on February 15, May 15, August 15, and November 15 of each year, beginning on November 15, 2017.

(3) Represents the discount created by separating the conversion option from the debt host instrument.  

(4) Interest on the corporate debt is payable January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018.

The following table presents the contractual maturities of the Senior Secured Notes, Convertible Notes, and Corporate debt:

(In Thousands)	December 31, 2018
2019	$	—
2020		—
2021		48,457
2022		178,870
2023		109,979
Thereafter		—
Total	$	337,306

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Guaranteed loan financing

12 Months Ended

Dec. 31, 2018

Guaranteed loan financing.

Guaranteed loan financing

Note 12 – Guaranteed loan financing

Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated balance sheets and the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

The following table presents guaranteed loan financing and the related interest rates and maturity dates:

	Weighted		Range of
	Average		Interest	Range of
(In Thousands)	Interest Rate		Rates	Maturities (Years)	Ending Balance
December 31, 2018	4.46	%	1.70 – 8.00  %	2019 - 2038	$	229,678
December 31, 2017	3.51	%	1.62 – 7.00  %	2018 - 2038	$	293,045

The following table summarizes contractual maturities of total guaranteed loan financing outstanding:

(In Thousands)	December 31, 2018
2019	$	864
2020		1,412
2021		2,696
2022		3,444
2023		4,550
Thereafter		216,712
Total	$	229,678

Our guaranteed loan financings are secured by loans of $232.4 million and $296.9 million as of December 31, 2018 and 2017, respectively.

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Variable Interest Entities and Securitization Activities

12 Months Ended

Dec. 31, 2018

Variable Interest Entities and Securitization Activities

Variable Interest Entities and Securitization Activities

Note 13 – Variable Interest Entities and Securitization Activities

In the normal course of business, we enter into certain types of transactions with entities that are considered to be VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transfer assets to securitization trusts. We primarily securitize acquired SBC loans, originated transitional loans, and acquired SBA loans, which provides a source of funding for us and has enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

We also transfer originated loans to securitization trusts sponsored by third parties, most notably Freddie Mac. Third-party securitizations are securitization entities in which we maintain an economic interest but do not sponsor.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we have been involved in are consolidated in our financial statements. See Note 3 for a discussion of our accounting policies applied to the consolidation of the VIE and transfer of the loans in connection with the securitization.

Securitization-Related VIEs

Company sponsored securitizations

In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. Our primary securitization activity is in the form of SBC and SBA loan securitizations, conducted through securitization trusts which we consolidate, as we determined that we are the primary beneficiary.

For financial statement reporting purposes, since the underlying trust is consolidated, the securitization is effectively viewed as a financing of the loans that were securitized to enable the senior security to be created and sold to a third-party investor. As such, the senior security is presented on the consolidated balance sheets as securitized debt obligations of consolidated VIEs. The third-party beneficial interest holders in the VIE have no recourse against the Company, except that the Company has an obligation to repurchase assets from the VIE in the event that certain representations and warranties in relation to the loans sold to the VIE are breached. In the absence of such a breach, the Company has no obligation to provide any other explicit or implicit support to any VIE.

The securitization trust receives principal and interest on the underlying loans and distributes those payments to the certificate holders. The assets and other instruments held by the securitization trust are restricted in that they can only be used to fulfill the obligations of the securitization trust. The risks associated with the Company’s involvement with the VIE is limited to the risks and rights as a certificate holder of the securities retained by the Company.

The consolidation of the securitization transactions includes the senior securities issued to third parties which are shown as securitized debt obligations of consolidated VIEs on the consolidated balance sheets. The following table presents additional information on the Company’s securitized debt obligations:

	December 31, 2018						December 31, 2017
	Current				Weighted		Current				Weighted
	Principal		Carrying		Average		Principal		Carrying		Average
(In Thousands)	Balance		value		Interest Rate		Balance		value		Interest Rate
Waterfall Victoria Mortgage Trust 2011-SBC2	$	12,226	$	12,226	5.4	%	$	16,010	$	16,010	5.3	%
ReadyCap Lending Small Business Trust 2015-1		3,397		1,180	3.4			25,057		22,733	2.5
Sutherland Commercial Mortgage Loans 2015-SBC4		—		—	—			10,049		9,687	4.0
Sutherland Commercial Mortgage Trust 2017-SBC6		69,764		68,574	3.3			119,784		117,868	3.3
Sutherland Commercial Mortgage Trust 2018-SBC7		205,451		202,491	4.7			—		—	—
ReadyCap Commercial Mortgage Trust 2014-1		36,108		36,129	4.5			33,953		33,951	3.6
ReadyCap Commercial Mortgage Trust 2015-2		110,497		106,755	4.2			151,993		147,271	4.1
ReadyCap Commercial Mortgage Trust 2016-3		63,945		62,053	3.7			98,733		95,907	3.5
ReadyCap Commercial Mortgage Trust 2018-4		144,701		140,314	3.9			—		—	—
Ready Capital Mortgage Financing 2017-FL1		63,615		61,902	3.7			158,978		154,721	2.8
Ready Capital Mortgage Financing 2018-FL2		217,057		213,743	3.4			—		—	—
Total	$	926,761	$	905,367	4.0	%	$	614,557	$	598,148	3.4	%

Repayment of our securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust that collateralize such debt. The actual cash flows from the securitized loans are comprised of coupon interest, scheduled principal payments, prepayments and liquidations of the underlying loans. The actual term of the securitized debt may differ significantly from our estimate given that actual interest collections, mortgage prepayments and/or losses on liquidation of mortgages may differ significantly from those expected.

Third-party sponsored securitizations

For Freddie Mac sponsored securitizations, we determined that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not manage these entities or otherwise solely hold decision making powers that are significant, which include special servicing decisions. As a result of this assessment, we do not consolidate any of the underlying assets and liabilities of these trusts, we only account for our specific interests in them.

Other VIEs

Other VIEs include a variable interest that we hold in an acquired joint venture investment that we account for as an equity method investment. We do not consolidate these entities because we do not have the power to direct the activities that most significantly impact their economic performance, we only account for our specific interest in them.

Assets and Liabilities of Consolidated VIEs

The following table reflects the securitized assets and liabilities for VIEs that we consolidate on our consolidated balance sheets:

(In Thousands)	December 31, 2018		December 31, 2017
Assets:
Cash and cash equivalents	$	—	$	25
Restricted cash		11,643		15,838
Loans, net		1,220,974		836,180
Real estate acquired in settlement of loans		176		3,443
Accrued interest		6,750		4,261
Due from servicers		11,514		1,915
Total assets	$	1,251,057	$	861,662
Liabilities:
Securitized debt obligations of consolidated VIEs, net		905,367		598,148
Total liabilities	$	905,367	$	598,148

Assets of Unconsolidated VIEs

The following table reflects our variable interests in identified VIEs, of which we are not the primary beneficiary, as of December 31, 2018:

	Carrying Amount				Maximum Exposure to Loss (1)
(In Thousands)	December 31,  2018		December 31,  2017		December 31,  2018		December 31,  2017
Assets:
Mortgage backed securities, at fair value(2)	$	75,591	$	38,568	$	75,591	$	38,568
Investment in unconsolidated joint venture		33,438		55,369		33,438		55,369
Total assets in unconsolidated VIEs	$	109,029	$	93,937	$	109,029	$	93,937
(1) Maximum exposure to loss is limited to the greater of the fair value or carrying value of the assets as of the consolidated balance sheet date.
(2) Retained interest in Freddie Mac sponsored securitizations.

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Interest Income and Interest Expense

12 Months Ended

Dec. 31, 2018

Interest Income and Interest Expense

Interest Income and Interest Expense

Note 14 – Interest Income and Interest Expense

Interest income and interest expense are recorded in the consolidated statements of income and classified based on the nature of the underlying asset or liability.

The following table presents the components of interest income and expense:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Interest income
Loans
Acquired SBA 7(a) loans	$	32,278	$	37,110	$	46,417
Acquired loans		46,154		34,720		44,122
Originated Transitional loans		48,499		25,323		8,608
Originated SBC loans, at fair value		3,599		7,769		13,457
Originated SBC loans		24,948		22,564		17,902
Originated SBA 7(a) loans		4,428		998		—
Originated Residential Agency loans		51		255		—
Total loans (1)	$	159,957	$	128,739	$	130,506
Held for sale, at fair value, loans
Originated Residential Agency loans	$	3,747	$	3,723	$	709
Originated Freddie loans		1,428		1,507		619
Originated SBA 7(a) loans		—		—		—
Acquired loans		153		993		299
Total loans, held for sale, at fair value	$	5,328	$	6,223	$	1,627
Mortgage backed securities, at fair value		4,214		3,343		4,890
Total interest income	$	169,499	$	138,305	$	137,023
Interest expense
Secured borrowings	$	(35,331)	$	(26,092)	$	(25,839)
Securitized debt obligations of consolidated VIEs		(36,988)		(23,387)		(17,619)
Guaranteed loan financing		(11,613)		(13,435)		(13,971)
Senior secured note		(13,702)		(8,069)		—
Convertible note		(8,748)		(3,427)		—
Corporate debt		(2,706)		—		—
Promissory note		(150)		(236)		(164)
Exchangeable senior notes		—		—		(179)
Total interest expense	$	(109,238)	$	(74,646)	$	(57,772)
Net interest income before provision for loan losses	$	60,261	$	63,659	$	79,251
(1) Includes interest income on loans in consolidated VIEs.

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Derivative Instruments

12 Months Ended

Dec. 31, 2018

Derivative Instruments

Derivative Instruments

Note 15 – Derivative Instruments

The Company is exposed to changing interest rates and market conditions, which affect cash flows associated with borrowings. The Company uses derivative instruments to manage interest rate risk and conditions in the commercial mortgage market and, as such, views them as economic hedges. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for making payments based on a fixed interest rate over the life of the swap contract. CDS are executed in order to mitigate the risk of deterioration in the current credit health of the commercial mortgage market. IRLCs are entered into with customers who have applied for residential mortgage loans and meet certain underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and if the loan is not economically hedged or committed to an investor.

For derivative instruments that the Company has not elected hedge accounting, the fair value adjustments on such instruments are recorded in earnings. The fair value adjustments for interest rate swaps and CDS, along with the related interest income, interest expense and gains/(losses) on termination of such instruments, are reported as a net realized gain on financial instruments on the consolidated statements of income. The fair value adjustments for IRLCs, along with the related interest income, interest expense and gains/(losses) on termination of such instruments, are reported in residential mortgage banking activities on the consolidated statements of income.

As described in Note 3, for qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income/(loss) ("OCI") and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings.

The following tables summarize the Company’s use of derivatives and their effect on the consolidated financial statements. Notional amounts included in the table are the average notional amounts on the consolidated balance sheet dates. We believe these are the most relevant measure of volume or derivative activity as they best represent the Company’s exposure to underlying instruments.

As of December 31, 2018 the Company had one open credit default swap contract and 64 open interest rate swap contracts with counterparties. As of December 31, 2017 the Company had one open credit default swap contract and 52 open interest rate swap contracts with counterparties.

		As of December 31, 2018						As of December 31, 2017
				Asset		Liability				Asset		Liability
		Notional		Derivatives		Derivatives		Notional		Derivatives		Derivatives
(In Thousands)	Primary Underlying Risk	Amount		Fair Value		Fair Value		Amount		Fair Value		Fair Value
Credit Default Swaps	Credit Risk	$	15,000	$	295	$	—	$	15,000	$	—	$	(66)
Interest Rate Swaps- not designated as hedges	Interest rate risk		411,811		—		(2,349)		391,381		2,898		(216)
Interest Rate Swaps - designated as hedges	Interest rate risk		134,325		—		(1,276)		—		—		—
Interest rate lock commitments	Interest rate risk		144,799		1,775		—		167,533		1,827		—
Total		$	705,935	$	2,070	$	(3,625)	$	573,914	$	4,725	$	(282)

The following tables summarize the gains and losses on the Company’s derivatives:

	Year Ended December 31, 2018
			Net Change in
	Net Realized		Unrealized
(In Thousands)	(Loss)		Gain (Loss)
Credit default swaps (1)	$	(703)	$	862
Interest rate swaps (1)(2)		4,272		(5,323)
Residential mortgage banking activities interest rate swaps (3)		—		(783)
Interest rate lock commitments (3)		—		(51)
Total	$	3,569	$	(5,295)
(1) Gains/ (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income. (2) For qualifying hedges of interest rate risk, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in accumulated other comprehensive income (loss). (3) Gains/ (losses) are recorded in residential mortgage banking activities in the consolidated statements of income.

The following tables summarize the gains and losses on the Company’s derivatives which have qualified for hedge accounting:

(In Thousands)	Derivatives - effective portion reclassified from AOCI to income		Hedge ineffectiveness recorded directly in income (2)		Total income statement impact		Derivatives-  effective portion recorded in OCI (3)		Total change in OCI for period (3)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	(954)	$	(954)
Total - Year ended December 31, 2018	$	—	$	—	$	—	$	(954)	$	(954)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	—	$	—
Total - Year ended December 31, 2017	$	—	$	—	$	—	$	—	$	—
(1) Consists of benchmark interest rate hedges of LIBOR-indexed floating-rate liabilities.
(2) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
(3) Represents after tax amounts recorded in OCI.

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Related Party Transactions

12 Months Ended

Dec. 31, 2018

Related-Party Transactions

Related Party Transactions

Note 16 – Related Party Transactions

Management Agreement

The Company has entered into a management agreement with the Manager (the “Management Agreement”), which describes the services to be provided to us by the Manager and compensation for such services. The Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors.

Management Fee

Pursuant to the terms of the Management Agreement, our Manager is paid a management fee calculated and payable quarterly in arrears equal to 1.5% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement) up to $500 million and 1.00% per annum of stockholders’ equity in excess of $500 million.

The following table presents certain information on the management fee payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Management fee - total	$	8.2 million	$	8.1 million
Management fee - amount unpaid	$	2.1 million	$	2.0 million

Incentive Distribution

The Manager is entitled to an incentive distribution in an amount equal to the product of (i) 15% and (ii) the excess of (a) core earnings (as defined in the partnership agreement or our operating partnership) on a rolling four-quarter basis over (b) an amount equal to 8.00% per annum multiplied by the weighted average of the issue price per share of the common stock or OP units multiplied by the weighted average number of shares of common stock outstanding, provided that core earnings over the prior twelve calendar quarters (or the period since the closing of the ZAIS merger, whichever is shorter) is greater than zero.  For purposes of determining the incentive distribution payable to our Manager, core earnings is defined under the partnership agreement of our operating partnership in a manner that is similar to the definition of Core Earnings described below under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” included in this quarterly report on Form 10-Q 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 Core Earnings described under "Non-GAAP Financial Measures".

The following table presents certain information on the incentive fee payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Incentive fee distribution - total	$	1.1 million	$	—
Incentive fee distribution - amount unpaid	$	0.5 million	$	—

The initial term of the Management Agreement extends for three years from the closing of the ZAIS merger and is automatically renewed for one-year terms on each anniversary thereafter. Following the initial term, the Management Agreement may be terminated upon the affirmative vote of at least two-thirds of our independent directors or the holders of a majority of the outstanding common stock (excluding shares held by employees and affiliates of the Manager), based upon (1) unsatisfactory performance by our Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of our independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the average annual management fee during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

Expense Reimbursement

In addition to the management fees and incentive distribution described above, the Company is also responsible for reimbursing the Manager for certain expenses paid by our Manager on behalf of the Company and for certain services provided by the Manager to the Company.Expenses incurred by the Manager and reimbursed by us are typically included in salaries and benefits or general and administrative expense on the consolidated statements of income.

The following table presents certain information on reimbursable expenses payable to our Manager:

	For the Year Ended December 31,
	2018		2017
Reimbursable expenses payable to our Manager - total	$	4.9 million	$	4.9 million
Reimbursable expenses payable to our Manager - amount unpaid	$	3.1 million	$	2.4 million

Other

In March of 2018, the Company acquired 75 loans, net, from Waterfall Olympic Master Fund Grantor Trust, Series I, II, and III, which are also managed by our Manager for $51.6 million, including interest. The total unpaid principal balance of the loans was $51.8 million.

In June of 2017, the Company acquired four loans, net, from RCSF III, LLC, an entity also managed by our Manager for $57.3 million. The total unpaid principal balance of the loans was $57.0 million.

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, with Waterfall Victoria Master Fund, Ltd., a fund also managed by our Manager. The Company’s investment in the joint venture was $54.2 million.

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Other Assets and Other Liabilities

12 Months Ended

Dec. 31, 2018

Other Assets and Other Liabilities

Other Assets and Other Liabilities

Note 17 – Other Assets and Other Liabilities

The following table details the Company’s other assets and other liabilities as of the consolidated balance sheet dates.

(In Thousands)	December 31, 2018		December 31, 2017
Other assets:
Due from servicers	$	7,284	$	9,964
Accrued interest		7,253		6,494
Intangible assets		2,915		3,264
Real estate acquired in settlement of loans		7,787		1,644
Deferred financing costs		2,564		446
Deferred tax asset		18,084		17,155
Prepaid taxes		—		6,014
Deferred loan exit fees		8,668		5,798
Other		8,679		6,061
Total other assets	$	63,234	$	56,840
Accounts payable and other accrued liabilities:
Accrued salaries, wages and commissions	$	18,718	$	16,508
Servicing principal and interest payable		10,582		5,659
Repair and denial reserve		5,524		5,687
Liability under subservicing agreements		239		1,496
Unapplied cash		340		2,445
Accrued interest payable		14,244		10,317
Payable to related parties		2,580		2,042
Deferred tax liability		19,972		18,506
Other accounts payable and accrued liabilities		1,313		11,976
Total accounts payable and other accrued liabilities	$	73,512	$	74,636

Real Estate Acquired in Settlement of Loans

The Company acquires real estate through the foreclosure of its loans and the occasional purchase of real estate. The Company’s real estate properties are held in the Company’s consolidated TRSs. The following tables summarize the carrying amount of the Company’s real estate holdings as of the consolidated balance sheet dates:

(In Thousands)	December 31, 2018		December 31, 2017
Texas	$	3,444	$	97
Missouri		2,526		—
Virginia		755		—
Florida		279		303
Illinois		—		863
Other		783		381
Total	$	7,787	$	1,644

Intangible assets

The following table presents information about the intangible assets held by the Company:

(In Thousands)	December 31, 2018		December 31, 2017		Estimated Useful Life
Trade name	$	852	$	1,017	15 years
Favorable lease		1,063		1,247	12 years
SBA license		1,000		1,000	Indefinite life
Total Intangible Assets	$	2,915	$	3,264

Amortization expense related to the intangible assets previously acquired for the years ended December 31, 2018 and 2017 was $0.4 million. Such amounts are recorded as other operating expenses in the consolidated statements of income.

At December 31, 2018, accumulated amortization for finite-lived intangible assets is as follows:

(In Thousands)	December 31, 2018
Trade name	$	371
Favorable lease		417
Total Accumulated Amortization	$	788

Amortization expense related to the finite-lived intangible assets for the five years subsequent to December 31, 2018 is as follows:

(In Thousands)	December 31, 2018
2019	$	311
2020		277
2021		248
2022		222
2023		195
Thereafter		662
Total	$	1,915

Loan indemnification reserve

A liability has been established for potential losses related to representations and warranties made by GMFS for loans sold with a corresponding provision recorded for loan indemnification losses. The liability is included in accounts payable and other accrued liabilities in the Company's consolidated balance sheets and the provision for loan indemnification losses is included in variable expenses on residential mortgage banking activities, in the Company's consolidated statements of income. In assessing the adequacy of the liability, management evaluates various factors including historical repurchases and indemnifications, historical loss experience, known delinquent and other problem loans, outstanding repurchase demand, historical rescission rates and economic trends and conditions in the industry. Actual losses incurred are reflected as a reduction of the reserve liability. At December 31, 2018 and 2017, the loan indemnification reserve was $1.7 million and $3.0 million, respectively.

Because of the uncertainty in the various estimates underlying the loan indemnification reserve, there is a range of losses in excess of the recorded loan indemnification reserve that is reasonably possible. The estimate of the range of possible losses for representations and warranties does not represent a probable loss, and is based on current available information, significant judgment, and a number of assumptions that are subject to change. At December 31, 2018 and 2017, the reasonably possible loss above the recorded loan indemnification reserve was not considered material.

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Other Income and Operating Expenses

12 Months Ended

Dec. 31, 2018

Other Income and Operating Expenses

Other Income and Other Operating Expenses

Note 18 – Other Income and Operating Expenses

The following table details the Company’s other income and operating expenses for the consolidated statements of income.

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Other income
Origination income	$	4,590	$	4,302	$	4,144
Release of repair and denial reserve		163		1,013		1,258
Other		833		2,095		3,759
Total other income	$	5,586	$	7,410	$	9,161
Other operating expenses
Origination costs	$	7,752	$	6,862	$	4,098
Technology expense		3,624		3,692		2,945
Charge off of real estate acquired in settlement of loans		1,086		756		1,833
Rent expense		2,524		2,314		1,449
Recruiting, training and travel expenses		2,287		2,389		1,320
Loan acquisition costs		1,458		600		—
Other		10,017		10,326		5,535
Total other operating expenses	$	28,747	$	26,939	$	17,180

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Stockholders Equity

12 Months Ended

Dec. 31, 2018

Stockholders’ Equity

Stockholders’ Equity

Note 19 – Stockholders’ Equity

Common stock dividends

The following table presents cash dividends declared by our board of directors on our common stock from January 1, 2017 through December 31, 2018:

			Dividend per
Declaration Date	Record Date	Payment Date	Share
March 14, 2017	March 31, 2017	April 13, 2017	$	0.37
June 15, 2017	June 30, 2017	July 31, 2017	$	0.37
September 12, 2017	September 29, 2017	October 20, 2017	$	0.37
December 13, 2017	December 29, 2017	January 31, 2018	$	0.37
March 14, 2018	March 30, 2018	April 30, 2018	$	0.37
June 12, 2018	June 29, 2018	July 31, 2018	$	0.40
September 11, 2018	September 28, 2018	October 31, 2018	$	0.40
December 12, 2018	December 31, 2018	January 31, 2019	$	0.40

Stock incentive plan

The Company currently maintains the 2012 equity incentive plan (“the 2012 Plan”). The 2012 Plan authorizes the Compensation Committee to approve grants of equity-based awards to our officers, directors, and employees of the Manager and its affiliates. The equity incentive plan provides for grants of equity-based awards up to an aggregate of 5% of the shares of the Company’s common stock issued and outstanding from time to time on a fully diluted basis.

The Company’s current policy for issuing shares upon settlement of stock-based incentive awards is to issue new shares.

The fair value of the RSUs and RSAs granted, which is determined based upon the stock price on the grant date, is recorded as compensation expense on a straight-line basis over the vesting periods for the awards, with an offsetting increase in stockholders’ equity.

The following table summarizes the Company’s RSU and RSA activity for the years ended December 31, 2018 and 2017:

	Independent Director RSUs					Employee RSAs
(In Thousands, except share data)	Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)		Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)
Outstanding, January 1	—	$	—	$	—	—	$	—	$	—
Granted	40,000		580		14.50	25,851		380		14.70
Vested	(40,000)		(580)		14.50	—		—		—
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2017	—	$	—	$	—	25,851	$	380	$	14.70
Granted	23,104		320		13.85	101,670		1,408		13.85
Vested	(23,104)		(320)		13.85	(8,617)		(127)		14.70
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2018	—	$	—	$	—	118,904	$	1,661	$	13.97

At December 31, 2018 and 2017, there were 23,104 and 40,000 of fully vested RSUs that were not yet issued as common stock.

During the year ended December 31, 2018 and 2017, the Company recognized $0.6 and $0.7 million of noncash compensation expense related to its stock-based incentive plan in our consolidated statements of income, respectively.

At December 31, 2018 and 2017, approximately $1.2 million and $0.3 million of noncash compensation expense related to unvested awards had not yet been charged to net income. These costs are expected to be amortized into compensation expense ratably over the course of the remainder of the respective vesting periods.

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Earnings per Share of Common Stock

12 Months Ended

Dec. 31, 2018

Earnings per Share of Common Stock

Earnings per Share of Common Stock

Note 20 – Earnings per Share of Common Stock

The following table provides information on the basic and diluted earnings per share computations, including the number of shares of common stock used for purposes of these computations.

	Year Ended December 31,
(In Thousands, except for share and per share amounts)	2018		2017		2016
Basic Earnings
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Basic earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Loss from discontinued operations		-		-		(2,158)
Basic — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Diluted Earnings
Continuing Operations
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Diluted earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Basic — Loss from discontinued operations		-		-		(2,158)
Diluted  — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Number of Shares
Basic — Average shares outstanding		32,085,975		31,350,102		26,647,981	(1)
Effect of dilutive securities — Unvested participating shares		16,209		1,509		-
Diluted — Average shares outstanding		32,102,184		31,351,611		26,647,981
Basic
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
Diluted
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
(1) Retroactively adjusted for the equivalent number of shares after the reverse acquisition using an exchange rate of 0.8356.

Participating unvested RSUs were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.

Additionally, as of December 31, 2018, there are potential shares of common stock contingently issuable upon the conversion of the Convertible Notes in the future. The Company has asserted its intent and ability to settle the principal amount of the Convertible Notes in cash.Based on this assessment, the Company determined that it would be appropriate to apply a method similar to the treasury stock method, such that contingently issuable common stock is assessed quarterly along with our other potentially dilutive instruments. In order to compute the dilutive effect, the number of shares included in the denominator of diluted EPS is determined by dividing the “conversion spread value” of the share-settled portion (value above accreted value of face value and interest component) of the instrument by the share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the bond upon an assumed conversion. As of December 31, 2018, the conversion spread value is currently zero, since the closing price of our common stock does not exceed the conversion rate (strike price) and is “out-of-the-money”, resulting in no impact on diluted EPS.

Certain investors own OP units in our operating partnership. An OP unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the operating partnership. OP unit holders have the right to redeem their OP units, subject to certain restrictions. The redemption is required to be satisfied in shares of common stock or cash at the Company's option, calculated as follows: one share of the Company's common stock, or cash equal to the fair value of a share of the Company's common stock at the time of redemption, for each OP unit. When an OP unit holder redeems an OP unit, non-controlling interests in the operating partnership is reduced and the Company's equity is increased. At December 31, 2018 and 2017, the non-controlling interest OP unit holders owned 1,117,169 and 1,150,827, OP units, respectively.

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Offsetting Assets and Liabilities

12 Months Ended

Dec. 31, 2018

Offsetting Assets and Liabilities

Offsetting Assets and Liabilities

Note 21 – Offsetting Assets and Liabilities

In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company may enter into an International Swaps and Derivatives Association (“ISDA”) Master Agreement with multiple derivative counterparties. An ISDA Master Agreement, published by ISDA, is a bilateral trading agreement between two parties that allow both parties to enter into over-the-counter (“OTC”), derivative contracts. The ISDA Master Agreement contains a Schedule to the Master Agreement and a Credit Support Annex, which governs the maintenance, reporting, collateral management and default process (netting provisions in the event of a default and/or a termination event). Under an ISDA Master Agreement, the Company may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default, including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Company’s stockholders’ equity declines by a stated percentage or the Company fails to meet the terms of its ISDA Master Agreements, which would cause the Company to accelerate payment of any net liability owed to the counterparty.  As of December 31, 2018 and 2017 and for the periods then ended, the Company was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.

For derivatives traded under an ISDA Master Agreement, the collateral requirements are listed under the Credit Support Annex, which is the sum of the mark to market for each derivative contract, the independent amount due to the derivative counterparty and any thresholds, if any. Collateral may be in the form of cash or any eligible securities, as defined in the respective ISDA agreements. Cash collateral pledged to and by the Company with the counterparty, if any, is reported separately on the consolidated balance sheets as restricted cash. All margin call amounts must be made before the notification time and must exceed a minimum transfer amount threshold before a transfer is required. All margin calls must be responded to and completed by the close of business on the same day of the margin call, unless otherwise specified. Any margin calls after the notification time must be completed by the next business day. Typically, the Company and its counterparties are not permitted to sell, rehypothecate or use the collateral posted. To the extent amounts due to the Company from its counterparties are not fully collateralized, the Company bears exposure and the risk of loss from a defaulting counterparty. The Company attempts to mitigate counterparty risk by establishing ISDA agreements with only high grade counterparties that have the financial health to honor their obligations and diversification, entering into agreements with multiple counterparties.

In accordance with ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, the Company is required to disclose the impact of offsetting of assets and liabilities represented in the consolidated balance sheets to enable users of the consolidated financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities.  These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master Agreements or meet the following right of setoff criteria: (a) the amounts owed by the Company to another party are determinable, (b) the Company has the right to set off the amounts owed with the amounts owed by the counterparty, (c) the Company intends to set off, and (d) the Company’s right of setoff is enforceable at law.  As of December 31, 2018 and 2017, the Company has elected to offset assets and liabilities associated with its OTC derivative contracts in the consolidated balances sheets.

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets and liabilities presented in the consolidated balance sheet as of December 31, 2018:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Credit default swaps	$	295	$	—	$	295	$	—	$	295	$	—
Total	$	295	$	—	$	295	$	—	$	295	$	—

			Gross		Liabilities
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Liabilities		Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	3,625	$	—	$	3,625	$	—	$	3,625	$	—
Secured borrowings		831,574		—		831,574		831,574		—		—
Promissory note		2,973		—		2,973		2,973		—		—
Total	$	838,172	$	—	$	838,172	$	834,547	$	3,625	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets and liabilities presented in the consolidated balance sheet as of December 31, 2017:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Interest rate swaps	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—
Total	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—

					Liabilities
			Gross		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Amounts		the		Balance Sheets  (1)
	Amounts of		Offset in the		Consolidated				Cash
	Recognized		Consolidated		Balance		Financial		Collateral
(In Thousands)	Liabilities		Balance Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	216	$	—	$	216	$	—	$	216	$	—
Credit default swaps		66		—		66		—		66		—
Secured borrowings		631,286		—		631,286		631,286		—		—
Promissory note		6,107		—		6,107		6,107		—		—
Total	$	637,675	$	—	$	637,675	$	637,393	$	282	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

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Financial Instruments with Off-balance Sheet Risk, Credit Risk, and Certain Other Risks

12 Months Ended

Dec. 31, 2018

Financial Instruments with Off-balance Sheet Risk, Credit Risk, and Certain Other Risks

Financial Instruments with Off-balance Sheet Risk, Credit Risk, and Certain Other Risks

Note 22 – Financial Instruments with Off-balance Sheet Risk, Credit Risk, and Certain Other Risks

In the normal course of business, the Company enters into transactions in various financial instruments that expose us to various types of risk, both on and off balance sheet. Such risks are associated with financial instruments and markets in which the Company invests. These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off balance sheet risk and prepayment risk.

Market Risk — Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments. We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest-bearing securities and equity securities.

Credit Risk — The Company is subject to credit risk in connection with our investments in SBC loans and SBC MBS and other target assets we may acquire in the future. The credit risk related to these investments pertains to the ability and willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed throughout the loan or security term. We believe that loan credit quality is primarily determined by the borrowers' credit profiles and loan characteristics. We seek to mitigate this 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.

The Company is also subject to credit risk with respect to the counterparties to derivative contracts. If a counterparty becomes bankrupt or otherwise fails to perform its obligation under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value.  If we are owed this fair market value in the termination of the derivative transaction and its claim is unsecured, we will be treated as a general creditor of such counterparty, and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in such circumstances. In addition, the business failure of a counterparty with whom we enter a hedging transaction will most likely result in its default, which may result in the loss of potential future value and the loss of our hedge and force us to cover our commitments, if any, at the then current market price.

Counterparty credit risk is the risk that counterparties may fail to fulfill their obligations, including their inability to post additional collateral in circumstances where their pledged collateral value becomes inadequate. The Company attempts to manage its exposure to counterparty risk through diversification, use of financial instruments and monitoring the creditworthiness of counterparties.

The Company finances the acquisition of a significant portion of its loans and investments with repurchase agreements and borrowings under credit facilities. In connection with these financing arrangements, the Company pledges its loans, securities and cash as collateral to secure the borrowings. The amount of collateral pledged will typically exceed the amount of the borrowings (i.e., the haircut) such that the borrowings will be over-collateralized. As a result, the Company is exposed to the counterparty if, during the term of the repurchase agreement financing, a lender should default on its obligation and the Company is not able to recover its pledged assets. The amount of this exposure is the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged by the Company to the lender including accrued interest receivable on such collateral.

GMFS sells loans to investors without recourse. As such, the investors have assumed the risk of loss or default by the borrower. However, GMFS is usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation and collateral. To the extent that GMFS does not comply with such representations, or there are early payment defaults, GMFS may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. In addition, if loans pay-off within a specified time frame, GMFS may be required to refund a portion of the sales proceeds to the investors.

Liquidity Risk — Liquidity risk arises in our investments and the general financing of our investing activities.  It includes the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate positions in a timely manner at reasonable prices, in addition to potential increases in collateral requirements during times of heightened market volatility. If we were forced to dispose of an illiquid investment at an inopportune time, we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in SBC loans, MBS and other financial instruments.  Factors such as our expected exit strategy for, the bid to offer spread of, and the number of broker dealers making an active market in a particular strategy and the availability of long-term funding, are considered in analyzing liquidity risk.  To reduce any perceived disparity between the liquidity and the terms of the debt instruments in which we invest, we attempt to minimize our reliance on short-term financing arrangements. While we may finance certain investment in security positions using traditional margin arrangements and borrowings under repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer term financing vehicles may be utilized to attempt to provide us with sources of long-term financing.

Off‑Balance Sheet Risk —The Company has undrawn commitments on outstanding loans which are disclosed in Note 23.

Interest Rate — Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Generally, our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, subject to a floor, as determined by the particular financing arrangement. In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.  Furthermore, such defaults could have an adverse effect on the spread between our interest-earning assets and interest-bearing liabilities.

Additionally, non-performing SBC 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 SBC 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 SBC financing.

Prepayment Risk — As we receive prepayments of principal on our investments, premiums paid on such investments will be amortized against interest income. In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments and this is also affected by interest rate movements. Conversely, discounts on such investments are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments. An increase in prepayment rates will also adversely affect the fair value of our MSRs.

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Commitments, Contingencies and Indemnifications

12 Months Ended

Dec. 31, 2018

Commitments, Contingencies and Indemnifications

Commitments, Contingencies and Indemnifications

Note 23 – Commitments, Contingencies and Indemnifications

Litigation

The Company may be subject to litigation and administrative proceedings arising in the ordinary course of its business.

The Company has entered into agreements, which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to these agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on history and experience, the Company expects the risk of loss to be remote.

Management is not aware of any other contingencies that would require accrual or disclosure in the consolidated financial statements.

Unfunded Loan Commitments

As of December 31, 2017, the Company had $9.6 million of unfunded loan commitments related to loans, held at fair value. As of December 31, 2018 and 2017, the Company had $161.7 million and $84.7 million of unfunded loan commitments related to loans, held-for-investment, respectively. As of December 31, 2018, the Company had $4.9 million of unfunded loan commitments related to loans, held for sale, at fair value.

Commitments to Originate Loans

GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not economically hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the borrower does not perform.

Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. As of December 31, 2018 and 2017, total commitments to originate loans were $124.0 million and $147.6 million, respectively.

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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Taxes

Income Taxes

Note 24 – Income Taxes

The Company is a REIT pursuant to IRC Section 856. Our qualification as a REIT depends on our ability to meet various requirements imposed by the Internal Revenue Code, which relate to our organizational structure, diversity of stock ownership and certain requirements with regard to the nature of our assets and the sources of our income. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four taxable years. As of December 31, 2018 and 2017, we are in compliance with all REIT requirements.

Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities that would not be qualifying income if earned directly by the parent REIT, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Internal Revenue Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.

Our TRSs engage in various real estate related operations, including originating and securitizing commercial and residential mortgage loans, and investments in real property. The majority of our TRSs are held within the SBC Originations, SBA Originations, Acquisitions and Servicing, and Residential Mortgage Banking segments. Our TRSs are not consolidated for federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred income taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act changed many aspects of U.S. corporate income taxation, including a reduction of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system, and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. We recognized the tax effects of the Tax Act in our year ended December 31, 2017 results and recorded a $1.0 million income tax benefit which relates entirely to the re-measurement of deferred tax balances to the 21% tax rate. As of December 31, 2018, our accounting for the implications of the Tax Act is complete.

Our income tax provision consists of the following:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Current
Federal income tax (benefit)	$	356	$	(1,235)	$	6,441
State and local income tax (benefit)		169		(171)		947
Net current tax provision (benefit)		525		(1,406)		7,388
Deferred
Federal income tax		1,167		3,779		1,401
State and local income tax		(306)		613		583
Valuation allowance		—		(1,147)		279
Net deferred tax provision		861		3,245		2,263
Total income tax provision	$	1,386	$	1,839	$	9,651

The following table is a reconciliation of our federal income tax determined using our statutory federal tax rate to our reported income tax provision for the years ended December 31, 2018, 2017 and 2016:

	Year Ended December 31,
(In Thousands)	2018		2017		2016
U.S. statutory tax	$	13,207	$	16,679	$	22,825
State and local income tax		464		569		2,322
Income attributable to REIT		(11,274)		(10,795)		(14,522)
Income attributable to Non-controlling interests		(400)		(568)		(1,251)
Nondeductible		(194)		748		21
Change in tax rate (a)		(554)		(727)		—
Change in valuation allowance		—		(1,147)		279
Return to Provision		(11)		(2,547)		—
Other		148		(373)		(23)
Effective income tax	$	1,386	$	1,839	$	9,651
(a) For 2017, the amount relates to the effects of revaluing our net deferred tax balances for the Tax Act that was enacted on December 22, 2017.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are presented net by tax jurisdiction and are reported in other assets and other liabilities, respectively. The following table presents the tax effects of temporary differences on their respective net deferred tax assets and liabilities (in thousands):

(In Thousands)	December 31, 2018		December 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$	8,408	$	4,989
Unrealized losses		1,442		—
Accruals		2,815		—
Depreciation and amortization		986		997
Goodwill		3,927		3,110
Compensation		279		1,226
Other		227		1,240
Total deferred tax assets	$	18,084	$	11,562
Deferred tax liabilities:
Accruals	$	—	$	216
Loan / servicing rights balance		19,210		12,014
Derivative instruments		133		373
Other taxable temporary difference		629		310
Total deferred tax liabilities	$	19,972	$	12,913
Net deferred tax assets (liabilities)	$	(1,888)	$	(1,351)

The Company has approximately $27.6 million of federal and $44.7 million of state net operating loss carryforwards which have expiration dates beginning 2033, with certain amounts having no expiration.

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases. We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of the future taxable income.

As of December 31, 2018, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax asset outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets, the cumulative net income in our consolidated statements of income in recent years, the future reversals of existing temporary differences, and the carryforward periods for any carryforwards of net operating losses.

The tables above do not include tax information on discontinued operations that occurred as of December 31, 2016. The tax rate on discontinued operations is approximately 39%. The difference between the statutory rate of 21% and the effective income tax rate is primarily due to state and local taxes.

As of December 31, 2018 and 2017, the Company had no uncertain tax positions recorded or disclosed in the financial statements. Additionally, it is the belief of management that the total amount of uncertain tax positions, if any, will not materially change over the next 12 months.

Our major tax jurisdictions where we file income tax returns include Federal, New York State and New York City. Our 2015 and forward tax years are subject to examination. The TRS major tax jurisdictions are Federal, Louisiana, New York State, New York City, New Jersey and California. For Federal and state purposes, with the exception of New Jersey, the TRS entities are subject to examination for the 2015 and forward tax years. For New Jersey, the TRS entities are subject to examination for the 2014 and forward tax years.

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Segment Reporting

12 Months Ended

Dec. 31, 2018

Segment Reporting

Segment Reporting

Note 25 – Segment Reporting

The Company reports its results of operations through the following four business segments: i) Loan Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking. The Company’s organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), uses to evaluate, view, and run its business operations, which includes customer base and nature of loan program types. The segments are based on this organizational structure and the information reviewed by the CODM and management to evaluate segment results.

Loan Acquisitions

Through the Loan Acquisitions segment, the Company acquires performing and non-performing SBC loans and intends to continue to acquire these loans as part of the Company’s business strategy.

SBC Originations

Through the SBC Originations segment, the Company originates SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels. Additionally, as part of this segment, we originate and service multi-family loan products under the Freddie Mac program. This segment also reflects the impact of our SBC securitization activities.

SBA Originations, Acquisitions, and Servicing

Through the SBA Originations, Acquisitions, and Servicing segment, the Company acquires, originates and services loans guaranteed by the SBA under the SBA Section 7(a) Program. This segment also reflects the impact of our SBA securitization activities.

Residential Mortgage Banking

Through the Residential Mortgage Banking segment, the Company 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.

Corporate- Other

Corporate - Other consists primarily of unallocated corporate financing, including interest expense relating to our senior secured and convertible notes on funds yet to be deployed, allocated employee compensation from our Manager, management and incentive fees paid to our Manager and other general corporate overhead expenses.

Segment Realignment

Effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. Securitization activities on originated SBC and SBA loans were transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on loan type. The other change presents Corporate- Other amounts separately and no longer reflects these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

Results of Business Segments and All Other

Reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other, for the year ended December 31, 2018 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	47,243	$	81,752	$	36,706	$	3,798	$	—	$	169,499
Interest expense		(28,946)		(60,879)		(16,218)		(3,195)		—		(109,238)
Net interest income before provision for loan losses	$	18,297	$	20,873	$	20,488	$	603	$	—	$	60,261
Provision for loan losses		(1,727)		(13)		39		—		—		(1,701)
Net interest income after provision for loan losses	$	16,570	$	20,860	$	20,527	$	603	$	—	$	58,560
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	59,852	$	—	$	59,852
Net realized gain on financial instruments		5,023		17,482		15,904		—		—		38,409
Net unrealized gain on financial instruments		(1,156)		142		173		5,694		—		4,853
Other income		368		4,366		621		200		31		5,586
Servicing income		20		1,396		5,390		20,269		—		27,075
Income from unconsolidated joint venture		12,148		—		—		—		—		12,148
Total non-interest income	$	16,403	$	23,386	$	22,088	$	86,015	$	31	$	147,923
Non-interest expense
Employee compensation and benefits		(386)		(8,815)		(13,077)		(33,401)		(923)		(56,602)
Allocated employee compensation and benefits from related party		(420)		—		—		—		(3,780)		(4,200)
Variable expenses on residential mortgage banking activities		—		—		—		(22,228)		—		(22,228)
Professional fees		(1,310)		(1,285)		(820)		(607)		(2,977)		(6,999)
Management fees – related party		—		—		—		—		(8,176)		(8,176)
Incentive fees – related party		—		—		—		—		(1,143)		(1,143)
Loan servicing expense		(3,926)		(3,883)		(260)		(7,444)		(32)		(15,545)
Other operating expenses		(3,214)		(10,392)		(4,070)		(8,254)		(2,817)		(28,747)
Total non-interest expense	$	(9,256)	$	(24,375)	$	(18,227)	$	(71,934)	$	(19,848)	$	(143,640)
Net income (loss) before provision for income taxes	$	23,717	$	19,871	$	24,388	$	14,684	$	(19,817)	$	62,843
Total assets	$	644,512	$	1,606,210	$	455,513	$	260,523	$	70,085	$	3,036,843

Reportable segments for the year ended December 31, 2017 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	37,198	$	59,021	$	38,108	$	3,978	$	—	$	138,305
Interest expense		(16,741)		(35,121)		(16,098)		(3,145)		(3,541)		(74,646)
Net interest income before provision for loan losses	$	20,457	$	23,900	$	22,010	$	833	$	(3,541)	$	63,659
Provision for loan losses		(2,026)		(195)		(142)		—		—		(2,363)
Net interest income after provision for loan losses	$	18,431	$	23,705	$	21,868	$	833	$	(3,541)	$	61,296
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	83,437	$	—	$	83,437
Net realized gain on financial instruments		(323)		9,665		9,509		—		478		19,329
Net unrealized gain (loss) on financial instruments		1,628		8,125		1,315		(4,000)		(68)		7,000
Other income		1,766		3,983		1,513		148		—		7,410
Servicing income		197		824		4,624		17,349		—		22,994
Income on unconsolidated joint venture		1,048		—		—		—		—		1,048
Total non-interest income	$	4,316	$	22,597	$	16,961	$	96,934	$	410	$	141,218
Non-interest expense
Employee compensation and benefits		(576)		(8,509)		(10,505)		(34,601)		(848)		(55,039)
Allocated employee compensation and benefits from related party		(384)		—		—		—		(3,459)		(3,843)
Variable expenses on residential mortgage banking activities		—		—		—		(41,737)		—		(41,737)
Professional fees		(1,501)		(1,351)		(1,973)		(865)		(3,231)		(8,921)
Management fees – related party		—		—		—		—		(8,059)		(8,059)
Loan servicing expense		(2,981)		(2,355)		1,454		(6,441)		—		(10,323)
Other operating expenses		(4,285)		(9,666)		(4,076)		(6,677)		(2,235)		(26,939)
Total non-interest expense	$	(9,727)	$	(21,881)	$	(15,100)	$	(90,321)	$	(17,832)	$	(154,861)
Net income (loss) before provision for income taxes	$	13,020	$	24,421	$	23,729	$	7,446	$	(20,963)	$	47,653
Total assets	$	511,427	$	1,154,509	$	510,006	$	324,392	$	23,169	$	2,523,503

Reportable segments for the year ended December 31, 2016 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	49,311	$	40,586	$	46,417	$	709	$	—	$	137,023
Interest expense		(18,327)		(20,347)		(17,397)		(557)		(1,144)		(57,772)
Net interest income before provision for loan losses	$	30,984	$	20,239	$	29,020	$	152	$	(1,144)	$	79,251
Provision for loan losses		(6,419)		(86)		(1,314)		—		—		(7,819)
Net interest income after provision for loan losses	$	24,565	$	20,153	$	27,706	$	152	$	(1,144)	$	71,432
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	7,630	$	—	$	7,630
Net realized gain on financial instruments		(293)		2,290		4,604		—		313		6,914
Net unrealized gain (loss) on financial instruments		4,528		6,424		—		6,917		68		17,937
Other income		2,246		5,059		1,845		11		—		9,161
Servicing income		49		518		5,555		2,536				8,658
Gain on bargain purchase		—		—		—		—		15,218		15,218
Total non-interest income	$	6,530	$	14,291	$	12,004	$	17,094	$	15,599	$	65,518
Non-interest expense
Employee compensation and benefits		(337)		(9,359)		(9,391)		(5,578)		(162)		(24,827)
Allocated employee compensation and benefits from related party		(366)		—		—		—		(3,302)		(3,668)
Variable expenses on residential mortgage banking activities		—		—		—		(597)		—		(597)
Professional fees		(2,735)		(1,537)		(3,693)		359		(5,814)		(13,420)
Management fees – related party		—		—		—		—		(7,432)		(7,432)
Incentive fees – related party		—		—		—		—		—		—
Loan servicing expense		(2,743)		(1,348)		479		(999)		—		(4,611)
Other operating expenses		(3,604)		(6,864)		(3,798)		(1,074)		(1,840)		(17,180)
Total non-interest expense	$	(9,785)	$	(19,108)	$	(16,403)	$	(7,889)	$	(18,550)	$	(71,735)
Income from continuing operations before provision for income taxes	$	21,310	$	15,336	$	23,307	$	9,357	$	(4,095)	$	65,215
Total Assets	$	542,643	$	796,408	$	593,091	$	353,141	$	319,984	$	2,605,267

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Discontinued Operations

12 Months Ended

Dec. 31, 2018

Discontinued Operations

Discontinued Operations

Note 26 – Discontinued Operations

In the fourth quarter of 2015, the Company determined Silverthread should be classified as held-for-sale due to management’s intent to sell the segment, the availability and active marketing of the segment for immediate sale and the high probability of a successful sale.

The sale of Silverthread closed in May of 2016, with an effective economic date of March 1, 2016. We negotiated an agreement with the buyer to receive $4.0 million. This amount was fully received in early 2019. As of December 31, 2018 and 2017, there were no assets or liabilities of the discontinued segment.

The primary components of discontinued operations are detailed in the table below:

		For the Year Ended December 31,
(In Thousands)		2018		2017		2016
Non-interest income
Commission income	$	—	$	—	$	2,984
Property management income		—		—		263
Other		—		—		16
Total non-interest income	$	—	$	—	$	3,263
Non-interest expense
Employee compensation and benefits	$	—	$	—	$	(1,071)
Professional fees		—		—		(138)
Commission expense		—		—		(1,844)
Technology expense		—		—		(171)
Rent expense		—		—		(268)
Tax expense		—		—		(3)
Recruiting, training, and travel expenses		—		—		(46)
Marketing expense		—		—		(29)
Other		—		—		(536)
Total non-interest expense	$	—	$	—	$	(4,106)
Loss on sale		—		—		(2,695)
Loss before income tax benefit	$	—	$	—	$	(3,538)
Income tax benefit		—		—		1,380
Loss on discontinued operations presented on the statements of income	$	—	$	—	$	(2,158)

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2018

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

Note 27 – Quarterly Financial Data (Unaudited)

The following table summarizes our quarterly financial data which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations (amounts in thousands, except per share amounts):

	March 31		June 30		September 30		December 31
2018
Net interest income after provision for loan losses	$	14,317	$	15,848	$	14,562	$	13,833
Non-interest income		42,747		40,288		42,761		22,125
Non-interest expense		(35,983)		(39,587)		(38,859)		(29,209)
Net income		18,518		15,884		17,569		9,486
Net income attributable to Ready Capital Corporation		17,854		15,296		16,931		9,177
Income (loss) from continuing operations - per share	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Basic	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Diluted	$	0.56	$	0.48	$	0.53	$	0.30
Dividends declared per share of common stock	$	0.37	$	0.40	$	0.40	$	0.40
2017
Net interest income after provision for loan losses	$	16,211	$	15,859	$	14,664	$	14,562
Non-interest income		27,015		38,564		38,370		37,269
Non-interest expense		(32,635)		(42,201)		(41,001)		(39,025)
Net income		9,557		11,153		12,374		12,730
Net income attributable to Ready Capital Corporation		8,856		10,496		11,841		12,097
Income (loss) from continuing operations - per share	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Basic	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Diluted	$	0.29	$	0.34	$	0.37	$	0.38
Dividends declared per share of common stock	$	0.37	$	0.37	$	0.37	$	0.37

Annual EPS may not equal the sum of each quarter’s EPS due to rounding and other computational factors.

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Supplemental Financial Data

12 Months Ended

Dec. 31, 2018

Supplemental Financial Data

Supplemental Financial Data

Note 28  - Supplemental Financial Data

Summarized Financial Information of Our Unconsolidated Subsidiaries

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, which the Company has a 50% interest. Pursuant to the consolidation guidance, we determined our interest in the entity is a VIE, however, we do not consolidate the entity as we determined that we are not the primary beneficiary. WFLLA, LLC holds a 49.9% interest in another company, Girod HoldCo, LLC, whom owns and manages the day-to-day affairs and business associated with the SBC loan pool.

In accordance with Regulation S-X section 10-01(b)-1, unconsolidated entities that meet certain significance tests are required to have supplemental disclosures included in our consolidated financial statements, including condensed financial information for the years ended December 31, 2018 and 2017.

Statements of Income	Year Ended December 31, 2018
(In Thousands)		Girod HoldCo, LLC		WFLLA, LLC
Interest income	$	21,182	$	10,570
Realized gains		27,310		13,628
Unrealized gains		8,191		4,087
Servicing expense and other		(7,972)		(3,989)
Income before provision for income taxes	$	48,711	$	24,296

During the years ended December 31, 2018 and 2017, the Company recorded $12.1 million and $1.0 million of income, respectively, which is based on our proportional ownership interest in the entities above. This amount is reflected in Income from unconsolidated joint venture within the statement of income.

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Subsequent Events

12 Months Ended

Dec. 31, 2018

Subsequent Events

Subsequent Events

Note 29– Subsequent Events

In January 2019, the Company completed the securitization of $399.2 million of fixed-rate SBC loans and issued $355.8 million of senior bonds at a weighted average pass-through rate of 4.1%.

In March 2019, the Company extended one of our borrowings pursuant to a committed warehouse line of credit agreement used within our Residential mortgage banking business. The amended agreement has a maximum advance amount of $125.0 million and a pricing rate of LIBOR plus 1.6 to 2.2.%. 

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Schedule IV – Mortgage Loans on Real Estate

12 Months Ended

Dec. 31, 2018

Schedule IV – Mortgage Loans on Real Estate

Schedule IV – Mortgage Loans on Real Estate

Ready Capital Corporation

Schedule IV – Mortgage Loans on Real Estate

There are no individual loans that exceed 3% of the total carrying amount of all mortgages. The following table discloses the Company’s mortgage loans on real estate, categorized by product type:

Product Type	UPB Grouping	Loan Count	Interest Rate	Maturity Date	Carrying Value		UPB		UPB of loans subject to DQ principal or interest
Acquired Loans
	0 - 500k	602	0.00 - 18.00%	2004 - 2039	$	120,430	$	131,387	$	13,343
	500k - 1mm	159	3.50 - 10.25%	2019 - 2046		104,926		109,677		5,521
	1mm - 1.5mm	62	4.37 - 8.71%	2017 - 2038		70,490		74,323		4,668
	1.5mm - 2mm	28	5.00 - 7.64%	2019 - 2036		45,476		47,975		1,806
	2mm - 2.5mm	8	5.25 - 7.00%	2020 - 2030		17,902		18,146		2,440
	> 2.5mm	36	5.10 - 11.00%	2011 - 2034		189,479		191,434		3,368
Total Acquired Loans		895			$	548,703	$	572,942	$	31,146
Acquired SBA 7(a) loans
	0 - 500k	1254	0.00 - 10.50%	2012 - 2042	$	111,187	$	136,584	$	16,002
	500k - 1mm	176	4.75 - 8.00%	2014 - 2042		115,296		124,312		8,869
	1mm - 1.5mm	59	5.00 - 8.00%	2026 - 2041		69,080		73,794		5,071
	1.5mm - 2mm	4	6.00 - 8.00%	2035 - 2037		6,572		6,664		-
	2mm - 2.5mm	1	8.00 - 8.00%	2037 - 2037		2,290		2,242		-
	> 2.5mm	5	6.00 - 7.50%	2035 - 2038		14,063		14,381		-
Total Acquired SBA 7(a) loans		1,499			$	318,488	$	357,977	$	29,942
Originated Transitional loans
	0 - 500k	16	5.06 - 8.26%	2020 - 2023	$	3,047	$	3,089	$	-
	500k - 1mm	8	6.01 - 8.25%	2019 - 2023		6,558		6,562		-
	1mm - 1.5mm	7	4.76 - 8.79%	2019 - 2025		9,172		9,184		-
	1.5mm - 2mm	12	5.99 - 12.00%	2018 - 2026		20,020		19,997		-
	2mm - 2.5mm	7	6.35 - 8.44%	2019 - 2021		15,676		15,723		-
	> 2.5mm	89	5.44 - 9.19%	2018 - 2022		610,260		613,798		5,687
Total Originated Transitional loans		139			$	664,733	$	668,353	$	5,687
Originated Freddie loans
	1mm - 1.5mm	2	4.56 - 4.72%	2029 - 2039	$	2,968	$	2,900	$	-
	2mm - 2.5mm	2	4.88 - 4.95%	2024 - 2029		4,167		4,095		-
	> 2.5mm	3	4.70 - 5.14%	2024 - 2039		16,187		15,978		-
Total Originated Freddie loans		7			$	23,322	$	22,973	$	-
Originated Residential Agency loans
	0 - 500k	343	3.25 - 6.38%	2033 - 2049	$	66,867	$	64,713	$	1,563
	500k - 1mm	4	4.25 - 5.50%	2048 - 2049		2,807		2,773		-
Total Originated Residential Agency loans		347			$	69,674	$	67,486	$	1,563
Originated SBA 7(a) loans
	0 - 500k	379	6.50 - 8.00%	2023 - 2044	$	63,049	$	65,839	$	1,235
	500k - 1mm	43	6.25 - 8.00%	2028 - 2044		29,451		30,066		-
	1mm - 1.5mm	5	6.75 - 7.75%	2043 - 2043		5,870		5,874		1,105
	2mm - 2.5mm	1	6.75 - 6.75%	2043 - 2043		2,165		2,013		-
	> 2.5mm	2	6.75 - 7.25%	2043 - 2043		6,034		5,610		-
Total Originated SBA 7(a) loans		430			$	106,569	$	109,402	$	2,340
Originated SBC loans
	0 - 500k	9	5.09 - 6.30%	2024 - 2043	$	4,065	$	3,946	$	-
	500k - 1mm	46	4.50 - 7.42%	2019 - 2028		37,331		36,554		2,099
	1mm - 1.5mm	39	5.06 - 7.42%	2019 - 2029		48,694		47,847		2,443
	1.5mm - 2mm	42	4.56 - 7.52%	2019 - 2029		74,804		73,492		3,105
	2mm - 2.5mm	25	4.66 - 7.52%	2019 - 2032		57,715		56,698		4,241
	> 2.5mm	104	4.50 - 6.95%	2019 - 2038		554,799		547,111		16,515
Total Originated SBC loans		265			$	777,408	$	765,648	$	28,403
Originated SBC loans, at fair value
	1mm - 1.5mm	1	6.38 - 6.38%	2026 - 2026	$	1,438	$	1,376	$	-
	1.5mm - 2mm	1	5.25 - 5.25%	2027 - 2027		1,692		1,608		-
	2mm - 2.5mm	1	6.23 - 6.23%	2024 - 2024		2,318		2,235		-
	> 2.5mm	3	5.57 - 7.75%	2019 - 2019		17,216		17,106		-
Total Originated SBC loans, at fair value		6			$	22,664	$	22,325	$	-
General Allowance for Loan Losses						(1,937)
Total Loans		3,588			$	2,529,624	$	2,587,106	$	99,081

Reconciliation of mortgage loans on real estate:

The following tables reconcile mortgage loans on real estate, including loans in consolidated VIEs, from December 31, 2016 to December 31, 2018 ($ in thousands):

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2015	$	1,716,072	$	-	$	1,716,072
Origination of loan receivables		315,339		621,343		936,682
Purchases of loan receivables		98,683		-		98,683
Loans acquired in connection with reverse merger		-		189,197		189,197
Proceeds from disposition and principal payment of loan receivables		(479,965)		(645,954)		(1,125,919)
Net realized gain (loss) on sale of loan receivables		6,349		14,342		20,691
Net unrealized gain (loss) on loan receivables		4,131		(2,982)		1,149
Non-cash proceeds on creation of MSR		(951)		(5,166)		(6,117)
Accretion/amortization of discount, premium and other fees		26,809		-		26,809
Transfers		(11,968)		11,017		(951)
Provision for loan losses		(7,819)		-		(7,819)
Balance at December 31, 2016	$	1,666,680	$	181,797	$	1,848,477

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2016	$	1,666,680	$	181,797	$	1,848,477
Origination of loan receivables		454,975		2,508,153		2,963,128
Purchases of loan receivables		147,327		11,195		158,522
Proceeds from disposition and principal payment of loan receivables		(422,059)		(2,571,583)		(2,993,642)
Net realized gain (loss) on sale of loan receivables		(3,203)		78,798		75,595
Net unrealized gain (loss) on loan receivables		5,328		3,537		8,865
Accretion/amortization of discount, premium and other fees		13,825		-		13,825
Transfers		(4,125)		4,125		-
Transfers to Real estate owned		(2,285)		-		(2,285)
Provision for loan losses		(2,363)		-		(2,363)
Balance at December 31, 2017	$	1,854,100	$	216,022	$	2,070,122

	Loans, net		Loans, held for sale, at fair value		Total Loan Receivables
Balance at December 31, 2017	$	1,854,100	$	216,022	$	2,070,122
Origination of loan receivables		934,607		2,407,492		3,342,099
Purchases of loan receivables		369,418		17,481		386,899
Proceeds from disposition and principal payment of loan receivables		(746,162)		(2,586,724)		(3,332,886)
Net realized gain (loss) on sale of loan receivables		(5,454)		63,067		57,613
Net unrealized gain (loss) on loan receivables		(720)		(2,401)		(3,121)
Accretion/amortization of discount, premium and other fees		14,474		-		14,474
Transfers		(503)		503		-
Transfers to Real estate owned		(3,693)		(182)		(3,875)
Provision for loan losses		(1,701)		-		(1,701)
Balance at December 31, 2018	$	2,414,366	$	115,258	$	2,529,624

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Summary of Significant Accounting Policies

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Consolidation

Basis of Consolidation

The accompanying consolidated financial statements of the Company include the accounts and results of operations of the Operating Partnership and other consolidated subsidiaries and VIEs in which we are the primary beneficiary. The consolidated financial statements are prepared in accordance with ASC 810, Consolidations. Intercompany accounts and transactions have been eliminated.

Reclassifications

Reclassifications

Certain amounts reported for the prior periods in the accompanying consolidated financial statements have been reclassified in order to conform to the current period’s presentation.

As described in Note 4, the impact of the retrospective adoption of Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash, resulted in revisions to prior period numbers to conform with the updated accounting standard and our current period’s presentation.

As described in further below, effective during the fourth quarter of 2018, the Company revised its presentation of residential mortgage banking activities and variable expenses on residential mortgage banking activities within our Consolidated Statements of Income and Note 9, which no longer presents these amounts as a net amount. Prior period numbers were revised to conform to the new presentation and to be consistent with our current period’s presentation.

As described in Note 25, effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. These organizational changes resulted in securitization activities on originated SBC and SBA loans being transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on the loan type. These organizational changes also resulted in the Company presenting Corporate- Other amounts separately and no longer reflecting these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company has accounted for cash and cash equivalents in accordance with ASC 305, Cash and Cash Equivalents.The Company defines cash and cash equivalents as cash, demand deposits, and short-term, highly liquid investments with original maturities of 90 days or less when purchased. Cash and cash equivalents are exposed to concentrations of credit risk. We deposit our cash with institutions that we believe to have highly valuable and defensible business franchises, strong financial fundamentals, and predictable and stable operating environments.

As of December 31, 2018 and 2017, the Company had $0.6 million and $0.6 million, respectively, in money market mutual funds, and substantially all of the Company’s cash and cash equivalents not held in money market funds were comprised of cash balances with banks that are in excess of the Federal Deposit Insurance Corporation insurance limits.

Restricted Cash

Restricted Cash

Restricted cash represents cash held by the Company as collateral against its derivatives, borrowings under repurchase agreements, borrowings under credit facilities with counterparties, construction and mortgage escrows, as well as cash held for remittance on loans serviced for third parties. Restricted cash is not available for general corporate purposes, but may be applied against amounts due to counterparties under existing swaps and repurchase agreement borrowings, or returned to the Company when the restriction requirements no longer exist or at the maturity of the swap or repurchase agreement.

Short term investments

Short term investments

The Company accounts for short-term investments as trading securities under ASC 320, Investments-Debt and Equity Securities. Short-term investments consist of U.S. Treasury Bills with original maturities of less than a year but greater than three months. The Company holds short-term investments at fair value. Interest received and accrued as well as the accretion of purchase discount in connection with short-term investments is recorded as interest income on the consolidated statements of income. Changes in the fair value of short-term investments are recorded as net unrealized gain (loss) on the consolidated statements of income.

Loans, net

Loans, net

Loans, net consists of loans, held-for-investment, net of allowance for loan losses, and loans, held at fair value.

Loans, held-for-investment

Loans, held-for-investment are loans acquired from third parties (“acquired loans”), loans originated by ReadyCap that we do not intend to sell, or securitized loans that were previously originated by ReadyCap. Securitized loans remain on the Company’s balance sheet because the securitization vehicles are consolidated under ASC 810.

Acquired loans are recorded at cost at the time they are acquired. Acquired loans are accounted for in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) and referred to as “purchased credit impaired loans” (PCI loans) if both of the following conditions are met as of the acquisition date: (i) there is evidence of deterioration in credit quality of the loan since its origination and (ii) it is probable that we will not collect all contractual cash flows on the loan.

Acquired loans without evidence of these conditions, securitized loans, and loans originated by ReadyCap that we do not intend to sell are accounted for under ASC 310-10, Receivables-Overall, (“ASC 310-10”) and are referred to as “Non-purchased credit impaired loans” (non-PCI loans).

Purchased Credit Impaired (PCI) Loans

The estimated cash flow expected for each loan is estimated at the time the loan is acquired. The excess of the cash flows expected to be collected on PCI loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected is referred to as the non-accretable difference and is not accreted over time.

The Company estimates expected cash flows to be collected over the life of individual PCI loans on a quarterly basis. If the Company determines that discounted expected cash flows have decreased, the PCI loans would be considered impaired, which would result in a provision for loan loss and a corresponding increase in the allowance for loan losses.

If discounted expected cash flows have increased, or improved, in subsequent evaluations, the increase in cash flows is first used to reverse the amount of any related allowance for loan losses before the yield is adjusted. Additionally, the Company will increase the accretable yield to account for the increase in expected cash flows.

The estimate of the amount and timing of cash flows for our PCI loans is based on historical information available and expected future performance of the loans, and may include the timing of expected future cash flows, prepayment speed, default rates, loss severities, delinquency rates, percentage of non-performing loans, extent of credit support available, Fair Isaac Corporation scores at loan origination, year of origination, loan-to-value ratios, geographic concentrations, as well as reports by credit rating agencies, such as Moody’s, Standard & Poor’s Corporation, or Fitch, general market assessments and dialogue with market participants. As a result, substantial judgment is used in the analysis to determine the expected cash flows.

Non-PCI Loans

The Company uses the interest method to recognize, as a constant effective yield adjustment, the difference between the initial recorded investment in the loan and the principal amount of the loan. The calculation of the constant effective yield necessary to apply the interest method uses the payment terms required by the loan contract, and prepayments of principal are not anticipated to shorten the loan term.

For non-PCI loans, recognition of interest income is suspended when any loans are placed on non-accrual status. Generally, all classes of loans are placed on non-accrual status when principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Interest income accrued, but not collected, at the date loans are placed on non-accrual status is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.

Loans, held at fair value

Loans, held at fair value represent certain loans originated by ReadyCap for which the Company has elected the fair value option. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. Changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income.

Allowance for loan losses

Allowance for loan losses

The allowance for loan losses is intended to provide for credit losses inherent in the loans, held-for-investment portfolio and is reviewed quarterly for adequacy considering credit quality indicators, including probable and historical losses, collateral values, loan-to-value ratio and economic conditions. The allowance for loan losses is increased through provisions for loan losses charged to earnings and reduced by charge-offs, net of recoveries.

We determine the allowance for loan losses by measuring credit impairment on (1) an individual basis for non-accrual status loans, and (2) on a collective basis for all other loans with similar risk characteristics. The allowance for loan losses on an individual basis is assessed when a loan is on non-accrual and the recoverability of the loan is less than its carrying value. The Company considers the loans to be collateral dependent and relies on the current fair value of the collateral as the basis for determining impairment. Loans that are not assessed individually for impairment are assessed on a collective basis. For the acquired loans we perform a historical analysis on both cumulative defaults and severity upon default for all loans that were current as of November 4, 2013 when the Company was formed or acquired thereafter. We calculated the cumulative default and loss severity on the acquired loans with delinquency statuses of 90+ days and applied those factors to the current acquired loan population. For the originated loans, our historical data shows a minimal number of defaults, therefore we used an analysis performed on the latest ReadyCap securitization to determine the likelihood of default and to determine loss severity we stressed collateral value to the current principal balance based on the total valuation decline of SBC properties from the peak valuation in 2007 through their post-crisis low in 2010.

The determination of allowances for SBA loans is based upon the assignment of a probability of default on a rating scale. Each loan rating is re-evaluated at least annually for loan performance, underlying borrower financial performance or data from third party credit bureaus. The probability of default is compared to the underlying collateral value securing each loan and compared to each loan carrying value to calculate a loss estimate. Collectively the estimated probability of default and recovery value is compared to actual portfolio default and recovery rates as well as economic factors and adjusted when needed.

The determination of whether an allowance for loan loss is necessary is based on whether or not there is a decrease in cash flows based on consideration of factual information available at the time of assessment as well as management’s estimates of the future performance and projected amount and timing of cash flows expected to be collected on the loan.

While we have a formal methodology to determine the adequate and appropriate level of the allowance for loan 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 loan 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 loan losses.

Non-accrual loans

Non-accrual loans

Non-accrual loans are the loans for which we are not accruing or accreting interest income. Non-accrual loans include non-PCI loans when principal or interest has been delinquent for 90 days or more or when it is determined that full collection of contractual cash flows is not probable. Additionally, PCI loans for which the Company is unable to reasonably estimate the timing and amount of expected cash flows are considered to be non-accrual loans.

Troubled Debt Restructurings

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, we grant concessions for a period of time to the borrower that we would not otherwise consider, the related loans are classified as troubled debt restructurings (“TDR”). These modified terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of collateral. For modifications where we forgive principal, the entire amount of such principal forgiveness is immediately charged off. Loans classified as TDRs, are considered impaired loans. Other than resolutions such as foreclosures and sales, we may remove loans held-for-investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.

Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.

Impaired loans

Impaired loans

The Company considers a loan to be impaired when the Company does not expect to collect all of the contractual interest and principal payments as scheduled in the loan agreements. This includes certain non-PCI loans where we do not expect to collect all of the contractual interest and principal payments, as well as PCI loans, which experienced credit deterioration prior to acquisition.

Loans, held for sale, at fair value

Loans, held for sale, at fair value

Loans, held for sale, at fair value are loans that are expected to be sold to third parties in the near term. Interest is recognized as interest income on the consolidated statements of income when earned and deemed collectible. For loans originated by our SBC originations and SBA originations segments, changes in fair value are recurring and are reported as net unrealized gain (loss) on the consolidated statements of income. For originated SBA loans, the guaranteed portion is held for sale, at fair value. For loans originated by GMFS, changes in fair value are reported as residential mortgage banking activities on the consolidated statements of income.

Mortgage backed securities, at fair value

Mortgage backed securities, at fair value

The Company accounts for MBS as trading securities and are carried at fair value under ASC 320, Investments-Debt and Equity Securities. Our MBS portfolio is comprised of asset-backed securities collateralized by interest in or obligations backed by pools of SBC loans.

Purchases and sales of MBS are recorded on the trade date. Our MBS securities pledged as collateral against borrowings under repurchase agreements are included in mortgage backed securities, at fair value on our consolidated balance sheets.

MBS are recorded at fair value as determined by market prices provided by independent broker dealers or other independent valuation service providers. The fair values assigned to these investments are based upon available information and may not reflect amounts that may be realized. We generally intend to hold our investment in MBS to generate interest income; however, we have and may continue to sell certain of our investment securities as part of the overall management of our assets and liabilities and operating our business.

Loans eligible for repurchase from Ginnie Mae

Loans eligible for repurchase from Ginnie Mae

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company then records the right to repurchase the loan as an asset and liability in its consolidated balance sheets. Such amounts reflect the unpaid principal balance of the loans.

Derivative instruments, at fair value

Derivative instruments, at fair value

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we utilize derivative financial instruments, currently comprised of credit default swaps (“CDSs”), interest rate swaps, and interest rate lock commitments (“IRLCs”) as part of our risk management. The Company accounts for derivative instruments under ASC 815, Derivatives and Hedges.

All derivatives are reported as either assets or liabilities on the consolidated balance sheets at the estimated fair value with the changes in the fair value recorded in earnings unless hedge accounting is elected.

Although permitted under certain circumstances, generally the Company does not offset cash collateral receivable or payables against our gross derivative positions. As of December 31, 2018 and 2017, the cash collateral receivable held for derivatives is $11.6 million and $0.8 million, respectively, and is included in restricted cash on the consolidated balance sheets.

Interest Rate Swap Agreements

An interest rate swap is an agreement between two counterparties to exchange periodic interest payments where one party to the contract makes a fixed-rate payment in exchange for a floating-rate payment from the other party. The dollar amount each party pays is an agreed-upon periodic interest rate multiplied by some pre-determined dollar principal (notional amount). No principal (notional amount) is exchanged between the two parties at trade initiation date. Only interest payments are exchanged. Interest rate swaps are classified as Level 2 in the fair value hierarchy. The fair value adjustments, along with the related interest income or interest expense, are reported as net gain/(loss) on financial instruments.

Interest Rate Lock Commitments (“IRLCs”)

IRLCs are agreements under which GMFS agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Unrealized gains and losses on the IRLCs, reflected as derivative assets and derivative liabilities, respectively, are measured based on the value of the underlying mortgage loan, quoted government-sponsored enterprise (Fannie Mae, Freddie Mac, and the Government National Mortgage Association ((“Ginnie Mae”), collectively, “GSEs”) or MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The realized and unrealized gains or losses are reported on the consolidated statements of income as residential mortgage banking activities. IRLCs are classified as Level 3 in the fair value hierarchy.

CDS

CDS are contracts between two parties, a protection buyer who makes fixed periodic payments, and a protection seller, who collects the premium in exchange for making the protection buyer whole in the case of default. The fair value adjustments, along with the related interest income or interest expense, are reported as gain/(loss) on financial instruments. CDS are classified as Level 2 in the fair value hierarchy.

Hedge Accounting

      We account for our hedging activities in accordance with ASC 815, Derivatives and Hedging. As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk, such as interest rate risk, that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability, or forecasted transaction that may affect earnings.

     To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged. We use cash flow hedges to hedge the exposure to variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations. ASC 815-20-25-15(a) defines a forecasted transaction as: 1) a single transaction, or 2) a group of individual transactions that share the same risk exposures for which they are designated as being hedged. Hedges of forecasted transactions are considered cash flow hedges since the price is not fixed, hence involve variability of cash flows.

     For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income/(loss) ("OCI") and recognized in the Consolidated Statements of Income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings. If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income / (loss) ("AOCI") is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast (including an additional two month window), any related derivative values recorded in AOCI are immediately recognized in earnings. Hedge accounting is generally terminated at the debt issuance date because we are no longer exposed to cash flow variability subsequent to issuance. Accumulated amounts recorded in AOCI at that date are then released to earnings in future periods to reflect the difference in 1) the fixed rates economically locked in at the inception of the hedge and 2) the actual fixed rates established in the debt instrument at issuance. Because of the effects of the time value of money, the actual interest expense reported in earnings will not equal the effective yield locked in at hedge inception multiplied by the par value. Similarly, this hedging strategy does not actually fix the interest payments associated with the forecasted debt issuance.

Servicing rights

Servicing rights

Servicing rights initially represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the servicing right asset against contractual servicing and ancillary fee income.

Servicing rights are recognized upon sale of loans, including a securitization of loans accounted for as a sale in accordance with GAAP, if servicing is retained. For servicing rights, gains related to servicing rights retained is included in net realized gain/(loss) on the consolidated statements of income. For residential mortgage servicing rights, gains on servicing rights retained upon sale of a loan are included in residential mortgage banking activities on the consolidated statements of income.

The Company treats its servicing rights and residential mortgage servicing rights as two separate classes of servicing assets based on the class of the underlying mortgages and it treats these assets as two separate pools for risk management purposes. Servicing rights relating to the Company’s servicing of loans guaranteed by the SBA under its Section 7(a) loan program and servicing rights related to the Freddie Mac program are accounted for under ASC 860, Transfers and Servicing, while the Company’s residential mortgage servicing rights are accounted for under the fair value option under ASC 825, Financial Instruments.

Servicing rights – SBA and Freddie Mac

SBA and Freddie Mac servicing rights are initially recorded at fair value and subsequently carried at amortized cost. We capitalize the value expected to be realized from performing specified servicing activities for others. Servicing rights are amortized in proportion to and over the period of estimated servicing income, and are evaluated for potential impairment quarterly.

For purposes of testing our servicing rights 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 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 leverage all available relevant market data to determine the fair value of our recognized servicing assets. Since quoted market prices for servicing rights are not readily available, we estimate the fair value of servicing rights by determining the present value of future expected servicing cash flows using modeling techniques that incorporate management's best estimates of key variables including estimates regarding future net servicing cash flows, forecasted loan prepayment rates, delinquency rates, and return requirements commensurate with the risks involved. Cash flow assumptions are modeled using our internally forecasted revenue and expenses, and where possible, the reasonableness of assumptions is periodically validated through comparisons to market data. Prepayment speed estimates are determined from historical prepayment rates or obtained from third-party industry data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on current relevant interest rates plus a risk-adjusted spread. We also consider other factors that can impact the value of the servicing rights, such as surety provider termination clauses and servicer terminations that could result if we failed to materially comply with the covenants or conditions of our servicing agreements and did not remedy the failure. Since many factors can affect the estimate of the fair value of servicing rights, we regularly evaluate the major assumptions and modeling techniques used in our estimate and review these assumptions against market comparables, if available. We monitor the actual performance of our servicing rights by regularly comparing actual cash flow, credit, and prepayment experience to modeled estimates.

Servicing rights - Residential (carried at fair value)

The Company’s residential mortgage servicing rights consist of conforming conventional residential loans sold to Fannie Mae and Freddie Mac or loans securitized in Ginnie Mae securities. Government insured loans serviced by the Company are securitized through Ginnie Mae, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed against loss by the Department of Veterans Affairs.

The Company has elected to account for its portfolio of residential MSRs at fair value. For these assets, the Company uses a third-party vendor to assist management in estimating the fair value. The third-party vendor uses a discounted cash flow approach which consists of projecting servicing cash flows discounted at a rate that management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment rates, discount rates, default rates, and cost of servicing rates. Residential MSRs are classified as Level 3 in the fair value hierarchy.

Intangible assets

Intangible assets

Intangible assets are accounted for under ASC 350, Intangibles-Goodwill and Other. As of December 31, 2018 and 2017, the Company’s identifiable intangible assets include SBA license for our lending operations as well as a trade name, a favorable lease, and other licenses relating to our residential mortgage banking segment, obtained as part of the ZAIS Financial merger transaction. The Company determined that its SBA license has an indefinite life, while the other intangibles acquired as part of the ZAIS Financial merger transaction are finite-lived. The Company amortizes intangible assets with identified estimated useful lives on a straight-line basis over their estimated useful lives. The Company initially records its intangible assets at cost and subsequently tests for impairment on an annual basis. Intangible assets are included within other assets on the consolidated balance sheets.

Investment in unconsolidated joint venture

Investment in unconsolidated joint venture

In November of 2017, the Company acquired an interest in an SBC loan pool through a joint venture, WFLLA, LLC, which the Company has a 50% interest. According to ASC 323, Equity Method and Joint Ventures, investors in unincorporated entities such as partnerships and unincorporated joint ventures generally shall account for their investments using the equity method of accounting if the investor has the ability to exercise significant influence over the investee. Under the equity method, we recognize our share of the earnings or losses of the investment monthly in earnings and adjust the carrying amount for our share of the distributions that exceed our earnings.

Pursuant to the consolidation guidance, we determined our interest in the entity is a VIE, however, we do not consolidate the entity as we determined that we are not the primary beneficiary. The Company is determined to be the primary beneficiary only when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Deferred financing costs

Deferred financing costs

Costs incurred in connection with our secured borrowings are accounted for under ASC 340, Other Assets and Deferred Costs. Deferred costs are capitalized and amortized using the effective interest method over the respective financing term with such amortization reflected on our consolidated statements of income as a component of interest expense. Our deferred financing costs may include legal, accounting and other related fees. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Pursuant to the adoption of ASU 2015-03, unamortized deferred financing costs related to securitizations and note issuances are presented on the consolidated balance sheets as a direct deduction from the associated liability.

Due from Servicers

Due from Servicers

The loan-servicing activities of the Company’s SBC Loan Acquisitions and SBC Originations reportable segments are performed primarily by third-party servicers. SBA loans originated by and held at RCL are internally serviced. Residential mortgage loans originated by and held at GMFS are both serviced by third-party servicers and internally serviced. The Company’s servicers hold substantially all of the cash owned by the Company related to loan servicing activities. These amounts include principal and interest payments made by borrowers, net of advances and servicing fees. Cash is generally received within thirty days of recording the receivable.

The Company is subject to credit risk to the extent any servicer with whom the Company conducts business is unable to deliver cash balances or process loan-related transactions on the Company’s behalf. The Company monitors the financial condition of the servicers with whom the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

Secured borrowings

Secured borrowings

Secured borrowings include borrowings under credit facilities, borrowings under repurchase agreements, and promissory notes.

Borrowings under credit facilities

The Company accounts for borrowings under credit facilities under ASC 470, Debt. The Company partially finances its loans, net through credit agreements with various counterparties. These borrowings are collateralized by loans, held-for-investment, and loans, held for sale, at fair value and have maturity dates within two years from the consolidated balance sheet date. If the fair value (as determined by the applicable counterparty) of the collateral securing these borrowings decreases, we may be subject to margin calls during the period the borrowings are outstanding. In instances where we do not satisfy the margin calls within the required time frame, the counterparty may retain the collateral and pursue collection of any outstanding debt amount from us. Interest paid and accrued in connection with credit facilities is recorded as interest expense on the consolidated statements of income.

Borrowing under repurchase agreements

Borrowings under repurchase agreements are accounted for under ASC 860, Transfers and Servicing. Investment securities financed under repurchase agreements are treated as collateralized borrowings, unless they meet sale treatment or are deemed to be linked transactions. Through December 31, 2018, none of our repurchase agreements have been accounted for as components of linked transactions. All securities financed through a repurchase agreement have remained on our consolidated balance sheets as an asset and cash received from the lender was recorded on our consolidated balance sheets as a liability. Interest paid and accrued in connection with our repurchase agreements is recorded as interest expense on the consolidated statements of income.

Securitized debt obligations of consolidated VIEs, net

Securitized debt obligations of consolidated VIEs, net

Since 2011, we have engaged in several securitization transactions, which the Company accounts for under ASC 810. Securitization involves transferring assets to an SPE, or securitization trust, to convert all or a portion of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt instruments. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The consolidation of the SPE includes the issuance of senior securities to third parties, which are shown as securitized debt obligations of consolidated VIEs on the consolidated balance sheets.

Debt issuance costs related to securitizations are presented as a direct deduction from the carrying value of the related debt liability. Debt issuance costs are amortized using the effective interest method and are included in interest expense on the consolidated financial statements.

Convertible note, net

Convertible note, net

ASC 470, Debt, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. We measured the estimated fair value of the debt component of our convertible notes as of the issuance date based on our nonconvertible debt borrowing rate. The equity components of the convertible senior notes have been reflected within additional paid-in capital in our consolidated balance sheet, and the resulting debt discount is amortized over the period during which the convertible notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

Upon repurchase of convertible debt instruments, ASC 470-20 requires the issuer to allocate total settlement consideration, inclusive of transaction costs, amongst the liability and equity components of the instrument based on the fair value of the liability component immediately prior to repurchase. The difference between the settlement consideration allocated to the liability component and the net carrying value of the liability component, including unamortized debt issuance costs, would be recognized as gain (loss) on extinguishment of debt in our consolidated statements of operations. The remaining settlement consideration allocated to the equity component would be recognized as a reduction of additional paid-in capital in our consolidated balance sheets.

Senior secured notes, net

Senior secured notes, net

The Company accounts for secured debt offerings under ASC 470, Debt. Pursuant to the adoption of ASU 2015-03, the Company’s senior secured notes are is presented net of debt issuance costs. These senior secured notes are collateralized by loans, MBS, and retained interests of consolidated VIE’s. Interest paid and accrued in connection with senior secured notes is recorded as interest expense on the consolidated statements of income.

Corporate debt, net

Corporate debt, net

The Company accounts for corporate debt offerings under ASC 470, Debt. The Company’s corporate debt is presented net of debt issuance costs. Interest paid and accrued in connection with corporate debt is recorded as interest expense on the consolidated statements of income.

Guaranteed loan financing

Guaranteed loan financing

Certain partial loan sales do not qualify for sale accounting under ASC 860, Transfers and Servicing because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated balance sheets and the proceeds from the portion sold is recorded as guaranteed loan financing in the liabilities section of the consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying consolidated statements of income.

Contingent consideration

Contingent consideration

Contingent consideration represents future payments of cash or equity interests to the former owners of GMFS, which was acquired on October 31, 2016. The contingent consideration was initially recorded on the date of acquisition at fair value in the consolidated balance sheet and is subsequently remeasured each reporting period at fair value with the change in the fair value recorded in earnings in the accompanying consolidated statements of income.

Repair and denial reserve

Repair and denial reserve

The repair and denial reserve represents the potential liability to the SBA in the event that we are required to make the SBA whole for reimbursement of the guaranteed portion of SBA loans. We may be responsible for the guaranteed portion of SBA loans if there are lien and collateral issues, unauthorized use of proceeds, liquidation deficiencies, undocumented servicing actions or denial of SBA eligibility. This reserve is calculated using an estimated frequency of a repair and denial event upon default, as well as an estimate of the severity of the repair and denial as a percentage of the guaranteed balance.

Variable Interest Entities

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The entity that has a financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. An entity is deemed to be the primary beneficiary of a VIE if the entity has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

In determining whether we are the primary beneficiary of a VIE, we consider both qualitative and quantitative factors regarding the nature, size and form of our involvement with the VIE, such as our role establishing the VIE and our ongoing rights and responsibilities, the design of the VIE, our economic interests, servicing fees and servicing responsibilities, and other factors.

We perform ongoing reassessments to evaluate whether changes in the entity’s capital structure or changes in the nature of our involvement with the entity result in a change to the VIE designation or a change to our consolidation conclusion.

Non-controlling Interests

Non-controlling Interests

Non-controlling interests, which are presented on the consolidated balance sheets and the consolidated statements of income, represent direct investment in the Operating Partnership by Sutherland OP Holdings II, Ltd., which is managed by our Manager, and third parties.

Fair Value Option

Fair Value Option

The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.

We have elected the fair value option for certain loans held-for-sale originated by ReadyCap that the Company intends to sell in the near term. The fair value elections for loans, held for sale, at fair value originated by ReadyCap were made due to the short-term nature of these instruments.

We have elected the fair value option for loans held-for-sale originated by GMFS that the Company intends to sell in the near term. We have elected the fair value option for certain residential mortgage servicing rights acquired as part of the merger transaction.

Earnings per Share

Earnings per Share

We present both basic and diluted earnings per share (“EPS”) amounts in our consolidated financial statements of income. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted stock awards (“RSAs”), as well as “in-the-money” conversion options associated with our outstanding convertible senior notes. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

All of the Company’s unvested RSUs and unvested RSAs contain rights to receive non-forfeitable dividends and, thus, are participating securities. Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities.

Income Taxes

Income Taxes

GAAP establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s consolidated financial statements or tax returns. We assess the recoverability of deferred tax assets through evaluation of carryback availability, projected taxable income and other factors as applicable. Significant judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns as well as the recoverability of amounts we record, including deferred tax assets.

We provide for exposure in connection with uncertain tax positions, which requires significant judgment by management including determination, based on the weight of the tax law and available evidence, that it is more-likely-than-not that a tax result will be realized. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense on our consolidated statements of income. As of December 31, 2018 and 2017, we accrued no taxes, interest or penalties related to uncertain tax positions. In addition, we do not anticipate a change in this position in the next 12 months.

Revenue Recognition

Revenue Recognition

On January 1, 2018, new accounting rules regarding revenue recognition became effective for public companies with a calendar fiscal year.  Under the new accounting rules regarding revenue, revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized through the following five-step process:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Since the updated guidance does not apply to revenue associated with financial instruments, including interest income, realized or unrealized gains on financial instruments, loan servicing fees, loan origination fees, among other revenue streams, the adoption of this standard did not have a material impact on our consolidated financial statements. The revenue recognition guidance also included revisions to existing accounting rules regarding the determination of whether a company is acting as a principal or agent in an arrangement and accounting for sales of nonfinancial assets where the seller has continuing involvement.  These additional revisions also did not materially impact the Company.

Interest Income

Interest income on non-PCI loans, held-for-investment, loans, held at fair value, loans, held for sale, at fair value, and MBS, at fair value is accrued based on the outstanding principal amount and contractual terms of the instrument. Discounts or premiums associated with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on contractual cash flows through the maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to the accrual status of the asset. If the asset has been delinquent for the previous 90 days, the asset status will turn to non-accrual, and recognition of interest income will be suspended until the asset resumes contractual payments for three consecutive months. For PCI loans, the excess of the cash flows expected to be collected on these loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of accretion.

Realized Gains (Losses)

Upon the sale or disposition (not including the prepayment of outstanding principal balance) of loans or securities, the excess (or deficiency) of net proceeds over the net carrying value or cost basis of such loans or securities is recognized as a realized gain/loss.

Origination Income and Expense

Origination income represents fees received for origination of either loans, held at fair value, loans, held for sale, at fair value, or loans, held-for-investment. For loans held, at fair value, and loans, held for sale, at fair value, pursuant to ASC 825, the Company reports origination fee income as revenue and fees charged and costs incurred as expenses. These fees and costs are excluded from the fair value. For originated loans, held-for-investment, under ASC 310-10, the Company defers these origination fees and costs at origination and amortizes them under the effective interest method over the life of the loan. Origination fees and expenses for ReadyCap loans, held at fair value and loans, held for sale, at fair value, are presented in the consolidated statements of income in other income and operating expenses. Origination fees for residential mortgage loans originated by GMFS are presented in the consolidated statements of income in residential mortgage banking activities, while origination expenses are presented within variable expenses on residential mortgage banking activities. The amortization of net origination fees and expenses for loans, held-for-investment are presented in the consolidated statements of income in interest income.

Residential Mortgage Banking Activities

Residential Mortgage Banking Activities

Residential mortgage banking activities, reflects revenue within our residential mortgage banking business directly related to loan origination and sale activity. This primarily consists of the realized gains on sales of residential loans held for sale and loan origination fee income, Residential mortgage banking activities also consists of unrealized gains and losses associated with the changes in fair value of the loans held for sale, the fair value of retained MSR additions, and the realized and unrealized gains and losses from derivative instruments.

Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and is included in residential mortgage banking activities, in the consolidated statements of income. Sales proceeds reflect the cash received from investors from the sale of a loan plus the servicing release premium if the related MSR is sold. Gains and losses also includes the unrealized gains and losses associated with the mortgage loans held for sale and the realized and unrealized gains and losses from IRLCs.

Loan origination fee income represents revenue earned from originating mortgage loans held for sale and are reflected in residential mortgage banking activities, when loans are sold.

Variable Expenses on Residential Mortgage Banking Activities

Loan expenses include indirect costs related to loan origination activities, such as correspondent fees, and are expensed as incurred and are included within variable expenses on residential mortgage banking activities on the Company’s consolidated statements of income. The provision for loan indemnification includes the fair value of the incurred liability for mortgage repurchases and indemnifications recognized at the time of loan sale and any other provisions recorded against the loan indemnification reserve. Loan origination costs directly attributable to the processing, underwriting, and closing of a loan are included in the gain on sale of mortgage loans held for sale when loans are sold.

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Recently Issued Accounting Pronouncements (Tables)

12 Months Ended

Dec. 31, 2018

Recently Issued Accounting Pronouncements

Schedule of impact of adoption of ASU 2016-18 on cash flows

(In Thousands)	Year Ended December 31, 2017		Year Ended December 31, 2016
Net cash provided by operating activities	$	352,489	$	16,482
Net cash (used in) provided by operating activities of discontinued operations		-		(1,719)
Net cash (used in) provided by investing activities		(235,728)		389,574
Net cash (used in) provided by financing activities		(106,502)		(381,356)
Net increase (decrease) in cash, cash equivalents and restricted cash		10,259		22,981
Cash, cash equivalents and restricted cash - beginning of year		80,695		57,714
Cash, cash equivalents and restricted cash - end of year	$	90,954	$	80,695

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Loans and Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of classification, unpaid principal balance, and carrying value of loans held including loans of consolidated VIEs

	December 31, 2018				December 31, 2017
Loans (In Thousands)	Carrying Value		UPB		Carrying Value		UPB
Loans
Acquired SBA 7(a) loans	$	264,308	$	283,423	$	331,083	$	353,556
Acquired loans		206,983		215,213		191,327		209,694
Originated Transitional loans		272,981		275,237		246,076		248,190
Originated SBC loans, at fair value		22,664		22,325		188,150		182,045
Originated SBC loans		345,100		342,751		27,610		27,349
Originated SBA 7(a) loans		85,569		89,733		41,208		43,439
Originated Residential Agency loans		1,899		1,900		2,013		2,014
Total Loans, before allowance for loan losses	$	1,199,504	$	1,230,582	$	1,027,467	$	1,066,287
Allowance for loan losses	$	(6,112)		—	$	(9,547)		—
Total Loans, net	$	1,193,392	$	1,230,582	$	1,017,920	$	1,066,287
Loans in consolidated VIEs
Loans
Originated SBC loans	$	432,308	$	422,897	$	382,873	$	373,996
Acquired loans		343,156		354,794		189,545		204,497
Acquired SBA 7(a) loans		55,966		74,554		69,523		95,605
Originated Transitional loans		391,752		393,116		196,438		196,070
Total Loans, in consolidated VIEs, before allowance for loan losses	$	1,223,182	$	1,245,361	$	838,379	$	870,168
Allowance for loan losses on loans in consolidated VIEs	$	(2,208)		—	$	(2,199)		—
Total Loans, net, in consolidated VIEs	$	1,220,974	$	1,245,361	$	836,180	$	870,168
Total Loans, net, and Loans, net in consolidated VIEs	$	2,414,366	$	2,475,943	$	1,854,100	$	1,936,455
Loans, held for sale, at fair value
Originated Residential Agency loans	$	67,775	$	65,586	$	129,096	$	124,758
Originated Freddie Mac loans		23,322		22,973		67,591		66,642
Originated SBA 7(a) loans		21,153		19,669		16,791		15,472
Acquired loans		3,008		2,935		2,544		2,662
Total Loans, held for sale, at fair value	$	115,258	$	111,163	$	216,022	$	209,534
Total Loan portfolio	$	2,529,624	$	2,587,106	$	2,070,122	$	2,145,989

Schedule of delinquency information on loans, net

	December 31, 2018
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	299,080	$	14,943	$	4,465	$	318,488	$	17,916	$	1,043
Acquired loans		524,930		7,213		13,552		545,695		11,447		3,811
Originated Transitional loans		659,103		5,630		—		664,733		—		—
Originated SBC loans, at fair value		22,664		—		—		22,664		—		—
Originated SBC loans		748,146		12,367		16,895		777,408		16,895		—
Originated SBA 7(a) loans		83,076		2,178		162		85,416		1,666		—
Originated Residential Agency loans		337		—		1,562		1,899		1,562		—
Total Loans, before general allowance for loans losses	$	2,337,336	$	42,331	$	36,636	$	2,416,303	$	49,486	$	4,854
General allowance for loan losses							$	(1,937)
Total Loans, net							$	2,414,366
Percentage of outstanding		96.7%		1.8%		1.5%		100%		2.0%		0.2%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

	December 31, 2017
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Acquired SBA 7(a) loans	$	376,102	$	15,953	$	5,542	$	397,597	$	16,782	$	176
Acquired loans		348,271		6,891		19,263		374,425		16,405		4,090
Originated Transitional loans		435,252		7,263		—		442,515		—		—
Originated SBC loans, at fair value		188,150		—		—		188,150		—		—
Originated SBC loans		402,004		7,702		608		410,314		608		—
Originated SBA 7(a) loans		40,871		311		—		41,182		671		—
Originated Residential Agency loans		1,226		—		787		2,013		289		498
Total Loans, before allowance for loans losses	$	1,791,876	$	38,120	$	26,200	$	1,856,196	$	34,755	$	4,764
General allowance for loan losses							$	(2,096)
Total Loans, net							$	1,854,100
Percentage of outstanding		96.5%		2.1%		1.4%		100%		1.9%		0.3%
(1) Loan balances include specific allowance for loan losses.
(2) Includes Loans, net in consolidated VIEs

Schedule of information on credit quality of loans

	Loan-to-Value  (a)
(In Thousands)	0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total
December 31, 2018
Loans(1) (2)
Acquired SBA 7(a) loans	$	6,337	$	38,150	$	100,578	$	93,411	$	33,750	$	46,262	$	318,488
Acquired loans		118,198		165,567		136,206		70,017		40,003		15,704		545,695
Originated Transitional loans		—		29,245		178,861		348,967		101,513		6,147		664,733
Originated SBC loans, at fair value		—		8,600		—		6,328		7,736		—		22,664
Originated SBC loans		—		48,259		271,311		457,838		—		—		777,408
Originated SBA 7(a) loans		393		3,200		10,642		24,387		16,473		30,321		85,416
Originated Residential Agency loans		—		—		111		952		734		102		1,899
Total Loans, before general allowance for loans losses	$	124,928	$	293,021	$	697,709	$	1,001,900	$	200,209	$	98,536	$	2,416,303
General allowance for loan losses													$	(1,937)
Total Loans, net													$	2,414,366
December 31, 2017
Loans(1) (2)
Acquired SBA 7(a) loans	$	8,978	$	37,880	$	125,234	$	106,199	$	56,676	$	62,630	$	397,597
Acquired loans		54,463		102,498		114,010		67,037		18,745		17,672		374,425
Originated Transitional loans		—		26,735		171,227		212,830		21,639		10,084		442,515
Originated SBC loans, at fair value		—		17,294		31,245		115,653		21,245		2,713		188,150
Originated SBC loans		2,661		49,281		192,796		158,047		7,529		—		410,314
Originated SBA 7(a) loans		52		954		5,227		15,583		5,766		13,600		41,182
Originated Residential Agency loans		—		60		166		609		823		355		2,013
Total Loans, before allowance for loans losses	$	66,154	$	234,702	$	639,905	$	675,958	$	132,423	$	107,054	$	1,856,196
General allowance for loan losses													$	(2,096)
Total Loans, net													$	1,854,100
(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value
(1) Loan balances include specific allowance for loan loss reserves.
(2) Includes Loans, net in consolidated VIEs

Schedule of impaired loans, held for investment

	December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	11	$	353	$	608	$	532	$	433	$	1,937
Specific		-		-		1,012		823		153		1,988
PCI		-		-		3,432		963		-		4,395
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	468	$	-	$	819	$	518	$	291	$	2,096
Specific		169		-		586		1,564		27		2,346
PCI		-		-		5,859		1,445		-		7,304
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

Schedule of activity of the allowance for loan losses for loans, held-for investment

	Year ended December 31, 2018
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746
Provision for (Recoveries of) loan losses		(457)		353		1,843		(306)		268		1,701
Charge-offs and sales		(169)		-		(1,380)		(903)		-		(2,452)
Recoveries		-		-		(2,675)		-		-		(2,675)
Ending balance	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320

	Year ended December 31, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	804	$	-	$	10,150	$	5,004	$	172	$	16,130
Provision for loan losses		(166)		-		2,387		(4)		146		2,363
Charge-offs and sales		-		-		(1,356)		(1,473)		-		(2,829)
Recoveries		(1)		-		(3,917)		-		-		(3,918)
Ending balance	$	637	$	-	$	7,264	$	3,527	$	318	$	11,746

Schedule of recorded investment of TDRs

	December 31, 2018						December 31, 2017
(In Thousands)	SBC		SBA		Total		SBC		SBA		Total
Recorded carrying value modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125
Allowance for loan losses on loans classified as TDRs	$	321	$	278	$	599	$	883	$	695	$	1,578
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	$	1,696	$	7,375	$	9,071	$	1,804	$	4,791	$	6,595
Carrying value of modified loans classified as TDRs on non-accrual status		129		9,969		10,098		1,923		7,607		9,530
Total carrying value of modified loans classified as TDRs	$	1,825	$	17,344	$	19,169	$	3,727	$	12,398	$	16,125

Schedule of TDR modifications by primary modification type and related financial effects

	Year Ended December 31, 2018							Year Ended December 31, 2017
(In Thousands, except number of loans)	SBC		SBA		Total			SBC		SBA		Total
Number of loans permanently modified		1		38		39			14		47		61
Pre-modification recorded balance (a)	$	3,444	$	7,214	$	10,658		$	3,518	$	6,187	$	9,705
Post-modification recorded balance (a)		3,444		7,266		10,710			3,041		6,132		9,173
Number of loans that remain in default as of December 31, 2018 (b)		1		11		12			10		18		28
Balance of loans that remain in default as of December 31, 2018 (b)	$	3,444	$	534	$	3,978		$	1,590	$	672	$	2,262
Concession granted (a):							PY
Term extension	$	-	$	6,844	$	6,844		$	413	$	4,931	$	5,344
Interest rate reduction		-		-		-			100		239		339
Principal reduction		-		7		7			601		286		887
Foreclosure		3,444		181		3,625			920		554		1,474
Total	$	3,444	$	7,032	$	10,476		$	2,034	$	6,010	$	8,044
(a) Represents carrying value.
(b) Represents the December 31, 2018 carrying values of the TDRs that occurred during the year ended December 31, 2018 and 2017 that remained in default as of December 31, 2018. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.  For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.

Schedule of outstanding amounts and details of carrying amount of acquired loans, held for investment

	December 31, 2018				December 31, 2017
	Non-PCI		PCI		Non-PCI		PCI
(In Thousands)	Loans		Loans		Loans		Loans
Unpaid principal balance	$	2,361,155	$	92,463	$	1,624,395	$	130,015
Non-accretable discount		-		(6,040)		—		(8,336)
Accretable discount		(31,533)		(16,023)		(44,629)		(23,749)
Loans, held-for-investment		2,329,622		70,400		1,579,766		97,930
Allowance for loan losses		(3,925)		(4,395)		(4,442)		(7,304)
Loans, held-for-investment	$	2,325,697	$	66,005	$	1,575,324	$	90,626

Non - PCI Loans

Schedule of impaired loans, held for investment

(In Thousands)	December 31, 2018		December 31, 2017
Impaired loans
With an allowance	$	9,734	$	9,222
Without an allowance		33,082		12,659
Total recorded carrying value of impaired loans	$	42,816	$	21,881
Allowance for loan losses related to impaired loans	$	(1,989)	$	(2,346)
Unpaid principal balance of impaired loans	$	49,128	$	29,853
Impaired loans on non-accrual status	$	42,816	$	21,881
Average carrying value of impaired loans	$	36,675	$	28,693
	December 31, 2018		December 31, 2017
Interest income on impaired loans for the year ended	$	966	$	610

PCI Loans

Schedule of activity of accretable yield of loans, held for investment

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning accretable discount- PCI loans	$	23,749	$	26,978
Purchases/Originations		514		1,234
Sales		(2,554)		(2,835)
Accretion		(5,123)		(4,735)
Other		726		1,466
Transfers		(1,289)		1,641
Ending accretable discount- PCI loans	$	16,023	$	23,749

Geographical concentration

Schedule of concentration risk of loans secured by real estate

Geographic Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
California	14.1	%	13.5	%
Texas	11.3		12.4
Florida	10.8		11.7
New York	6.3		6.8
Georgia	5.3		6.2
Arizona	5.0		5.1
Illinois	3.8		3.9
Pennsylvania	3.8		2.1
North Carolina	3.7		3.7
Ohio	2.8		2.7
Other	33.1		31.9
Total	100.0	%	100.0	%

Collateral concentration

Schedule of concentration risk of loans secured by real estate

The following table displays the collateral type concentration of the Company’s loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Multi-family	23.3	%	21.1	%
Retail	18.5		17.6
SBA(1)	18.1		25.4
Office	15.1		15.6
Mixed Use	9.6		6.3
Industrial	8.2		6.9
Lodging/Residential	2.4		2.9
Other	4.8		4.2
Total	100.0	%	100.0	%
(1) Further detail provided on SBA collateral concentration is included in table below.

The following table displays the collateral type concentration of the Company’s SBA loans within loans, net, on our consolidated balance sheets.

Collateral Concentration (Unpaid Principal Balance)	December 31, 2018		December 31, 2017
Offices of Physicians	17.7	%	16.0	%
Lodging	10.1		10.5
Child Day Care Services	9.9		12.3
Veterinarians	6.8		7.0
Eating Places	5.4		5.5
Grocery Stores	3.8		4.7
Hotels, Motels & Tourist Courts	3.8		0.9
Auto	2.7		3.2
Funeral Service & Crematories	2.3		2.2
Gasoline Service Stations	2.3		1.9
Other	35.2		35.8
Total	100.0	%	100.0	%

XML

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2018

Fair value measurements

Schedule of financial instruments carried at fair value on a recurring basis

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2018:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	586	$	—	$	—	$	586
Loans, held for sale, at fair value		—		115,258		—		115,258
Loans, net, at fair value		—		—		22,664		22,664
Mortgage backed securities, at fair value		—		79,789		12,148		91,937
Derivative instruments, at fair value		—		294		1,776		2,070
Residential mortgage servicing rights, at fair value		—		—		93,065		93,065
Total assets	$	586	$	195,341	$	129,653	$	325,580
Liabilities:
Derivative instruments, at fair value	$	—	$	3,625	$	—	$	3,625
Contingent consideration		—		—		1,207		1,207
Total liabilities	$	—	$	3,625	$	1,207	$	4,832

The following table presents the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2017:

(In Thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	632	$	—	$	—	$	632
Loans, held for sale, at fair value		—		216,022		—		216,022
Loans, net, at fair value		—		—		188,150		188,150
Mortgage backed securities, at fair value		—		31,859		8,063		39,922
Derivative instruments, at fair value		—		2,898		1,827		4,725
Residential mortgage servicing rights, at fair value		—		—		72,295		72,295
Total assets	$	632	$	250,779	$	270,335	$	521,746
Liabilities:
Derivative instruments, at fair value	$	—	$	282	$	—	$	282
Contingent consideration		—		—		10,016		10,016
Total liabilities	$	—	$	282	$	10,016	$	10,298

Summary of the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2018 using third party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	22,664	SingleExternal Source	Third Party Mark	$	99.41 – 105.21	$	101.52
Mortgage backed securities, at fair value		12,033	Broker Quotes	Third Party Mark		44.65 – 97.50		80.17
Mortgage backed securities, at fair value		115	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		93,065	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		1,207	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2017 using third-party information without adjustment:

			Predominant				Weighted
			Valuation				Average Price
(In Thousands, except price)	Fair Value		Technique	Type	Price Range		(a)
Loans, held at fair value	$	188,150	Single External Source	Third Party Mark	$	101.05 – 104.00	$	103.35
Mortgage backed securities, at fair value (b)		7,937	Broker Quotes	Third Party Mark		70.92 – 70.92		70.92
Mortgage backed securities, at fair value		126	Transaction Price	Transaction Price		99.00 – 99.00		99.00
Residential mortgage servicing rights, at fair value		72,295	Single external source	Discounted cash flow		N/A		N/A
Contingent consideration		10,016	Single external source	Discounted cash flow		N/A		N/A

(a)Prices are weighted based on the unpaid principal balance of the loans and securities included in the range for each class

(b)Price ranges and weighted averages exclude interest-only strips with a fair value of $1.5 million as of December 31, 2017.

Summary of the carrying value and estimated fair value of financial instruments not carried at fair value on the consolidated balance sheets and are classified as Level 3

	December 31, 2018				December 31, 2017
(In Thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Loans, net	$	2,391,702	$	2,434,185	$	1,665,950	$	1,737,361
Servicing rights		26,997		28,441		21,743		23,432
Total assets	$	2,418,699	$	2,462,626	$	1,687,693	$	1,760,793
Liabilities:
Secured borrowings	$	834,547	$	834,547	$	637,393	$	637,393
Securitized debt obligations of consolidated VIEs, net		905,367		918,536		598,148		613,676
Senior secured note, net		178,870		176,981		138,078		144,376
Guaranteed loan financing		229,678		236,804		293,045		306,964
Convertible notes, net		109,979		101,581		108,991		108,301
Total liabilities	$	2,258,441	$	2,268,449	$	1,775,655	$	1,810,710

Loans, held at fair value

Fair value measurements

Summary of changes in the fair value of financial instruments held at fair value classified as Level 3

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	188,150	$	81,592
Realized gains (losses), net		46		(90)
Unrealized gains (losses), net		(720)		5,328
Originations		150		152,339
Sales		—		—
Principal payments		(19,188)		(10,114)
Transfer to loans, held for sale, at fair value		—		—
Transfer to loans, held-for-investment		(145,774)		(40,905)
Ending Balance	$	22,664	$	188,150

Loans, held for sale, at fair value

Fair value measurements

Summary of changes in the fair value of financial instruments held at fair value classified as Level 3

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	—	$	17,312
Realized gains, net		—		9,005
Unrealized gains, net		—		2,595
Originations		—		352,975
Sales		—		(284,707)
Principal payments		—		(10,429)
Transfer from Level 3		—		(86,751)
Ending Balance	$	—	$	—

MBS

Fair value measurements

Summary of changes in the fair value of financial instruments held at fair value classified as Level 3

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	8,063	$	32,391
Accreted discount, net		84		224
Realized gains, net		271		522
Unrealized gains (losses), net		2,866		1,344
Purchases		—		14,448
Sales / Principal payments		(977)		(7,785)
Transfer to (from) Level 3		1,841		(33,081)
Ending Balance	$	12,148	$	8,063

Derivatives

Fair value measurements

Summary of changes in the fair value of financial instruments held at fair value classified as Level 3

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	1,827	$	2,690
Unrealized gains (losses)		(51)		(863)
Ending Balance	$	1,776	$	1,827

Contingent Consideration

Fair value measurements

Summary of changes in the fair value of financial instruments held at fair value classified as Level 3

	Year Ended December 31,
(In Thousands)	2018		2017
Beginning Balance	$	10,016	$	14,487
Adjustment for legal settlement		—		(5,744)
Earn-out payments		(8,967)		—
Amortization and adjustment for earn-out payments		158		1,273
Ending Balance	$	1,207	$	10,016

XML

Mortgage Backed Securities (Tables)

12 Months Ended

Dec. 31, 2018

Mortgage Backed Securities

Schedule of information about the Company's MBS portfolio

The following table presents certain information about the Company’s MBS portfolio, which are classified as trading securities and carried at fair value, as of December 31, 2018 and 2017.

		Weighted
	Weighted	Average								Gross		Gross
	Average	Interest		Principal		Amortized				Unrealized		Unrealized
(In Thousands)	Maturity (a)	Rate (a)		Balance		Cost		Fair Value		Gains		Losses
December 31, 2018
Mortgage backed securities, at fair value
Freddie Mac Loans	05/2037	4.5	%	$	97,066	$	70,819	$	75,591	$	4,826	$	(54)
Commercial Loans	11/2049	5.5			20,666		16,228		16,231		30		(27)
Tax Liens	09/2026	6.0			116		116		115		—		(1)
Total Mortgage backed securities, at fair value	07/2039	4.7	%	$	117,848	$	87,163	$	91,937	$	4,856	$	(82)
December 31, 2017
Mortgage backed securities, at fair value
Freddie Mac Loans	12/2034	5.3	%	$	49,767	$	37,287	$	38,568	$	2,529	$	(1,248)
Commercial Loans	06/2043	5.5			4,513		1,054		1,228		174		—
Tax Liens	09/2026	6.0			127		127		126		—		(1)
Total Mortgage backed securities, at fair value	08/2035	5.3	%	$	54,407	$	38,468	$	39,922	$	2,703	$	(1,249)

(a) Weighted based on current principal balance

Schedule of information about the maturity of the Company's MBS portfolio

The following table presents certain information about the maturity of the Company’s MBS portfolio as of December 31, 2018 and 2017.

	Weighted
	Average
	Interest		Principal		Amortized
(In Thousands)	Rate (a)		Balance		Cost		Fair Value
December 31, 2018
Mortgage backed securities, at fair value
After five years through ten years	10.6	%	$	3,406	$	3,103	$	3,520
After ten years	4.5			114,442		84,060		88,417
Total Mortgage backed securities, at fair value	4.7	%	$	117,848	$	87,163	$	91,937
December 31, 2017
Mortgage backed securities, at fair value
After five years through ten years	8.9	%	$	8,919	$	8,205	$	8,904
After ten years	4.6			45,488		30,263		31,018
Total	5.3	%	$	54,407	$	38,468	$	39,922

Weighted based on current principal balance

XML

Servicing rights (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of beginning and ending balances of servicing rights

	Year Ended December 31,
(In Thousands)	2018		2017
SBA servicing rights, at amortized cost
Beginning net carrying amount	$	16,684	$	20,276
Additions due to loans sold, servicing retained		3,569		1,996
Acquisitions		362		—
Amortization		(3,418)		(4,034)
(Impairment)		(448)		(1,554)
Ending net carrying value of SBA servicing rights	$	16,749	$	16,684
Freddie Mac multi-family servicing rights, at amortized cost
Beginning net carrying amount	$	5,059	$	2,202
Additions due to loans sold, servicing retained		6,832		3,290
Amortization		(1,643)		(610)
Recovery		—		177
Ending net carrying value of Freddie Mac multi-family servicing rights	$	10,248	$	5,059
Ending net carrying value of SBA and Freddie Mac multi-family servicing rights, at amortized cost	$	26,997	$	21,743
Residential mortgage servicing rights, at fair value
Beginning Balance	$	72,295	$	61,376
Additions due to loans sold, servicing retained		20,974		20,565
Loan pay-offs		(5,899)		(5,646)
Unrealized gains (losses)		5,695		(4,000)
Ending fair value of residential mortgage servicing rights	$	93,065	$	72,295
Total servicing rights	$	120,062	$	94,038

Schedule of future amortization expense for the servicing rights

(In Thousands)	December 31, 2018
2019	$	5,054
2020		4,324
2021		3,684
2022		3,126
2023		2,629
Thereafter		8,180
Total	$	26,997

Residential

Schedule of servicing rights

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Fair Value		Amount		Fair Value
Fannie Mae	$	2,848,435	$	34,562	$	2,524,897	$	26,929
Ginnie Mae		2,350,301		29,586		2,134,772		24,135
Freddie Mac		2,267,943		28,917		1,898,786		21,231
Total	$	7,466,679	$	93,065	$	6,558,455	$	72,295

Schedule Of Mortgage Servicing Rights Portfolio

		December 31, 2018						December 31, 2017
		Range of input values				Weighted Average		Range of input values				Weighted Average
Residential mortgage servicing rights (at fair value)
	• Forward prepayment rate	6.1	-	13.9	%	8.4	%	7.0	-	29.2	%	8.8	%
	• Discount rate	9.0	-	11.1	%	9.7	%	10.5	-	13.0	%	10.9	%
	• Servicing expense	$ 70	-	$ 85		$ 75		$ 65	-	$ 75		$ 70

Schedule of adverse changes to key assumptions on the carrying amount of the servicing rights

(In Thousands)	December 31, 2018		December 31, 2017
Prepayment rate
10% adverse change	$	(3,281)	$	(2,721)
20% adverse change		(6,330)		(4,928)
Discount rate
10% adverse change	$	(3,716)	$	(3,029)
20% adverse change		(7,159)		(5,823)
Cost of servicing
10% adverse change	$	(1,683)	$	(1,230)
20% adverse change		(3,365)		(2,460)

SBA | Freddie Mac

Schedule of servicing rights

	As of December 31, 2018				As of December 31, 2017
	Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Carrying Value		Amount		Carrying Value
SBA	$	506,155	$	16,749	$	427,623	$	16,684
Freddie Mac multi-family		964,377		10,248		559,823		5,059
Total	$	1,470,532	$	26,997	$	987,446	$	21,743

Schedule of adverse changes to key assumptions on the carrying amount of the servicing rights

(In Thousands)	December 31, 2018		December 31, 2017
SBA servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(470)	$	(514)
20% adverse change		(915)		(998)
• Default rate
10% adverse change	$	(63)	$	(24)
20% adverse change		(125)		(48)
• Discount rate
10% adverse change	$	(579)	$	(520)
20% adverse change		(1,118)		(1,008)
Freddie Mac multi-family servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(63)	$	(43)
20% adverse change		(124)		(84)
• Default rate
10% adverse change	$	(11)	$	(6)
20% adverse change		(22)		(12)
• Discount rate
10% adverse change	$	(490)	$	(270)
20% adverse change		(791)		(518)

SBA | Freddie Mac | Commercial

Schedule of adverse changes to key assumptions on the carrying amount of the servicing rights

		December 31, 2018						December 31, 2017
		Range of input values				Weighted Average		Range of input values				Weighted Average
SBA servicing rights (at amortized cost)
	• Forward prepayment rate	3.8	-	20.2	%	9.2	%	2.4	-	20.5	%	11.5	%
	• Forward default rate	0.0	-	12.2	%	6.4	%	0.0	-	9.5	%	2.7	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.4	-	0.4	%	0.4	%	0.4	-	0.4	%	0.4	%
Freddie Mac multi-family servicing rights (at amortized cost)
	• Forward prepayment rate	0.0	-	35.0	%	5.0	%	0.0	-	13.0	%	4.2	%
	• Forward default rate	0.0	-	2.0	%	1.3	%	0.0	-	2.0	%	2.0	%
	• Discount rate	12.0	-	12.0	%	12.0	%	12.0	-	12.0	%	12.0	%
	• Servicing expense	0.2	-	0.2	%	0.2	%	0.2	-	0.2	%	0.2	%

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Residential mortgage banking activities and variable loan expenses (Tables)

12 Months Ended

Dec. 31, 2018

Residential mortgage banking activities and variable loan expenses

Schedule of the components of gains on residential mortgage banking activities, net of variable loan expenses

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Realized and unrealized gains and losses of residential mortgage loans held for sale, at fair value	$	36,240	$	63,024	$	2,943
Creation of new mortgage servicing rights, net of payoffs		15,075		14,919		3,157
Loan origination fee income on residential mortgage loans		9,371		8,193		1,404
Unrealized gains (loss) on IRLCs and other derivatives		(834)		(2,699)		126
Residential mortgage banking activities	$	59,852	$	83,437	$	7,630
Variable expenses on residential mortgage banking activities	$	(22,228)	$	(41,737)	$	(597)

XML

Secured Borrowings (Tables)

12 Months Ended

Dec. 31, 2018

Secured Borrowings

Schedule of characteristics of secured borrowings

					Pledged Assets Carrying Value at				Carrying Value of Borrowing at
(In Thousands)	Maturity	Pricing	Facility Size		December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
Borrowings under credit facilities
JPMorgan - Commercial (1)	May 2019	1M L + 2.50%	$	225,000	$	85,393	$	107,697	$	68,417	$	60,459
Keybank - Commercial (2)	February 2019	1M L + 1.75%		125,000		23,322		67,589		22,973		66,642
East West - Commercial (3)	July 2020	Prime - 0.821 to + 0.029%		30,000		37,255		—		27,443		—
Comerica - Residential (4)	March 2019	1M L + 1.625 to 2.125%		125,000		35,860		71,035		40,231		67,336
Associated Bank - Residential (4)	August 2019	1M L + 1.75%		40,000		13,653		29,242		15,907		27,699
Origin Bank - Residential (4)	July 2019	1M L + 2.00%		40,000		16,831		27,891		12,870		26,538
East West - Residential (4)	September 2023	1M L + 2.50%		50,000		63,479		—		8,500		—
FCB - Commercial (5)	June 2021	2.75%		2,974		3,219		7,752		2,974		6,107
Total borrowings under credit facilities (10)			$	637,974	$	279,012	$	311,206	$	199,315	$	254,781
Borrowings under repurchase agreements
Deutsche Bank- Commercial (6)	February 2020	3M L + 2.30 to 2.80%	$	300,000	$	310,797	$	252,499	$	239,972	$	173,811
JPMorgan - Commercial (7)	December 2020	1M L + 2.25 to 4.00%		200,000		144,337		90,829		96,343		55,355
Citibank - Commercial (8)	June 2019	1M L + 2.125 to 2.50%		500,000		230,140		150,707		194,117		88,095
JPMorgan - MBS (9)	March 2019	3.63 to 5.22%		24,881		39,882		80,690		24,881		53,325
Deutsche Bank - MBS (8)	February 2019	4.36%		17,425		24,536		—		17,425		—
Citibank - MBS (9)	-	-		—		—		11,496		—		5,957
RBC - MBS (9)	April 2019	3.97 to 4.42%		62,494		83,818		8,778		62,494		6,069
Total borrowings under repurchase agreements (11)			$	1,104,800	$	833,510	$	594,999	$	635,232	$	382,612
Total secured borrowings			$	1,742,774	$	1,112,522	$	906,205	$	834,547	$	637,393

(1) Borrowings are used to finance SBC and SBA loan acquisitions, and SBA loan originations.

(2) Borrowings are used to finance Freddie Mac SBC loan originations.

(3) Borrowings are used to finance SBA loan acquisitions and loan originations.

(4) Borrowings are used to finance Residential Agency loan originations.

(5) Borrowings are used to finance SBC loan acquisitions.

(6) Borrowings are used to finance SBC loan originations.

(7) Borrowings are used to finance SBC loan originations, Transitional loan originations, and SBC loan acquisitions.

(8) Borrowings are used to finance SBC loan originations and SBC loan acquisitions.

(9) Borrowings are used to finance Mortgage backed securities and Retained interests in consolidated VIE's.

(10) The weighted average interest rate of borrowings under credit facilities was 4.6% and 3.9% as of December 31, 2018 and 2017, respectively.

(11) The weighted average interest rate of borrowings under repurchase agreements was 4.0% and 4.1% as of December 31, 2018 and 2017, respectively.

Schedule of carrying value of collateral pledged with respect to borrowings under credit facilities and promissory note payable outstanding

	Pledged Assets Carrying Value at
(In Thousands)	December 31, 2018		December 31,  2017
Collateral pledged - borrowings under credit facilities
Loans, net	$	215,533	$	310,885
Mortgage servicing rights		63,479		—
Real estate acquired in settlement of loans		—		321
Total collateral pledged on borrowings under credit facilities	$	279,012	$	311,206
Collateral pledged - borrowings under repurchase agreements
Loans, net	$	685,274	$	494,035
Mortgage backed securities		112,552		37,397
Retained interest in assets of consolidated VIEs		35,684		63,567
Total collateral pledged on borrowings under repurchase agreements	$	833,510	$	594,999
Total collateral pledged on secured borrowings	$	1,112,522	$	906,205

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Senior secured notes, Convertible notes, and Corporate debt, net (Tables)

12 Months Ended

Dec. 31, 2018

Senior secured notes, Convertible notes, and Corporate debt, net

Schedule of components of the Senior Secured Notes, Convertible Notes, and Corporate debt

(in thousands, except rates)	Coupon Rate		Maturity Date	December 31, 2018
Senior secured notes principal amount(1)	7.50	%	2/15/2022	$	180,000
Unamortized premium - Senior secured notes					2,389
Unamortized deferred financing costs - Senior secured notes					(3,519)
Total Senior secured notes, net				$	178,870
Convertible notes - principal amount (2)	7.00	%	8/15/2023		115,000
Unamortized discount - Convertible notes (3)					(1,805)
Unamortized deferred financing costs - Convertible notes					(3,216)
Total Convertible notes, net				$	109,979
Corporate debt principal amount(4)	6.50	%	4/30/2021	$	50,000
Unamortized deferred financing costs - Corporate debt					(1,543)
Total Corporate debt, net				$	48,457
Total carrying amount of debt components				$	337,306
Total carrying amount of conversion option of equity components recorded in equity				$	1,805

(1) Interest on the Senior Secured Notes is payable semiannually on each February 15 and August 15, beginning on August 15, 2017.

(2) Interest on the Convertible Notes is payable quarterly on February 15, May 15, August 15, and November 15 of each year, beginning on November 15, 2017.

(3) Represents the discount created by separating the conversion option from the debt host instrument.  

Interest on the corporate debt is payable January 30, April 30, July 30, and October 30 of each year, beginnin

Schedule of contractual maturities of the Senior Secured Notes, Convertible Notes, and Corporate debt

(In Thousands)	December 31, 2018
2019	$	—
2020		—
2021		48,457
2022		178,870
2023		109,979
Thereafter		—
Total	$	337,306

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Guaranteed loan financing (Tables)

12 Months Ended

Dec. 31, 2018

Guaranteed loan financing.

Schedule of guaranteed loan financing and the related interest rates and maturity dates

	Weighted		Range of
	Average		Interest	Range of
(In Thousands)	Interest Rate		Rates	Maturities (Years)	Ending Balance
December 31, 2018	4.46	%	1.70 – 8.00  %	2019 - 2038	$	229,678
December 31, 2017	3.51	%	1.62 – 7.00  %	2018 - 2038	$	293,045

Summary of contractual maturities of total guaranteed loan financing outstanding

(In Thousands)	December 31, 2018
2019	$	864
2020		1,412
2021		2,696
2022		3,444
2023		4,550
Thereafter		216,712
Total	$	229,678

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Variable Interest Entities and Securitization Activities (Tables)

12 Months Ended

Dec. 31, 2018

Consolidated VIEs

Summary of information on securitized debt obligations of consolidated VIEs

	December 31, 2018						December 31, 2017
	Current				Weighted		Current				Weighted
	Principal		Carrying		Average		Principal		Carrying		Average
(In Thousands)	Balance		value		Interest Rate		Balance		value		Interest Rate
Waterfall Victoria Mortgage Trust 2011-SBC2	$	12,226	$	12,226	5.4	%	$	16,010	$	16,010	5.3	%
ReadyCap Lending Small Business Trust 2015-1		3,397		1,180	3.4			25,057		22,733	2.5
Sutherland Commercial Mortgage Loans 2015-SBC4		—		—	—			10,049		9,687	4.0
Sutherland Commercial Mortgage Trust 2017-SBC6		69,764		68,574	3.3			119,784		117,868	3.3
Sutherland Commercial Mortgage Trust 2018-SBC7		205,451		202,491	4.7			—		—	—
ReadyCap Commercial Mortgage Trust 2014-1		36,108		36,129	4.5			33,953		33,951	3.6
ReadyCap Commercial Mortgage Trust 2015-2		110,497		106,755	4.2			151,993		147,271	4.1
ReadyCap Commercial Mortgage Trust 2016-3		63,945		62,053	3.7			98,733		95,907	3.5
ReadyCap Commercial Mortgage Trust 2018-4		144,701		140,314	3.9			—		—	—
Ready Capital Mortgage Financing 2017-FL1		63,615		61,902	3.7			158,978		154,721	2.8
Ready Capital Mortgage Financing 2018-FL2		217,057		213,743	3.4			—		—	—
Total	$	926,761	$	905,367	4.0	%	$	614,557	$	598,148	3.4	%

Schedule of assets and liabilities for VIEs

(In Thousands)	December 31, 2018		December 31, 2017
Assets:
Cash and cash equivalents	$	—	$	25
Restricted cash		11,643		15,838
Loans, net		1,220,974		836,180
Real estate acquired in settlement of loans		176		3,443
Accrued interest		6,750		4,261
Due from servicers		11,514		1,915
Total assets	$	1,251,057	$	861,662
Liabilities:
Securitized debt obligations of consolidated VIEs, net		905,367		598,148
Total liabilities	$	905,367	$	598,148

Unconsolidated VIEs

Schedule of assets and liabilities for VIEs

	Carrying Amount				Maximum Exposure to Loss (1)
(In Thousands)	December 31,  2018		December 31,  2017		December 31,  2018		December 31,  2017
Assets:
Mortgage backed securities, at fair value(2)	$	75,591	$	38,568	$	75,591	$	38,568
Investment in unconsolidated joint venture		33,438		55,369		33,438		55,369
Total assets in unconsolidated VIEs	$	109,029	$	93,937	$	109,029	$	93,937
(1) Maximum exposure to loss is limited to the greater of the fair value or carrying value of the assets as of the consolidated balance sheet date.
(2) Retained interest in Freddie Mac sponsored securitizations.

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Interest Income and Interest Expense (Tables)

12 Months Ended

Dec. 31, 2018

Interest Income and Interest Expense

Schedule of components of interest income and expense

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Interest income
Loans
Acquired SBA 7(a) loans	$	32,278	$	37,110	$	46,417
Acquired loans		46,154		34,720		44,122
Originated Transitional loans		48,499		25,323		8,608
Originated SBC loans, at fair value		3,599		7,769		13,457
Originated SBC loans		24,948		22,564		17,902
Originated SBA 7(a) loans		4,428		998		—
Originated Residential Agency loans		51		255		—
Total loans (1)	$	159,957	$	128,739	$	130,506
Held for sale, at fair value, loans
Originated Residential Agency loans	$	3,747	$	3,723	$	709
Originated Freddie loans		1,428		1,507		619
Originated SBA 7(a) loans		—		—		—
Acquired loans		153		993		299
Total loans, held for sale, at fair value	$	5,328	$	6,223	$	1,627
Mortgage backed securities, at fair value		4,214		3,343		4,890
Total interest income	$	169,499	$	138,305	$	137,023
Interest expense
Secured borrowings	$	(35,331)	$	(26,092)	$	(25,839)
Securitized debt obligations of consolidated VIEs		(36,988)		(23,387)		(17,619)
Guaranteed loan financing		(11,613)		(13,435)		(13,971)
Senior secured note		(13,702)		(8,069)		—
Convertible note		(8,748)		(3,427)		—
Corporate debt		(2,706)		—		—
Promissory note		(150)		(236)		(164)
Exchangeable senior notes		—		—		(179)
Total interest expense	$	(109,238)	$	(74,646)	$	(57,772)
Net interest income before provision for loan losses	$	60,261	$	63,659	$	79,251
(1) Includes interest income on loans in consolidated VIEs.

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Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Derivative Instruments

Schedule of the Company’s derivatives

		As of December 31, 2018						As of December 31, 2017
				Asset		Liability				Asset		Liability
		Notional		Derivatives		Derivatives		Notional		Derivatives		Derivatives
(In Thousands)	Primary Underlying Risk	Amount		Fair Value		Fair Value		Amount		Fair Value		Fair Value
Credit Default Swaps	Credit Risk	$	15,000	$	295	$	—	$	15,000	$	—	$	(66)
Interest Rate Swaps- not designated as hedges	Interest rate risk		411,811		—		(2,349)		391,381		2,898		(216)
Interest Rate Swaps - designated as hedges	Interest rate risk		134,325		—		(1,276)		—		—		—
Interest rate lock commitments	Interest rate risk		144,799		1,775		—		167,533		1,827		—
Total		$	705,935	$	2,070	$	(3,625)	$	573,914	$	4,725	$	(282)

Schedule of gains and losses on derivatives

	Year Ended December 31, 2018
			Net Change in
	Net Realized		Unrealized
(In Thousands)	(Loss)		Gain (Loss)
Credit default swaps (1)	$	(703)	$	862
Interest rate swaps (1)(2)		4,272		(5,323)
Residential mortgage banking activities interest rate swaps (3)		—		(783)
Interest rate lock commitments (3)		—		(51)
Total	$	3,569	$	(5,295)
(1) Gains/ (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income. (2) For qualifying hedges of interest rate risk, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in accumulated other comprehensive income (loss). (3) Gains/ (losses) are recorded in residential mortgage banking activities in the consolidated statements of income.

Schedule of gains and losses on the Company’s derivatives which have qualified for hedge accounting

(In Thousands)	Derivatives - effective portion reclassified from AOCI to income		Hedge ineffectiveness recorded directly in income (2)		Total income statement impact		Derivatives-  effective portion recorded in OCI (3)		Total change in OCI for period (3)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	(954)	$	(954)
Total - Year ended December 31, 2018	$	—	$	—	$	—	$	(954)	$	(954)
Hedge type
Interest rate - forecasted transactions (1)	$	—	$	—	$	—	$	—	$	—
Total - Year ended December 31, 2017	$	—	$	—	$	—	$	—	$	—
(1) Consists of benchmark interest rate hedges of LIBOR-indexed floating-rate liabilities.
(2) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
(3) Represents after tax amounts recorded in OCI.

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2018

Management Fee

Related-party transactions

Schedule of related party transactions

	For the Year Ended December 31,
	2018		2017
Management fee - total	$	8.2 million	$	8.1 million
Management fee - amount unpaid	$	2.1 million	$	2.0 million

Incentive Distribution

Related-party transactions

Schedule of related party transactions

	For the Year Ended December 31,
	2018		2017
Incentive fee distribution - total	$	1.1 million	$	—
Incentive fee distribution - amount unpaid	$	0.5 million	$	—

Expense Reimbursement

Related-party transactions

Schedule of related party transactions

	For the Year Ended December 31,
	2018		2017
Reimbursable expenses payable to our Manager - total	$	4.9 million	$	4.9 million
Reimbursable expenses payable to our Manager - amount unpaid	$	3.1 million	$	2.4 million

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Other Assets and Other Liabilities (Tables)

12 Months Ended

Dec. 31, 2018

Other Assets and Other Liabilities

Schedule of other assets and other liabilities

(In Thousands)	December 31, 2018		December 31, 2017
Other assets:
Due from servicers	$	7,284	$	9,964
Accrued interest		7,253		6,494
Intangible assets		2,915		3,264
Real estate acquired in settlement of loans		7,787		1,644
Deferred financing costs		2,564		446
Deferred tax asset		18,084		17,155
Prepaid taxes		—		6,014
Deferred loan exit fees		8,668		5,798
Other		8,679		6,061
Total other assets	$	63,234	$	56,840
Accounts payable and other accrued liabilities:
Accrued salaries, wages and commissions	$	18,718	$	16,508
Servicing principal and interest payable		10,582		5,659
Repair and denial reserve		5,524		5,687
Liability under subservicing agreements		239		1,496
Unapplied cash		340		2,445
Accrued interest payable		14,244		10,317
Payable to related parties		2,580		2,042
Deferred tax liability		19,972		18,506
Other accounts payable and accrued liabilities		1,313		11,976
Total accounts payable and other accrued liabilities	$	73,512	$	74,636

Schedule of real estate acquired in settlement of loans

(In Thousands)	December 31, 2018		December 31, 2017
Texas	$	3,444	$	97
Missouri		2,526		—
Virginia		755		—
Florida		279		303
Illinois		—		863
Other		783		381
Total	$	7,787	$	1,644

Schedule of Intangible assets

(In Thousands)	December 31, 2018		December 31, 2017		Estimated Useful Life
Trade name	$	852	$	1,017	15 years
Favorable lease		1,063		1,247	12 years
SBA license		1,000		1,000	Indefinite life
Total Intangible Assets	$	2,915	$	3,264

Schedule of accumulated amortization for finite-lived intangible assets

(In Thousands)	December 31, 2018
Trade name	$	371
Favorable lease		417
Total Accumulated Amortization	$	788

Amortization expense related to the intangible assets

(In Thousands)	December 31, 2018
2019	$	311
2020		277
2021		248
2022		222
2023		195
Thereafter		662
Total	$	1,915

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Other Income and Operating Expenses (Tables)

12 Months Ended

Dec. 31, 2018

Other Income and Operating Expenses

Schedule of other income and operating expenses

	For the Year Ended December 31,
(In Thousands)	2018		2017		2016
Other income
Origination income	$	4,590	$	4,302	$	4,144
Release of repair and denial reserve		163		1,013		1,258
Other		833		2,095		3,759
Total other income	$	5,586	$	7,410	$	9,161
Other operating expenses
Origination costs	$	7,752	$	6,862	$	4,098
Technology expense		3,624		3,692		2,945
Charge off of real estate acquired in settlement of loans		1,086		756		1,833
Rent expense		2,524		2,314		1,449
Recruiting, training and travel expenses		2,287		2,389		1,320
Loan acquisition costs		1,458		600		—
Other		10,017		10,326		5,535
Total other operating expenses	$	28,747	$	26,939	$	17,180

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Stockholders Equity (Tables)

12 Months Ended

Dec. 31, 2018

Stockholders’ Equity

Schedule of cash dividends declared by the Board of Directors

The following table presents cash dividends declared by our board of directors on our common stock from January 1, 2017 through December 31, 2018:

			Dividend per
Declaration Date	Record Date	Payment Date	Share
March 14, 2017	March 31, 2017	April 13, 2017	$	0.37
June 15, 2017	June 30, 2017	July 31, 2017	$	0.37
September 12, 2017	September 29, 2017	October 20, 2017	$	0.37
December 13, 2017	December 29, 2017	January 31, 2018	$	0.37
March 14, 2018	March 30, 2018	April 30, 2018	$	0.37
June 12, 2018	June 29, 2018	July 31, 2018	$	0.40
September 11, 2018	September 28, 2018	October 31, 2018	$	0.40
December 12, 2018	December 31, 2018	January 31, 2019	$	0.40

Schedule of Restricted Stock Unit RSU and RSA activity

	Independent Director RSUs					Employee RSAs
(In Thousands, except share data)	Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)		Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)
Outstanding, January 1	—	$	—	$	—	—	$	—	$	—
Granted	40,000		580		14.50	25,851		380		14.70
Vested	(40,000)		(580)		14.50	—		—		—
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2017	—	$	—	$	—	25,851	$	380	$	14.70
Granted	23,104		320		13.85	101,670		1,408		13.85
Vested	(23,104)		(320)		13.85	(8,617)		(127)		14.70
Forfeited	—		—		—	—		—		—
Canceled	—		—		—	—		—		—
Outstanding, December 31, 2018	—	$	—	$	—	118,904	$	1,661	$	13.97

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Earnings per Share of Common Stock (Tables)

12 Months Ended

Dec. 31, 2018

Earnings per Share of Common Stock

Schedule of computation of basic and diluted earnings per share

	Year Ended December 31,
(In Thousands, except for share and per share amounts)	2018		2017		2016
Basic Earnings
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Basic earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Loss from discontinued operations		-		-		(2,158)
Basic — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Diluted Earnings
Continuing Operations
Net income	$	61,457	$	45,814	$	55,564
Less: Income attributable to non-controlling interest		2,199		2,524		4,237
Less: Income attributable to participating shares		217		62		-
Diluted earnings	$	59,041	$	43,228	$	51,327
Discontinued Operations
Basic — Loss from discontinued operations		-		-		(2,158)
Diluted  — Net income attributable to common stockholders after allocation to participating shares	$	59,041	$	43,228	$	49,169
Number of Shares
Basic — Average shares outstanding		32,085,975		31,350,102		26,647,981	(1)
Effect of dilutive securities — Unvested participating shares		16,209		1,509		-
Diluted — Average shares outstanding		32,102,184		31,351,611		26,647,981
Basic
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
Diluted
Income from continuing operations	$	1.84	$	1.38	$	1.93
Loss from discontinued operations		-		-		(0.08)
(1) Retroactively adjusted for the equivalent number of shares after the reverse acquisition using an exchange rate of 0.8356.

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Offsetting Assets and Liabilities (Tables)

12 Months Ended

Dec. 31, 2018

Offsetting Assets and Liabilities

Schedule of effect of offsetting recognized assets

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets presented in the consolidated balance sheet as of December 31, 2018:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Credit default swaps	$	295	$	—	$	295	$	—	$	295	$	—
Total	$	295	$	—	$	295	$	—	$	295	$	—

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized assets presented in the consolidated balance sheet as of December 31, 2017:

			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Interest rate swaps	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—
Total	$	2,898	$	—	$	2,898	$	—	$	2,898	$	—

Schedule of effect of offsetting recognized liabilities

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized liabilities presented in the consolidated balance sheet as of December 31, 2018:

			Gross		Liabilities
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Liabilities		Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	3,625	$	—	$	3,625	$	—	$	3,625	$	—
Secured borrowings		831,574		—		831,574		831,574		—		—
Promissory note		2,973		—		2,973		2,973		—		—
Total	$	838,172	$	—	$	838,172	$	834,547	$	3,625	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

The following table provides disclosure regarding the effect of offsetting of the Company’s recognized liabilities presented in the consolidated balance sheet as of December 31, 2017:

					Liabilities
			Gross		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Amounts		the		Balance Sheets  (1)
	Amounts of		Offset in the		Consolidated				Cash
	Recognized		Consolidated		Balance		Financial		Collateral
(In Thousands)	Liabilities		Balance Sheets		Sheets		Instruments		Paid		Net Amount
Interest rate swaps	$	216	$	—	$	216	$	—	$	216	$	—
Credit default swaps		66		—		66		—		66		—
Secured borrowings		631,286		—		631,286		631,286		—		—
Promissory note		6,107		—		6,107		6,107		—		—
Total	$	637,675	$	—	$	637,675	$	637,393	$	282	$	—

(1) Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our consolidated balance sheets as assets or liabilities, respectively.

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Taxes

Schedule of income tax provision

	Year Ended December 31,
(In Thousands)	2018		2017		2016
Current
Federal income tax (benefit)	$	356	$	(1,235)	$	6,441
State and local income tax (benefit)		169		(171)		947
Net current tax provision (benefit)		525		(1,406)		7,388
Deferred
Federal income tax		1,167		3,779		1,401
State and local income tax		(306)		613		583
Valuation allowance		—		(1,147)		279
Net deferred tax provision		861		3,245		2,263
Total income tax provision	$	1,386	$	1,839	$	9,651

Schedule of income tax reconciliation

	Year Ended December 31,
(In Thousands)	2018		2017		2016
U.S. statutory tax	$	13,207	$	16,679	$	22,825
State and local income tax		464		569		2,322
Income attributable to REIT		(11,274)		(10,795)		(14,522)
Income attributable to Non-controlling interests		(400)		(568)		(1,251)
Nondeductible		(194)		748		21
Change in tax rate (a)		(554)		(727)		—
Change in valuation allowance		—		(1,147)		279
Return to Provision		(11)		(2,547)		—
Other		148		(373)		(23)
Effective income tax	$	1,386	$	1,839	$	9,651
(a) For 2017, the amount relates to the effects of revaluing our net deferred tax balances for the Tax Act that was enacted on December 22, 2017.

Schedule showing temporary differences with respect to deferred tax assets and liabilities

(In Thousands)	December 31, 2018		December 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$	8,408	$	4,989
Unrealized losses		1,442		—
Accruals		2,815		—
Depreciation and amortization		986		997
Goodwill		3,927		3,110
Compensation		279		1,226
Other		227		1,240
Total deferred tax assets	$	18,084	$	11,562
Deferred tax liabilities:
Accruals	$	—	$	216
Loan / servicing rights balance		19,210		12,014
Derivative instruments		133		373
Other taxable temporary difference		629		310
Total deferred tax liabilities	$	19,972	$	12,913
Net deferred tax assets (liabilities)	$	(1,888)	$	(1,351)

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Segment Reporting (Tables)

12 Months Ended

Dec. 31, 2018

Segment Reporting

Schedule of segment reporting information

Reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other, for the year ended December 31, 2018 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	47,243	$	81,752	$	36,706	$	3,798	$	—	$	169,499
Interest expense		(28,946)		(60,879)		(16,218)		(3,195)		—		(109,238)
Net interest income before provision for loan losses	$	18,297	$	20,873	$	20,488	$	603	$	—	$	60,261
Provision for loan losses		(1,727)		(13)		39		—		—		(1,701)
Net interest income after provision for loan losses	$	16,570	$	20,860	$	20,527	$	603	$	—	$	58,560
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	59,852	$	—	$	59,852
Net realized gain on financial instruments		5,023		17,482		15,904		—		—		38,409
Net unrealized gain on financial instruments		(1,156)		142		173		5,694		—		4,853
Other income		368		4,366		621		200		31		5,586
Servicing income		20		1,396		5,390		20,269		—		27,075
Income from unconsolidated joint venture		12,148		—		—		—		—		12,148
Total non-interest income	$	16,403	$	23,386	$	22,088	$	86,015	$	31	$	147,923
Non-interest expense
Employee compensation and benefits		(386)		(8,815)		(13,077)		(33,401)		(923)		(56,602)
Allocated employee compensation and benefits from related party		(420)		—		—		—		(3,780)		(4,200)
Variable expenses on residential mortgage banking activities		—		—		—		(22,228)		—		(22,228)
Professional fees		(1,310)		(1,285)		(820)		(607)		(2,977)		(6,999)
Management fees – related party		—		—		—		—		(8,176)		(8,176)
Incentive fees – related party		—		—		—		—		(1,143)		(1,143)
Loan servicing expense		(3,926)		(3,883)		(260)		(7,444)		(32)		(15,545)
Other operating expenses		(3,214)		(10,392)		(4,070)		(8,254)		(2,817)		(28,747)
Total non-interest expense	$	(9,256)	$	(24,375)	$	(18,227)	$	(71,934)	$	(19,848)	$	(143,640)
Net income (loss) before provision for income taxes	$	23,717	$	19,871	$	24,388	$	14,684	$	(19,817)	$	62,843
Total assets	$	644,512	$	1,606,210	$	455,513	$	260,523	$	70,085	$	3,036,843

Reportable segments for the year ended December 31, 2017 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	37,198	$	59,021	$	38,108	$	3,978	$	—	$	138,305
Interest expense		(16,741)		(35,121)		(16,098)		(3,145)		(3,541)		(74,646)
Net interest income before provision for loan losses	$	20,457	$	23,900	$	22,010	$	833	$	(3,541)	$	63,659
Provision for loan losses		(2,026)		(195)		(142)		—		—		(2,363)
Net interest income after provision for loan losses	$	18,431	$	23,705	$	21,868	$	833	$	(3,541)	$	61,296
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	83,437	$	—	$	83,437
Net realized gain on financial instruments		(323)		9,665		9,509		—		478		19,329
Net unrealized gain (loss) on financial instruments		1,628		8,125		1,315		(4,000)		(68)		7,000
Other income		1,766		3,983		1,513		148		—		7,410
Servicing income		197		824		4,624		17,349		—		22,994
Income on unconsolidated joint venture		1,048		—		—		—		—		1,048
Total non-interest income	$	4,316	$	22,597	$	16,961	$	96,934	$	410	$	141,218
Non-interest expense
Employee compensation and benefits		(576)		(8,509)		(10,505)		(34,601)		(848)		(55,039)
Allocated employee compensation and benefits from related party		(384)		—		—		—		(3,459)		(3,843)
Variable expenses on residential mortgage banking activities		—		—		—		(41,737)		—		(41,737)
Professional fees		(1,501)		(1,351)		(1,973)		(865)		(3,231)		(8,921)
Management fees – related party		—		—		—		—		(8,059)		(8,059)
Loan servicing expense		(2,981)		(2,355)		1,454		(6,441)		—		(10,323)
Other operating expenses		(4,285)		(9,666)		(4,076)		(6,677)		(2,235)		(26,939)
Total non-interest expense	$	(9,727)	$	(21,881)	$	(15,100)	$	(90,321)	$	(17,832)	$	(154,861)
Net income (loss) before provision for income taxes	$	13,020	$	24,421	$	23,729	$	7,446	$	(20,963)	$	47,653
Total assets	$	511,427	$	1,154,509	$	510,006	$	324,392	$	23,169	$	2,523,503

Reportable segments for the year ended December 31, 2016 are summarized in the below table.

					SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	49,311	$	40,586	$	46,417	$	709	$	—	$	137,023
Interest expense		(18,327)		(20,347)		(17,397)		(557)		(1,144)		(57,772)
Net interest income before provision for loan losses	$	30,984	$	20,239	$	29,020	$	152	$	(1,144)	$	79,251
Provision for loan losses		(6,419)		(86)		(1,314)		—		—		(7,819)
Net interest income after provision for loan losses	$	24,565	$	20,153	$	27,706	$	152	$	(1,144)	$	71,432
Non-interest income
Residential mortgage banking activities	$	—	$	—	$	—	$	7,630	$	—	$	7,630
Net realized gain on financial instruments		(293)		2,290		4,604		—		313		6,914
Net unrealized gain (loss) on financial instruments		4,528		6,424		—		6,917		68		17,937
Other income		2,246		5,059		1,845		11		—		9,161
Servicing income		49		518		5,555		2,536				8,658
Gain on bargain purchase		—		—		—		—		15,218		15,218
Total non-interest income	$	6,530	$	14,291	$	12,004	$	17,094	$	15,599	$	65,518
Non-interest expense
Employee compensation and benefits		(337)		(9,359)		(9,391)		(5,578)		(162)		(24,827)
Allocated employee compensation and benefits from related party		(366)		—		—		—		(3,302)		(3,668)
Variable expenses on residential mortgage banking activities		—		—		—		(597)		—		(597)
Professional fees		(2,735)		(1,537)		(3,693)		359		(5,814)		(13,420)
Management fees – related party		—		—		—		—		(7,432)		(7,432)
Incentive fees – related party		—		—		—		—		—		—
Loan servicing expense		(2,743)		(1,348)		479		(999)		—		(4,611)
Other operating expenses		(3,604)		(6,864)		(3,798)		(1,074)		(1,840)		(17,180)
Total non-interest expense	$	(9,785)	$	(19,108)	$	(16,403)	$	(7,889)	$	(18,550)	$	(71,735)
Income from continuing operations before provision for income taxes	$	21,310	$	15,336	$	23,307	$	9,357	$	(4,095)	$	65,215
Total Assets	$	542,643	$	796,408	$	593,091	$	353,141	$	319,984	$	2,605,267

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Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2018

Discontinued Operations

Schedule of reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued segment

		For the Year Ended December 31,
(In Thousands)		2018		2017		2016
Non-interest income
Commission income	$	—	$	—	$	2,984
Property management income		—		—		263
Other		—		—		16
Total non-interest income	$	—	$	—	$	3,263
Non-interest expense
Employee compensation and benefits	$	—	$	—	$	(1,071)
Professional fees		—		—		(138)
Commission expense		—		—		(1,844)
Technology expense		—		—		(171)
Rent expense		—		—		(268)
Tax expense		—		—		(3)
Recruiting, training, and travel expenses		—		—		(46)
Marketing expense		—		—		(29)
Other		—		—		(536)
Total non-interest expense	$	—	$	—	$	(4,106)
Loss on sale		—		—		(2,695)
Loss before income tax benefit	$	—	$	—	$	(3,538)
Income tax benefit		—		—		1,380
Loss on discontinued operations presented on the statements of income	$	—	$	—	$	(2,158)

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Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2018

Quarterly Financial Data (Unaudited)

Summary of quarterly financial data

The following table summarizes our quarterly financial data which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations (amounts in thousands, except per share amounts):

	March 31		June 30		September 30		December 31
2018
Net interest income after provision for loan losses	$	14,317	$	15,848	$	14,562	$	13,833
Non-interest income		42,747		40,288		42,761		22,125
Non-interest expense		(35,983)		(39,587)		(38,859)		(29,209)
Net income		18,518		15,884		17,569		9,486
Net income attributable to Ready Capital Corporation		17,854		15,296		16,931		9,177
Income (loss) from continuing operations - per share	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Basic	$	0.56	$	0.48	$	0.53	$	0.30
Earnings per share - Diluted	$	0.56	$	0.48	$	0.53	$	0.30
Dividends declared per share of common stock	$	0.37	$	0.40	$	0.40	$	0.40
2017
Net interest income after provision for loan losses	$	16,211	$	15,859	$	14,664	$	14,562
Non-interest income		27,015		38,564		38,370		37,269
Non-interest expense		(32,635)		(42,201)		(41,001)		(39,025)
Net income		9,557		11,153		12,374		12,730
Net income attributable to Ready Capital Corporation		8,856		10,496		11,841		12,097
Income (loss) from continuing operations - per share	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Basic	$	0.29	$	0.34	$	0.37	$	0.38
Earnings per share - Diluted	$	0.29	$	0.34	$	0.37	$	0.38
Dividends declared per share of common stock	$	0.37	$	0.37	$	0.37	$	0.37

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Supplemental Financial Data (Tables)

12 Months Ended

Dec. 31, 2018

Unconsolidated VIEs

Schedule of condensed financial information for unconsolidated subsidiaries

Statements of Income	Year Ended December 31, 2018
(In Thousands)		Girod HoldCo, LLC		WFLLA, LLC
Interest income	$	21,182	$	10,570
Realized gains		27,310		13,628
Unrealized gains		8,191		4,087
Servicing expense and other		(7,972)		(3,989)
Income before provision for income taxes	$	48,711	$	24,296

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Organization (Details) - segment	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Organization
Ownership percentage in operating partnership	96.60%	96.50%
Number of reportable segments	4
Number of operating segments	4
Originated loan as held-for-investment (as a percent)	25.00%
Originated loan as held-for-sale (as a percent)	75.00%

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Organization - Merger with Owens Realty Mortgage and other details (Details) $ in Millions		12 Months Ended
	Nov. 07, 2018 USD ($)	Dec. 31, 2018
Owens Realty Mortgage, Inc.
Organization
Common share fixed exchange ratio	1.441
Aggregate value of consideration	$ 182.6
Ready Capital Shareholders
Organization
Percentage of equity interests held after closing	72.40%
Owens Realty Shareholders
Organization
Percentage of equity interests held after closing	27.60%
Minimum
Organization
Percentage of taxable income distributed in the form of qualifying distributions		90.00%

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Summary of Significant Accounting Policies (Details) $ in Millions	12 Months Ended
	Dec. 31, 2018 USD ($) segment class item	Dec. 31, 2017 USD ($)
Number of reportable segments | segment	4
Amount in money market mutual funds	$ 0.6	$ 0.6
Number of days loans must be delinquent to be placed on nonaccrual status	90 days
Number of separate classes of servicing rights used for risk management purposes | class	2
Investment in unconsolidated joint venture ownership percentage	50.00%
Number of repurchase agreements accounted for as components of linked transactions | item	0
Unrecognized accrued taxes, interest and penalties	$ 0.0	0.0
The number of consecutive months contractual payments that must be received on a loan in non-accrual status before resuming recognition of interest income | item	3
Borrowings under credit facilities | Maximum
Maturity period	2 years
Restricted cash
Cash collateral receivable	$ 11.6	$ 0.8

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Recently Issued Accounting Pronouncements (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Jan. 01, 2019
Cash Flow comparison
Net cash provided by operating activities	$ 140,297	$ 352,489	$ 16,482
Net cash (used in) provided by operating activities of discontinued operations	0	0	(1,719)
Net cash (used in) provided by investing activities	(580,759)	(235,728)	389,574
Net cash (used in) provided by financing activities	444,478	(106,502)	(381,356)
Net increase (decrease) in cash, cash equivalents, and restricted cash	4,016	10,259	22,981
Cash, cash equivalents, and restricted cash at beginning of period	90,954	80,695	57,714
Cash, cash equivalents, and restricted cash at end of period	$ 94,970	$ 90,954	$ 80,695
ASU 2016-02
Leases
Right-of-use assets				$ 2,100
Restatement Adjustment | ASU 2016-02
Leases
Lease liabilities				$ 2,100

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Loans and Allowance for Loan Losses - Classification, unpaid principal balance, and carrying value (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Carrying Value
Total Loans, before allowance for loan losses	$ 1,199,504	$ 1,027,467
Allowance for loan losses	(6,112)	(9,547)
Total Loans, net	1,193,392	1,017,920
Allowance for loan losses on loans in consolidated VIEs	(8,320)	(11,746)	$ (16,130)
Total Loans, net of allowance for loan losses, including loans in consolidated VIEs	2,414,366	1,854,100
Loans, held for sale, at fair value	115,258	216,022
Loans, held-for-investment	2,529,624	2,070,122
UPB
Total Loans, before allowance for loan losses	1,230,582	1,066,287
Total Loans, net	1,230,582	1,066,287
Total Loans, held for sale, at fair value	111,163	209,534
Total Loan portfolio	2,587,106	2,145,989
Consolidated VIEs
Carrying Value
Total Loans, in consolidated VIEs, before allowance for loan losses	1,223,182	838,379
Allowance for loan losses on loans in consolidated VIEs	(2,208)	(2,199)
Total Loans, net, in consolidated VIEs	1,220,974	836,180
Total Loans, net of allowance for loan losses, including loans in consolidated VIEs	2,414,366	1,854,100
UPB
Total Loans, in consolidated VIEs, before allowance for loan losses	1,245,361	870,168
Total Loans, net, in consolidated VIEs	1,245,361	870,168
Total Loans, net, and Loans, net in consolidated VIEs	2,475,943	1,936,455
Acquired SBA 7(a) loans
Carrying Value
Total Loans, before allowance for loan losses	264,308	331,083
Allowance for loan losses on loans in consolidated VIEs	(2,318)	(3,527)	(5,004)
UPB
Total Loans, before allowance for loan losses	283,423	353,556
Acquired SBA 7(a) loans | Consolidated VIEs
Carrying Value
Total Loans, in consolidated VIEs, before allowance for loan losses	55,966	69,523
UPB
Total Loans, in consolidated VIEs, before allowance for loan losses	74,554	95,605
Acquired loans
Carrying Value
Total Loans, before allowance for loan losses	206,983	191,327
Allowance for loan losses on loans in consolidated VIEs	(5,052)	(7,264)	(10,150)
Loans, held for sale, at fair value	3,008	2,544
UPB
Total Loans, before allowance for loan losses	215,213	209,694
Total Loans, held for sale, at fair value	2,935	2,662
Acquired loans | Consolidated VIEs
Carrying Value
Total Loans, in consolidated VIEs, before allowance for loan losses	343,156	189,545
UPB
Total Loans, in consolidated VIEs, before allowance for loan losses	354,794	204,497
Originated Transitional loans
Carrying Value
Total Loans, before allowance for loan losses	272,981	246,076
Allowance for loan losses on loans in consolidated VIEs	(353)
UPB
Total Loans, before allowance for loan losses	275,237	248,190
Originated Transitional loans | Consolidated VIEs
Carrying Value
Total Loans, in consolidated VIEs, before allowance for loan losses	391,752	196,438
UPB
Total Loans, in consolidated VIEs, before allowance for loan losses	393,116	196,070
Originated SBC loans, at fair value
Carrying Value
Total Loans, before allowance for loan losses	22,664	188,150
UPB
Total Loans, before allowance for loan losses	22,325	182,045
Originated SBC loans
Carrying Value
Total Loans, before allowance for loan losses	345,100	27,610
Allowance for loan losses on loans in consolidated VIEs	(11)	(637)	(804)
UPB
Total Loans, before allowance for loan losses	342,751	27,349
Originated SBC loans | Consolidated VIEs
Carrying Value
Total Loans, in consolidated VIEs, before allowance for loan losses	432,308	382,873
UPB
Total Loans, in consolidated VIEs, before allowance for loan losses	422,897	373,996
Originated SBA 7(a) loans
Carrying Value
Total Loans, before allowance for loan losses	85,569	41,208
Allowance for loan losses on loans in consolidated VIEs	(586)	(318)	$ (172)
Loans, held for sale, at fair value	21,153	16,791
UPB
Total Loans, before allowance for loan losses	89,733	43,439
Total Loans, held for sale, at fair value	19,669	15,472
Originated Residential Agency loans
Carrying Value
Total Loans, before allowance for loan losses	1,899	2,013
Loans, held for sale, at fair value	67,775	129,096
UPB
Total Loans, before allowance for loan losses	1,900	2,014
Total Loans, held for sale, at fair value	65,586	124,758
Originated Freddie Mac loans
Carrying Value
Loans, held for sale, at fair value	23,322	67,591
UPB
Total Loans, held for sale, at fair value	$ 22,973	$ 66,642

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Loans and Allowance for Loan Losses - Delinquency (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Loan delinquency information
Total Loans Carrying Value	$ 2,416,303	$ 1,856,196
Non-Accrual Loans	49,486	34,755
90+ Days Past Due but Accruing	4,854	4,764
General allowance for loan losses	(1,937)	(2,096)
Total Loans, net of allowance for loan losses, including loans in consolidated VIEs	$ 2,414,366	$ 1,854,100
Percentage of outstandings	100.00%	100.00%
Percentage of outstandings - Non accrual loans	2.00%	1.90%
Percentage of outstandings - Accruing	0.20%	0.30%
Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	$ 2,337,336	$ 1,791,876
Percentage of outstandings	96.70%	96.50%
30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	$ 42,331	$ 38,120
Percentage of outstandings	1.80%	2.10%
90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	$ 36,636	$ 26,200
Percentage of outstandings	1.50%	1.40%
Acquired SBA 7(a) loans
Loan delinquency information
Total Loans Carrying Value	$ 318,488	$ 397,597
Non-Accrual Loans	17,916	16,782
90+ Days Past Due but Accruing	1,043	176
General allowance for loan losses	(532)	(518)
Acquired SBA 7(a) loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	299,080	376,102
Acquired SBA 7(a) loans | 30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	14,943	15,953
Acquired SBA 7(a) loans | 90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	4,465	5,542
Acquired loans
Loan delinquency information
Total Loans Carrying Value	545,695	374,425
Non-Accrual Loans	11,447	16,405
90+ Days Past Due but Accruing	3,811	4,090
General allowance for loan losses	(608)	(819)
Acquired loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	524,930	348,271
Acquired loans | 30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	7,213	6,891
Acquired loans | 90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	13,552	19,263
Originated Transitional loans
Loan delinquency information
Total Loans Carrying Value	664,733	442,515
General allowance for loan losses	(353)
Originated Transitional loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	659,103	435,252
Originated Transitional loans | 30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	5,630	7,263
Originated SBC loans, at fair value
Loan delinquency information
Total Loans Carrying Value	22,664	188,150
Originated SBC loans, at fair value | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	22,664	188,150
Originated SBC loans
Loan delinquency information
Total Loans Carrying Value	777,408	410,314
Non-Accrual Loans	16,895	608
General allowance for loan losses	(11)	(468)
Originated SBC loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	748,146	402,004
Originated SBC loans | 30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	12,367	7,702
Originated SBC loans | 90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	16,895	608
Originated SBA 7(a) loans
Loan delinquency information
Total Loans Carrying Value	85,416	41,182
Non-Accrual Loans	1,666	671
General allowance for loan losses	(433)	(291)
Originated SBA 7(a) loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	83,076	40,871
Originated SBA 7(a) loans | 30-89 Days Past Due
Loan delinquency information
Total Loans Carrying Value	2,178	311
Originated SBA 7(a) loans | 90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	162
Originated Residential Agency loans
Loan delinquency information
Total Loans Carrying Value	1,899	2,013
Non-Accrual Loans	1,562	289
90+ Days Past Due but Accruing		498
Originated Residential Agency loans | Current and less than 30 days past due
Loan delinquency information
Total Loans Carrying Value	337	1,226
Originated Residential Agency loans | 90+ Days Past Due
Loan delinquency information
Total Loans Carrying Value	$ 1,562	$ 787

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Loans and Allowance for Loan Losses - Credit Quality (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	$ 2,416,303	$ 1,856,196
General allowance for loan losses	(1,937)	(2,096)
Total Loans, net of allowance for loan losses, including loans in consolidated VIEs	2,414,366	1,854,100
Carrying amount of loan foreclosure in process	1,400	400
0.0 - 20.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	124,928	66,154
20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	293,021	234,702
40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	697,709	639,905
60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	1,001,900	675,958
80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	200,209	132,423
Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	98,536	107,054
Acquired SBA 7(a) loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	318,488	397,597
General allowance for loan losses	(532)	(518)
Acquired SBA 7(a) loans | 0.0 - 20.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	6,337	8,978
Acquired SBA 7(a) loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	38,150	37,880
Acquired SBA 7(a) loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	100,578	125,234
Acquired SBA 7(a) loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	93,411	106,199
Acquired SBA 7(a) loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	33,750	56,676
Acquired SBA 7(a) loans | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	46,262	62,630
Acquired loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	545,695	374,425
General allowance for loan losses	(608)	(819)
Acquired loans | 0.0 - 20.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	118,198	54,463
Acquired loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	165,567	102,498
Acquired loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	136,206	114,010
Acquired loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	70,017	67,037
Acquired loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	40,003	18,745
Acquired loans | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	15,704	17,672
Originated Transitional loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	664,733	442,515
General allowance for loan losses	(353)
Originated Transitional loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	29,245	26,735
Originated Transitional loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	178,861	171,227
Originated Transitional loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	348,967	212,830
Originated Transitional loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	101,513	21,639
Originated Transitional loans | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	6,147	10,084
Originated SBC loans, at fair value
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	22,664	188,150
Originated SBC loans, at fair value | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	8,600	17,294
Originated SBC loans, at fair value | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs		31,245
Originated SBC loans, at fair value | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	6,328	115,653
Originated SBC loans, at fair value | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	7,736	21,245
Originated SBC loans, at fair value | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs		2,713
Originated SBC loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	777,408	410,314
General allowance for loan losses	(11)	(468)
Originated SBC loans | 0.0 - 20.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs		2,661
Originated SBC loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	48,259	49,281
Originated SBC loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	271,311	192,796
Originated SBC loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	457,838	158,047
Originated SBC loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs		7,529
Originated SBA 7(a) loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	85,416	41,182
General allowance for loan losses	(433)	(291)
Originated SBA 7(a) loans | 0.0 - 20.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	393	52
Originated SBA 7(a) loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	3,200	954
Originated SBA 7(a) loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	10,642	5,227
Originated SBA 7(a) loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	24,387	15,583
Originated SBA 7(a) loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	16,473	5,766
Originated SBA 7(a) loans | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	30,321	13,600
Originated Residential Agency loans
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	1,899	2,013
Originated Residential Agency loans | 20.1 - 40.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs		60
Originated Residential Agency loans | 40.1 - 60.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	111	166
Originated Residential Agency loans | 60.1 - 80.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	952	609
Originated Residential Agency loans | 80.1 - 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	734	823
Originated Residential Agency loans | Greater than 100.0%
Credit quality of loans
Total Loans, before allowance for loan losses, including loans in consolidated VIEs	$ 102	$ 355

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Loans and Allowance for Loan Losses - Geographic and Collateral Concentration (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Geographical concentration
Concentration risk
Percentage of loan	100.00%	100.00%
Geographical concentration | California
Concentration risk
Percentage of loan	14.10%	13.50%
Geographical concentration | Texas
Concentration risk
Percentage of loan	11.30%	12.40%
Geographical concentration | Florida
Concentration risk
Percentage of loan	10.80%	11.70%
Geographical concentration | New York
Concentration risk
Percentage of loan	6.30%	6.80%
Geographical concentration | Georgia
Concentration risk
Percentage of loan	5.30%	6.20%
Geographical concentration | Arizona
Concentration risk
Percentage of loan	5.00%	5.10%
Geographical concentration | Illinois
Concentration risk
Percentage of loan	3.80%	3.90%
Geographical concentration | Pennsylvania
Concentration risk
Percentage of loan	3.80%	2.10%
Geographical concentration | North Carolina
Concentration risk
Percentage of loan	3.70%	3.70%
Geographical concentration | Ohio
Concentration risk
Percentage of loan	2.80%	2.70%
Geographical concentration | Other
Concentration risk
Percentage of loan	33.10%	31.90%
Collateral concentration
Concentration risk
Percentage of loan	100.00%	100.00%
Percentage of SBA loan	100.00%	100.00%
Collateral concentration | Offices of Physicians
Concentration risk
Percentage of SBA loan	17.70%	16.00%
Collateral concentration | Lodging
Concentration risk
Percentage of SBA loan	10.10%	10.50%
Collateral concentration | Child Day Care Services
Concentration risk
Percentage of SBA loan	9.90%	12.30%
Collateral concentration | Veterinarians
Concentration risk
Percentage of SBA loan	6.80%	7.00%
Collateral concentration | Eating Places
Concentration risk
Percentage of SBA loan	5.40%	5.50%
Collateral concentration | Grocery Stores
Concentration risk
Percentage of SBA loan	3.80%	4.70%
Collateral concentration | Hotels, Motels and Tourist Courts
Concentration risk
Percentage of SBA loan	3.80%	0.90%
Collateral concentration | Auto
Concentration risk
Percentage of SBA loan	2.70%	3.20%
Collateral concentration | Funeral Service and Crematories
Concentration risk
Percentage of SBA loan	2.30%	2.20%
Collateral concentration | Gasoline Service Stations
Concentration risk
Percentage of SBA loan	2.30%	1.90%
Collateral concentration | Other
Concentration risk
Percentage of SBA loan	35.20%	35.80%
Collateral concentration | Multi-family
Concentration risk
Percentage of loan	23.30%	21.10%
Collateral concentration | Retail
Concentration risk
Percentage of loan	18.50%	17.60%
Collateral concentration | SBA
Concentration risk
Percentage of loan	18.10%	25.40%
Collateral concentration | Office
Concentration risk
Percentage of loan	15.10%	15.60%
Collateral concentration | Mixed Use
Concentration risk
Percentage of loan	9.60%	6.30%
Collateral concentration | Industrial
Concentration risk
Percentage of loan	8.20%	6.90%
Collateral concentration | Lodging/Residential
Concentration risk
Percentage of loan	2.40%	2.90%
Collateral concentration | Other
Concentration risk
Percentage of loan	4.80%	4.20%

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Loans and Allowance for Loan Losses - Allowance for loan losses by loan product and impairment methodology (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Allowance for loan losses
General	$ 1,937	$ 2,096
Specific	1,988	2,346
PCI	4,395	7,304
Ending Balance	8,320	11,746	$ 16,130
Originated SBC loans
Allowance for loan losses
General	11	468
Specific		169
Ending Balance	11	637	804
Originated Transitional loans
Allowance for loan losses
General	353
Ending Balance	353
Acquired loans
Allowance for loan losses
General	608	819
Specific	1,012	586
PCI	3,432	5,859
Ending Balance	5,052	7,264	10,150
Acquired SBA 7(a) loans
Allowance for loan losses
General	532	518
Specific	823	1,564
PCI	963	1,445
Ending Balance	2,318	3,527	5,004
Originated SBA 7(a) loans
Allowance for loan losses
General	433	291
Specific	153	27
Ending Balance	$ 586	$ 318	$ 172

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Loans and Allowance for Loan Losses - Investment Loans Allowance Activity (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Allowance for loan losses
Beginning Balance	$ 11,746	$ 16,130
Provision for (Recoveries of) loan losses	1,701	2,363	$ 7,819
Charge-offs and sales	(2,452)	(2,829)
Recoveries	(2,675)	(3,918)
Ending Balance	8,320	11,746	16,130
Originated SBC loans
Allowance for loan losses
Beginning Balance	637	804
Provision for (Recoveries of) loan losses	(457)	(166)
Charge-offs and sales	(169)
Recoveries		(1)
Ending Balance	11	637	804
Originated Transitional loans
Allowance for loan losses
Provision for (Recoveries of) loan losses	353
Ending Balance	353
Acquired loans
Allowance for loan losses
Beginning Balance	7,264	10,150
Provision for (Recoveries of) loan losses	1,843	2,387
Charge-offs and sales	(1,380)	(1,356)
Recoveries	(2,675)	(3,917)
Ending Balance	5,052	7,264	10,150
Acquired SBA 7(a) loans
Allowance for loan losses
Beginning Balance	3,527	5,004
Provision for (Recoveries of) loan losses	(306)	(4)
Charge-offs and sales	(903)	(1,473)
Ending Balance	2,318	3,527	5,004
Originated SBA 7(a) loans
Allowance for loan losses
Beginning Balance	318	172
Provision for (Recoveries of) loan losses	268	146
Ending Balance	$ 586	$ 318	$ 172

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Loans and Allowance for Loan Losses - Investment Loans Impairment (Details) - Non - PCI Loans - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Impaired loans
Impaired loans with an allowance	$ 9,734	$ 9,222
Impaired loans without an allowance	33,082	12,659
Total recorded carrying value of impaired loans	42,816	21,881
Allowance for loan losses related to impaired loans	(1,989)	(2,346)
Unpaid principal balance of impaired loans	49,128	29,853
Impaired loans on non-accrual status	42,816	21,881
Average carrying amount of impaired loans	36,675	28,693
Interest income recognized on impaired loans	$ 966	$ 610

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Loans and Allowance for Loan Losses - TDR Accrual Status (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Troubled debt restructurings (TDRs)
Recorded carrying value modified loans classified as TDR	$ 19,169	$ 16,125
Allowance for loan losses on loans classified as TDRs	599	1,578
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	9,071	6,595
Carrying value of modified loans classified as TDRs on non-accrual status	10,098	9,530
Total carrying value of modified loans classified as TDRs	19,169	16,125
SBC
Troubled debt restructurings (TDRs)
Recorded carrying value modified loans classified as TDR	1,825	3,727
Allowance for loan losses on loans classified as TDRs	321	883
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	1,696	1,804
Carrying value of modified loans classified as TDRs on non-accrual status	129	1,923
Total carrying value of modified loans classified as TDRs	1,825	3,727
SBA
Troubled debt restructurings (TDRs)
Recorded carrying value modified loans classified as TDR	17,344	12,398
Allowance for loan losses on loans classified as TDRs	278	695
Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	7,375	4,791
Carrying value of modified loans classified as TDRs on non-accrual status	9,969	7,607
Total carrying value of modified loans classified as TDRs	$ 17,344	$ 12,398

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Loans and Allowance for Loan Losses - TDR Activity (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Troubled debt restructurings (TDRs)
Number of loans permanently modified | loan	39	61
Pre-modification recorded balance	$ 10,658	$ 9,705
Post-modification recorded balance	$ 10,710	$ 9,173
Number of loans that remain in default | loan	12	28
Balance of loans that remain in default	$ 3,978	$ 2,262
TDR Modifications including financial effects	$ 10,476	$ 8,044
SBC
Troubled debt restructurings (TDRs)
Number of loans permanently modified | loan	1	14
Pre-modification recorded balance	$ 3,444	$ 3,518
Post-modification recorded balance	$ 3,444	$ 3,041
Number of loans that remain in default | loan	1	10
Balance of loans that remain in default	$ 3,444	$ 1,590
TDR Modifications including financial effects	$ 3,444	$ 2,034
SBA
Troubled debt restructurings (TDRs)
Number of loans permanently modified | loan	38	47
Pre-modification recorded balance	$ 7,214	$ 6,187
Post-modification recorded balance	$ 7,266	$ 6,132
Number of loans that remain in default | loan	11	18
Balance of loans that remain in default	$ 534	$ 672
TDR Modifications including financial effects	7,032	6,010
Term Extension
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	6,844	5,344
Term Extension | SBC
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects		413
Term Extension | SBA
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	6,844	4,931
Interest Rate Reduction
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects		339
Interest Rate Reduction | SBC
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects		100
Interest Rate Reduction | SBA
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects		239
Principal Reduction
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	7	887
Principal Reduction | SBC
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects		601
Principal Reduction | SBA
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	7	286
Foreclosure
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	3,625	1,474
Foreclosure | SBC
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	3,444	920
Foreclosure | SBA
Troubled debt restructurings (TDRs)
TDR Modifications including financial effects	$ 181	$ 554

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Loans and Allowance for Loan Losses - Investment Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Acquired loans
Allowance for loan losses on loans in consolidated VIEs	$ (8,320)	$ (11,746)	$ (16,130)
Non - PCI Loans
Acquired loans
Unpaid principal balance	2,361,155	1,624,395
Accretable discount	(31,533)	(44,629)
Loans, held-for-investment	2,329,622	1,579,766
Allowance for loan losses on loans in consolidated VIEs	(3,925)	(4,442)
Loans, held-for-investment	2,325,697	1,575,324
PCI Loans
Acquired loans
Unpaid principal balance	92,463	130,015
Non-accretable discount	(6,040)	(8,336)
Accretable discount	(16,023)	(23,749)	$ (26,978)
Loans, held-for-investment	70,400	97,930
Allowance for loan losses on loans in consolidated VIEs	(4,395)	(7,304)
Loans, held-for-investment	$ 66,005	$ 90,626

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Loans and Allowance for Loan Losses - Investment Loans Value and Yield Activity (Details) - PCI Loans - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Accretable yield
Beginning accretable discount- PCI loans	$ 23,749	$ 26,978
Purchases/Originations	514	1,234
Sales	(2,554)	(2,835)
Accretion	(5,123)	(4,735)
Other	726	1,466
Transfers	(1,289)	1,641
Ending accretable discount- PCI loans	16,023	23,749
Contractually required principal and interest payments receivable	4,100	12,500
Expected cash flows	1,800	8,900
Fair value (initial carrying amount)	$ 1,400	$ 6,200

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Fair Value Measurements - Financial Instruments Carried at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Assets:
Loans, held for sale, at fair value	$ 115,258	$ 216,022
Derivative instruments, at fair value	2,070	4,725
Residential mortgage servicing rights, at fair value	93,065	72,295
Liabilities:
Derivative instruments, at fair value	3,625	282
Contingent consideration	1,207	10,016
Recurring
Assets:
Cash held in money market funds	586	632
Loans, held for sale, at fair value	115,258	216,022
Loans, net at fair value	22,664	188,150
Mortgage backed securities, at fair value	91,937	39,922
Derivative instruments, at fair value	2,070	4,725
Residential mortgage servicing rights, at fair value	93,065	72,295
Total assets	325,580	521,746
Liabilities:
Derivative instruments, at fair value	3,625	282
Contingent consideration	1,207	10,016
Total liabilities	4,832	10,298
Recurring | Level 1
Assets:
Cash held in money market funds	586	632
Total assets	586	632
Recurring | Level 2
Assets:
Loans, held for sale, at fair value	115,258	216,022
Mortgage backed securities, at fair value	79,789	31,859
Derivative instruments, at fair value	294	2,898
Total assets	195,341	250,779
Liabilities:
Derivative instruments, at fair value	3,625	282
Total liabilities	3,625	282
Recurring | Level 3
Assets:
Loans, net at fair value	22,664	188,150
Mortgage backed securities, at fair value	12,148	8,063
Derivative instruments, at fair value	1,776	1,827
Residential mortgage servicing rights, at fair value	93,065	72,295
Total assets	129,653	270,335
Liabilities:
Contingent consideration	1,207	10,016
Total liabilities	$ 1,207	$ 10,016

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Fair Value Measurements - Changes in Fair Value (Details) - Level 3 - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Loans Receivable
Changes in fair value of assets
Beginning Balance	$ 188,150	$ 81,592
Realized gains (losses), net	46	(90)
Unrealized gains (losses), net	(720)	5,328
Originations	150	152,339
Principal payments	(19,188)	(10,114)
Transfer from loans, held-for-investment, net	(145,774)	(40,905)
Ending Balance	22,664	188,150
Total unrealized gain (loss)	300	6,000
Loans, held for sale, at fair value
Changes in fair value of assets
Beginning Balance		17,312
Realized gains (losses), net		9,005
Unrealized gains (losses), net		2,595
Originations		352,975
Sales		(284,707)
Principal payments		(10,429)
Assets transferred out of Level 3		(86,751)
Total unrealized gain (loss)	0	100
MBS
Changes in fair value of assets
Beginning Balance	8,063	32,391
Accreted discount, net	84	224
Realized gains (losses), net	271	522
Unrealized gains (losses), net	2,866	1,344
Purchases		14,448
Sales / Principal payments	(977)	(7,785)
Assets transferred out of Level 3	1,841	(33,081)
Ending Balance	12,148	8,063
Total unrealized gain (loss)	(100)	(300)
Mortgage servicing rights
Changes in fair value of assets
Total unrealized gain (loss)	8,600	(8,500)
Derivatives
Changes in fair value of assets
Beginning Balance	1,827	2,690
Unrealized gains (losses), net	(51)	(863)
Ending Balance	1,776	1,827
Total unrealized gain (loss)	1,800	(1,700)
Contingent Consideration
Changes in fair value of liabilities
Beginning Balance	10,016	14,487
Adjustment for legal settlement		(5,744)
Earn-out payments	(8,967)
Amortization and adjustment for earn-out payments	158	1,273
Ending Balance	1,207	10,016
Total unrealized gain (loss)	$ 0	$ 0

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Fair Value Measurements - Valuation and Inputs, at FV (Details) - Recurring - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Fair value inputs, quantitative information
Asset, fair value	$ 325,580	$ 521,746
Liabilities, fair value	4,832	10,298
Level 3
Fair value inputs, quantitative information
Asset, fair value	129,653	270,335
Liabilities, fair value	1,207	10,016
Loans Receivable | Level 3 | Third Party Mark
Fair value inputs, quantitative information
Asset, fair value	$ 22,664	$ 188,150
Loans Receivable | Level 3 | Third Party Mark | Minimum
Fair value inputs, quantitative information
Price	$ 99.41	$ 101.05
Loans Receivable | Level 3 | Third Party Mark | Maximum
Fair value inputs, quantitative information
Price	105.21	104.00
Loans Receivable | Level 3 | Third Party Mark | Weighted Average
Fair value inputs, quantitative information
Price	$ 101.52	$ 103.35
MBS | Level 3 | Third Party Mark
Fair value inputs, quantitative information
Asset, fair value	$ 12,033	$ 7,937
MBS | Level 3 | Third Party Mark | Minimum
Fair value inputs, quantitative information
Price	$ 44.65	$ 70.92
MBS | Level 3 | Third Party Mark | Maximum
Fair value inputs, quantitative information
Price	97.50	70.92
MBS | Level 3 | Third Party Mark | Weighted Average
Fair value inputs, quantitative information
Price	$ 80.17	$ 70.92
MBS | Level 3 | Transaction Price
Fair value inputs, quantitative information
Asset, fair value	$ 115	$ 126
MBS | Level 3 | Transaction Price | Minimum
Fair value inputs, quantitative information
Price	$ 99.00	$ 99.00
MBS | Level 3 | Transaction Price | Maximum
Fair value inputs, quantitative information
Price	99.00	99.00
MBS | Level 3 | Transaction Price | Weighted Average
Fair value inputs, quantitative information
Price	$ 99.00	$ 99.00
Interest-Only-Strips | Level 3 | Third Party Mark | Weighted Average
Fair value inputs, quantitative information
Asset, fair value		$ 1,500
Mortgage servicing rights | Level 3 | Discounted Cash Flow
Fair value inputs, quantitative information
Asset, fair value	$ 93,065	72,295
Contingent Consideration | Level 3 | Discounted Cash Flow
Fair value inputs, quantitative information
Liabilities, fair value	$ 1,207	$ 10,016

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Fair Value Measurements - Assets and Liabilities, Not at FV (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Assets:
Receivable from third parties	$ 8,888	$ 6,756
Liabilities:
Senior secured notes, net	178,870	138,078
Carrying Amount
Assets:
Loans, held-for-investment	2,391,702	1,665,950
Servicing rights	26,997	21,743
Total assets	2,418,699	1,687,693
Liabilities:
Borrowings under credit facilities	834,547	637,393
Securitized debt obligations of consolidated VIEs	905,367	598,148
Senior secured notes, net	178,870	138,078
Guaranteed loan financing	229,678	293,045
Convertible note, net	109,979	108,991
Total liabilities	2,258,441	1,775,655
Carrying Amount | Level 3
Assets:
Due from servicers and accrued interest	14,500	16,500
Receivable from third parties	8,900	6,800
Liabilities:
Payable to related parties and accrued interest payable	16,800	12,400
Fair Value | Level 3
Assets:
Loans, held-for-investment	2,434,185	1,737,361
Servicing rights	28,441	23,432
Total assets	2,462,626	1,760,793
Liabilities:
Borrowings under credit facilities	834,547	637,393
Securitized debt obligations of consolidated VIEs	918,536	613,676
Senior secured notes, net	176,981	144,376
Guaranteed loan financing	236,804	306,964
Convertible note, net	101,581	108,301
Total liabilities	$ 2,268,449	$ 1,810,710

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Mortgage Backed Securities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Mortgage Backed Securities
Fair Value	$ 91,937	$ 39,922
MBS
Mortgage Backed Securities
Weighted Average Interest Rate	4.70%	5.30%
Principal Balance	$ 117,848	$ 54,407
Amortized Cost	87,163	38,468
Fair Value	91,937	39,922
Gross Unrealized Gains	4,856	2,703
Gross Unrealized Losses	$ (82)	$ (1,249)
Mortgage Backed Securities Weighted Average Interest Rate
After five years through ten years (as percent)	10.60%	8.90%
After ten years (as percent)	4.50%	4.60%
Mortgage Backed Securities Principal Balance
After five years through ten years	$ 3,406	$ 8,919
After ten years	114,442	45,488
Mortgage Backed Securities Amortized Cost
After five years through ten years	3,103	8,205
After ten years	84,060	30,263
Mortgage Backed Securities Estimated Fair Value
After five years through ten years	3,520	8,904
After ten years	$ 88,417	$ 31,018
Freddie Mac Loans
Mortgage Backed Securities
Weighted Average Interest Rate	4.50%	5.30%
Principal Balance	$ 97,066	$ 49,767
Amortized Cost	70,819	37,287
Fair Value	75,591	38,568
Gross Unrealized Gains	4,826	2,529
Gross Unrealized Losses	$ (54)	$ (1,248)
Commercial Loans
Mortgage Backed Securities
Weighted Average Interest Rate	5.50%	5.50%
Principal Balance	$ 20,666	$ 4,513
Amortized Cost	16,228	1,054
Fair Value	16,231	1,228
Gross Unrealized Gains	30	$ 174
Gross Unrealized Losses	$ (27)
Tax Liens
Mortgage Backed Securities
Weighted Average Interest Rate	6.00%	6.00%
Principal Balance	$ 116	$ 127
Amortized Cost	116	127
Fair Value	115	126
Gross Unrealized Losses	$ (1)	$ (1)

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Servicing rights (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017
Servicing rights
Unpaid Principal Amount			$ 1,470,532	$ 987,446
Carrying Value	$ 21,743	$ 21,743	26,997	21,743
Total servicing rights			120,062	94,038
Servicing rights activity at amortized cost
Beginning net carrying value at amortized cost	21,743
Ending net carrying value at amortized cost	26,997	21,743
Residential
Servicing rights
Unpaid Principal Amount			7,466,679	6,558,455
Servicing rights activity at fair value
Beginning net carrying value at fair value	72,295	61,376
Additions due to loans sold, servicing retained	20,974	20,565
Loan pay-offs	(5,899)	(5,646)
Unrealized gains (losses)	5,695	(4,000)
Ending net carrying value at fair value	93,065	72,295
Freddie Mac
Servicing rights
Unpaid Principal Amount			964,377	559,823
Carrying Value	5,059	2,202	10,248	5,059
Servicing rights activity at amortized cost
Beginning net carrying value at amortized cost	5,059	2,202
Additions due to loans sold, servicing retained	6,832	3,290
Amortization	(1,643)	(610)
Recovery (Impairment)		177
Ending net carrying value at amortized cost	10,248	5,059
Freddie Mac | Residential
Servicing rights
Unpaid Principal Amount			2,267,943	1,898,786
Servicing rights activity at fair value
Beginning net carrying value at fair value	21,231
Ending net carrying value at fair value	28,917	21,231
SBA
Servicing rights
Unpaid Principal Amount			506,155	427,623
Carrying Value	16,684	20,276	16,749	16,684
Servicing rights activity at amortized cost
Beginning net carrying value at amortized cost	16,684	20,276
Additions due to loans sold, servicing retained	3,569	1,996
Acquisitions	362
Amortization	(3,418)	(4,034)
Recovery (Impairment)	(448)	(1,554)
Ending net carrying value at amortized cost	16,749	16,684
SBA | Freddie Mac
Servicing rights
Carrying Value	21,743	21,743	$ 26,997	$ 21,743
Servicing rights activity at amortized cost
Beginning net carrying value at amortized cost	21,743
Ending net carrying value at amortized cost	$ 26,997	$ 21,743

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Servicing rights - Estimated valuation (Details)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Minimum | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	0.00%	0.00%
Forward default rate	0.00%	0.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%
Maximum | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	35.00%	13.00%
Forward default rate	2.00%	2.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%
Weighted Average | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	5.00%	4.20%
Forward default rate	1.30%	2.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%
SBA | Minimum
Servicing rights, valuation assumptions
Forward prepayment assumptions	3.80%	2.40%
Forward default rate	0.00%	0.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.40%	0.40%
SBA | Maximum
Servicing rights, valuation assumptions
Forward prepayment assumptions	20.20%	20.50%
Forward default rate	12.20%	9.50%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.40%	0.40%
SBA | Weighted Average
Servicing rights, valuation assumptions
Forward prepayment assumptions	9.20%	11.50%
Forward default rate	6.40%	2.70%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.40%	0.40%

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Servicing rights - Assumptions (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Freddie Mac
Adverse changes to key assumptions on the carrying amount of the servicing rights
Prepayment rate (10% adverse change)	$ (63)	$ (43)
Prepayment rate (20% adverse change)	(124)	(84)
Default rate (10% adverse change)	(11)	(6)
Default rate (20% adverse change)	(22)	(12)
Discount rate (10% adverse change)	(490)	(270)
Discount rate (20% adverse change)	(791)	(518)
SBA
Adverse changes to key assumptions on the carrying amount of the servicing rights
Prepayment rate (10% adverse change)	(470)	(514)
Prepayment rate (20% adverse change)	(915)	(998)
Default rate (10% adverse change)	(63)	(24)
Default rate (20% adverse change)	(125)	(48)
Discount rate (10% adverse change)	(579)	(520)
Discount rate (20% adverse change)	$ (1,118)	$ (1,008)

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Servicing rights - Amortization (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Future amortization expense for the servicing rights
2019	$ 5,054
2020	4,324
2021	3,684
2022	3,126
2023	2,629
Thereafter	8,180
Total	$ 26,997	$ 21,743

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Servicing rights - Residential mortgage servicing rights (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Servicing rights
Unpaid Principal Amount	$ 1,470,532	$ 987,446
Residential
Servicing rights
Unpaid Principal Amount	7,466,679	6,558,455
Fair Value	93,065	72,295	$ 61,376
Possible impact of adverse changes to key assumptions
Prepayment rate (10% adverse change)	(3,281)	(2,721)
Prepayment rate (20% adverse change)	(6,330)	(4,928)
Discount rate (10% adverse change)	(3,716)	(3,029)
Discount rate (20% adverse change)	(7,159)	(5,823)
Cost of servicing (10% adverse change)	(1,683)	(1,230)
Cost of servicing (20% adverse change)	(3,365)	(2,460)
Fannie Mae | Residential
Servicing rights
Unpaid Principal Amount	2,848,435	2,524,897
Fair Value	34,562	26,929
Ginnie Mae | Residential
Servicing rights
Unpaid Principal Amount	2,350,301	2,134,772
Fair Value	29,586	24,135
Freddie Mac
Servicing rights
Unpaid Principal Amount	964,377	559,823
Possible impact of adverse changes to key assumptions
Prepayment rate (10% adverse change)	(63)	(43)
Prepayment rate (20% adverse change)	(124)	(84)
Discount rate (10% adverse change)	(490)	(270)
Discount rate (20% adverse change)	(791)	(518)
Freddie Mac | Residential
Servicing rights
Unpaid Principal Amount	2,267,943	1,898,786
Fair Value	$ 28,917	$ 21,231
Minimum | Residential
Servicing rights, valuation assumptions
Forward prepayment assumptions	6.10%	7.00%
Discount rate	9.00%	10.50%
Servicing expense	$ 70	$ 65
Minimum | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	0.00%	0.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%
Maximum | Residential
Servicing rights, valuation assumptions
Forward prepayment assumptions	13.90%	29.20%
Discount rate	11.10%	13.00%
Servicing expense	$ 85	$ 75
Maximum | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	35.00%	13.00%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%
Weighted Average | Residential
Servicing rights, valuation assumptions
Forward prepayment assumptions	8.40%	8.80%
Discount rate	9.70%	10.90%
Servicing expense	$ 75	$ 70
Weighted Average | Freddie Mac
Servicing rights, valuation assumptions
Forward prepayment assumptions	5.00%	4.20%
Discount rate	12.00%	12.00%
Servicing expense (as a percent)	0.20%	0.20%

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Residential mortgage banking activities and variable loan expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Residential mortgage banking activities
Realized and unrealized gains and losses of residential mortgage loans held for sale, at fair value	$ 36,240	$ 63,024	$ 2,943
Creation of new mortgage servicing rights, net of payoffs	15,075	14,919	3,157
Loan origination fee income on residential mortgage loans	9,371	8,193	1,404
Unrealized gains (loss) on IRLCs and other derivatives	(834)	(2,699)	126
Residential mortgage banking activities	59,852	83,437	7,630
Variable expenses on residential mortgage banking activities	$ (22,228)	$ (41,737)	$ (597)

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Secured Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Secured borrowings and promissory note
Carrying Value, Secured borrowings	$ 834,547	$ 637,393
Secured borrowings
Secured borrowings and promissory note
Maximum Facility Size	1,742,774
Pledged Assets Carrying Value	1,112,522	906,205
Carrying Value, Secured borrowings	834,547	637,393
Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	637,974
Pledged Assets Carrying Value	279,012	311,206
Carrying Value, Secured borrowings	$ 199,315	$ 254,781
Weighted average interest rate of borrowings (as a percent)	4.60%	3.90%
Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	$ 1,104,800
Pledged Assets Carrying Value	833,510	$ 594,999
Carrying Value, Secured borrowings	$ 635,232	$ 382,612
Weighted average interest rate of borrowings (as a percent)	4.00%	4.10%
Commercial | JPMorgan | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 225,000
Pledged Assets Carrying Value	85,393	$ 107,697
Carrying Value, Secured borrowings	$ 68,417	60,459
Commercial | JPMorgan | Borrowings under credit facilities | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.50%
Commercial | JPMorgan | Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	$ 200,000
Pledged Assets Carrying Value	144,337	90,829
Carrying Value, Secured borrowings	$ 96,343	55,355
Commercial | JPMorgan | Borrowings under repurchase agreements | Minimum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.25%
Commercial | JPMorgan | Borrowings under repurchase agreements | Maximum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	4.00%
Commercial | Keybank | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 125,000
Pledged Assets Carrying Value	23,322	67,589
Carrying Value, Secured borrowings	$ 22,973	66,642
Commercial | Keybank | Borrowings under credit facilities | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	1.75%
Commercial | East West Bank | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 30,000
Pledged Assets Carrying Value	37,255
Carrying Value, Secured borrowings	$ 27,443
Commercial | East West Bank | Borrowings under credit facilities | Minimum | Prime
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	(0.821%)
Commercial | East West Bank | Borrowings under credit facilities | Maximum | Prime
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	0.029%
Commercial | FCB | Borrowings under credit facilities
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	2.75%
Maximum Facility Size	$ 2,974
Pledged Assets Carrying Value	3,219	7,752
Carrying Value, Secured borrowings	2,974	6,107
Commercial | Deutsche Bank | Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	300,000
Pledged Assets Carrying Value	310,797	252,499
Carrying Value, Secured borrowings	$ 239,972	173,811
Commercial | Deutsche Bank | Borrowings under repurchase agreements | Minimum | Three Month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.30%
Commercial | Deutsche Bank | Borrowings under repurchase agreements | Maximum | Three Month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.80%
Commercial | Citibank | Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	$ 500,000
Pledged Assets Carrying Value	230,140	150,707
Carrying Value, Secured borrowings	$ 194,117	88,095
Commercial | Citibank | Borrowings under repurchase agreements | Minimum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.125%
Commercial | Citibank | Borrowings under repurchase agreements | Maximum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.50%
Residential | East West Bank | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 50,000
Pledged Assets Carrying Value	63,479
Carrying Value, Secured borrowings	$ 8,500
Residential | East West Bank | Borrowings under credit facilities | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.50%
Residential | Comerica | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 125,000
Pledged Assets Carrying Value	35,860	71,035
Carrying Value, Secured borrowings	$ 40,231	67,336
Residential | Comerica | Borrowings under credit facilities | Minimum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	1.625%
Residential | Comerica | Borrowings under credit facilities | Maximum | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.125%
Residential | Associated Bank | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 40,000
Pledged Assets Carrying Value	13,653	29,242
Carrying Value, Secured borrowings	$ 15,907	27,699
Residential | Associated Bank | Borrowings under credit facilities | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	1.75%
Residential | Origin Bank | Borrowings under credit facilities
Secured borrowings and promissory note
Maximum Facility Size	$ 40,000
Pledged Assets Carrying Value	16,831	27,891
Carrying Value, Secured borrowings	$ 12,870	26,538
Residential | Origin Bank | Borrowings under credit facilities | One month LIBOR
Secured borrowings and promissory note
Pricing, spread on variable (as a percent)	2.00%
MBS | Borrowings under repurchase agreements
Secured borrowings and promissory note
Pledged Assets Carrying Value	$ 112,552	37,397
MBS | JPMorgan | Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	24,881
Pledged Assets Carrying Value	39,882	80,690
Carrying Value, Secured borrowings	$ 24,881	53,325
MBS | JPMorgan | Borrowings under repurchase agreements | Minimum
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	3.63%
MBS | JPMorgan | Borrowings under repurchase agreements | Maximum
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	5.22%
MBS | Deutsche Bank | Borrowings under repurchase agreements
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	4.36%
Maximum Facility Size	$ 17,425
Pledged Assets Carrying Value	24,536
Carrying Value, Secured borrowings	17,425
MBS | Citibank | Borrowings under repurchase agreements
Secured borrowings and promissory note
Pledged Assets Carrying Value		11,496
Carrying Value, Secured borrowings		5,957
MBS | RBC Bank | Borrowings under repurchase agreements
Secured borrowings and promissory note
Maximum Facility Size	62,494
Pledged Assets Carrying Value	83,818	8,778
Carrying Value, Secured borrowings	$ 62,494	$ 6,069
MBS | RBC Bank | Borrowings under repurchase agreements | Minimum
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	3.97%
MBS | RBC Bank | Borrowings under repurchase agreements | Maximum
Secured borrowings and promissory note
Pricing, stated rate (as a percent)	4.42%

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Secured Borrowings and Promissory Note - Collateral Pledged (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Secured borrowings
Collateral pledged
Pledged Assets Carrying Value	$ 1,112,522	$ 906,205
Borrowings under credit facilities
Collateral pledged
Pledged Assets Carrying Value	279,012	311,206
Borrowings under repurchase agreements
Collateral pledged
Pledged Assets Carrying Value	833,510	594,999
Loans, net | Borrowings under credit facilities
Collateral pledged
Pledged Assets Carrying Value	215,533	310,885
Loans, net | Borrowings under repurchase agreements
Collateral pledged
Pledged Assets Carrying Value	685,274	494,035
Mortgage servicing rights | Borrowings under credit facilities
Collateral pledged
Pledged Assets Carrying Value	63,479
Real estate | Borrowings under credit facilities
Collateral pledged
Pledged Assets Carrying Value		321
MBS | Borrowings under repurchase agreements
Collateral pledged
Pledged Assets Carrying Value	112,552	37,397
Retained interest in assets of consolidated VIEs | Borrowings under repurchase agreements
Collateral pledged
Pledged Assets Carrying Value	$ 35,684	$ 63,567

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Senior secured notes, Convertible notes, and Corporate debt, net (Details)			12 Months Ended
	Apr. 27, 2018 USD ($)	Aug. 09, 2017 USD ($) $ / shares	Dec. 31, 2018 USD ($) item	Jan. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Senior secured notes, Convertible notes, and Corporate debt
Unamortized deferred financing costs			$ (2,564,000)		$ (446,000)
Total Senior secured notes, net			178,870,000		138,078,000
Total Senior unsecured notes, net			48,457,000
Total Convertible notes, net			109,979,000		108,991,000
Total carrying amount of debt components			337,306,000
Total carrying amount of conversion option of equity components recorded in additional paid-in capital			1,805,000
Contractual maturities of the Senior Secured Notes, Convertible Notes, and Corporate debt
2021			48,457,000
2022			178,870,000
2023			109,979,000
Long-term Debt, Total			337,306,000
Senior Secured Notes
Senior secured notes, Convertible notes, and Corporate debt
Face amount			$ 180,000,000
Interest rate (as a percent)			7.50%
Unamortized premium - Senior secured notes			$ 2,389,000
Unamortized deferred financing costs			(3,519,000)
Total Senior secured notes, net			178,870,000
Convertible Notes
Senior secured notes, Convertible notes, and Corporate debt
Face amount		$ 115,000,000	$ 115,000,000
Interest rate (as a percent)		7.00%	7.00%
Conversion ratio		1.4997
Principal amount of notes for conversion		$ 25
Initial conversion price | $ / shares		$ 16.67
Principal amount of the notes to be redeemed (as a percent)		100.00%
Threshold period of specified consecutive trading days within which common stock price to conversion price of convertible debt instruments must exceed threshold percentage for a specified number of trading days to trigger conversion feature			30
Threshold period of specified consecutive trading days within which the common stock price, used in a calculation with with the conversion rate, the result of which must exceed the threshold percentage			5 days
Specified period of time used to calculate average closing market price of common stock to be used as a factor in determining potential trigger of conversion feature			10 days
Gross carrying value of convertible notes		$ 112,700,000
Gross carrying value of the equity component		$ 2,300,000
Unamortized discount - Convertible notes			$ (1,805,000)
Unamortized deferred financing costs			(3,216,000)
Total Convertible notes, net			$ 109,979,000
Convertible Notes | Minimum
Senior secured notes, Convertible notes, and Corporate debt
Percentage of common stock price to conversion price of convertible debt instruments to determine eligibility of conversion			120.00%
Threshold number of specified trading days that common stock price to conversion price of convertible debt instruments must exceed threshold percentage within a specified consecutive trading period to trigger conversion feature | item			20
The threshold percentage that per share value of distributions exceeds the average market price which may trigger the conversion feature			10.00%
Convertible Notes | Maximum
Senior secured notes, Convertible notes, and Corporate debt
Threshold percentage of the trading price of the convertible debt instrument to the product of the conversion rate and the closing stock price during any five consecutive trading day period			98.00%
Corporate Debt
Senior secured notes, Convertible notes, and Corporate debt
Face amount	$ 50,000,000		$ 50,000,000
Interest rate (as a percent)	6.50%		6.50%
Principal amount of the notes to be redeemed (as a percent)	101.00%
Unamortized deferred financing costs			$ (1,543,000)
Total Convertible notes, net			$ 48,457,000
Corporate Debt | On or after April 30, 2019 and before April 30, 2020
Senior secured notes, Convertible notes, and Corporate debt
Principal amount of the notes to be redeemed (as a percent)	101.00%
Corporate Debt | On or after April 30, 2020
Senior secured notes, Convertible notes, and Corporate debt
Principal amount of the notes to be redeemed (as a percent)	100.00%
ReadyCap Holdings LLC | Senior Secured Notes
Senior secured notes, Convertible notes, and Corporate debt
Face amount				$ 40,000,000	$ 140,000,000
Interest rate (as a percent)				7.50%	7.50%
Yield-to-maturity (as a percent)				6.50%

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Guaranteed Loan Financing (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Ending balance	$ 229,678	$ 293,045
Guaranteed loan financing
Ending balance	$ 229,678	$ 293,045
Guaranteed loan financing | Weighted Average
Interest Rates	4.46%	3.51%
Guaranteed loan financing | Minimum
Interest Rates	1.70%	1.62%
Guaranteed loan financing | Maximum
Interest Rates	8.00%	7.00%

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Guaranteed Loan Financing - Maturities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Contractual maturities of total guaranteed loan financing outstanding
2019	$ 864
2020	1,412
2021	2,696
2022	3,444
2023	4,550
Thereafter	216,712
Total	229,678
Guaranteed loan financing
Contractual maturities of total guaranteed loan financing outstanding
Loans held-for-investment pledged as security against guaranteed loan financing	$ 232,400	$ 296,900

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Variable Interest Entities and Securitization Activities - VIE Securitized Debt Obligations (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Variable interest entities
Current Principal Balance	$ 1,470,532	$ 987,446
Carrying value	905,367	598,148
Consolidated VIEs
Variable interest entities
Current Principal Balance	926,761	614,557
Carrying value	$ 905,367	$ 598,148
Weighted Average Rate	4.00%	3.40%
Waterfall Victoria Mortgage Trust 2011-SBC2
Variable interest entities
Current Principal Balance	$ 12,226	$ 16,010
Carrying value	$ 12,226	$ 16,010
Weighted Average Rate	5.40%	5.30%
ReadyCap Lending Small Business Trust 2015-1
Variable interest entities
Current Principal Balance	$ 3,397	$ 25,057
Carrying value	$ 1,180	$ 22,733
Weighted Average Rate	3.40%	2.50%
Sutherland Commercial Mortgage Loans 2015-SBC4
Variable interest entities
Current Principal Balance		$ 10,049
Carrying value		$ 9,687
Weighted Average Rate		4.00%
Sutherland Commercial Mortgage Loans 2017-SBC6
Variable interest entities
Current Principal Balance	$ 69,764	$ 119,784
Carrying value	$ 68,574	$ 117,868
Weighted Average Rate	3.30%	3.30%
Sutherland Commercial Mortgage Trust 2018-SBC7
Variable interest entities
Current Principal Balance	$ 205,451
Carrying value	$ 202,491
Weighted Average Rate	4.70%
ReadyCap Commercial Mortgage Trust 2014-1
Variable interest entities
Current Principal Balance	$ 36,108	$ 33,953
Carrying value	$ 36,129	$ 33,951
Weighted Average Rate	4.50%	3.60%
ReadyCap Commercial Mortgage Trust 2015-2
Variable interest entities
Current Principal Balance	$ 110,497	$ 151,993
Carrying value	$ 106,755	$ 147,271
Weighted Average Rate	4.20%	4.10%
ReadyCap Commercial Mortgage Trust 2016-3
Variable interest entities
Current Principal Balance	$ 63,945	$ 98,733
Carrying value	$ 62,053	$ 95,907
Weighted Average Rate	3.70%	3.50%
ReadyCap Commercial Mortgage Trust 2018-4
Variable interest entities
Current Principal Balance	$ 144,701
Carrying value	$ 140,314
Weighted Average Rate	3.90%
Readycap Capital Mortgage Financing 2017-FL1
Variable interest entities
Current Principal Balance	$ 63,615	$ 158,978
Carrying value	$ 61,902	$ 154,721
Weighted Average Rate	3.70%	2.80%
Readycap Capital Mortgage Financing 2018-FL2
Variable interest entities
Current Principal Balance	$ 217,057
Carrying value	$ 213,743
Weighted Average Rate	3.40%

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Variable Interest Entities and Securitization Activities - Consolidated VIE Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Assets
Cash and cash equivalents	$ 54,406	$ 63,425	$ 59,566
Restricted cash	28,921	11,666	$ 20,190
Accrued interest	7,253	6,494
Total assets	1,251,057	861,662
Liabilities
Securitized debt obligations of consolidated VIEs, net	905,367	598,148
Consolidated VIEs
Assets
Cash and cash equivalents		25
Restricted cash	11,643	15,838
Loans, net	1,220,974	836,180
Real estate acquired in settlement of loans	176	3,443
Accrued interest	6,750	4,261
Due from servicers	11,514	1,915
Total assets	1,251,057	861,662
Liabilities
Securitized debt obligations of consolidated VIEs, net	905,367	598,148
Total liabilities	$ 905,367	$ 598,148

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Variable Interest Entities and Securitization Activities - Assets of Unconsolidated VIEs (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Carrying amount
Mortgage backed securities, at fair value	$ 91,937	$ 39,922
Investment in unconsolidated joint venture	33,438	55,369
Unconsolidated VIEs
Carrying amount
Mortgage backed securities, at fair value	75,591	38,568
Investment in unconsolidated joint venture	33,438	55,369
Total assets in unconsolidated VIEs carrying amount	109,029	93,937
Maximum Exposure to Loss
Mortgage backed securities, at fair value	75,591	38,568
Investment in unconsolidated joint venture	33,438	55,369
Total assets in unconsolidated VIEs maximum exposure to loss	$ 109,029	$ 93,937

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Interest Income and Interest Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest income
Total loans	$ 159,957	$ 128,739	$ 130,506
Total loans, held for sale, at fair value	5,328	6,223	1,627
Mortgage backed securities, at fair value	4,214	3,343	4,890
Total interest income	169,499	138,305	137,023
Interest expense
Secured borrowings	(35,331)	(26,092)	(25,839)
Securitized debt obligations of consolidated VIEs	(36,988)	(23,387)	(17,619)
Guaranteed loan financing	(11,613)	(13,435)	(13,971)
Senior secured note	(13,702)	(8,069)
Convertible note	(8,748)	(3,427)
Corporate debt	(2,706)
Promissory note	(150)	(236)	(164)
Exchangeable senior notes			(179)
Total interest expense	(109,238)	(74,646)	(57,772)
Net interest income before provision for loan losses	60,261	63,659	79,251
Acquired SBA 7(a) loans
Interest income
Total loans	32,278	37,110	46,417
Acquired loans
Interest income
Total loans	46,154	34,720	44,122
Total loans, held for sale, at fair value	153	993	299
Originated Transitional loans
Interest income
Total loans	48,499	25,323	8,608
Originated SBC loans, at fair value
Interest income
Total loans	3,599	7,769	13,457
Originated SBC loans
Interest income
Total loans	24,948	22,564	17,902
Originated SBA 7(a) loans
Interest income
Total loans	4,428	998
Originated Residential Agency loans
Interest income
Total loans	51	255
Total loans, held for sale, at fair value	3,747	3,723	709
Originated Freddie Mac loans
Interest income
Total loans, held for sale, at fair value	$ 1,428	$ 1,507	$ 619

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Derivative Instruments (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) item	Dec. 31, 2017 USD ($) item
Notional Amount	$ 705,935	$ 573,914
Asset Derivatives Fair Value	2,070	4,725
Liabilities Derivatives Fair Value	(3,625)	$ (282)
Derivative gain (loss)
Net Realized Gain (Loss)	3,569
Net Change in Unrealized Gain (Loss)	(5,295)
Derivatives- effective portion recorded in OCI	(954)
Total change in OCI for period	$ (954)
Credit default swaps
Number of derivative instrument held | item	1	1
Liabilities Derivatives Fair Value		$ (66)
Derivative gain (loss)
Net Realized Gain (Loss)	$ (703)
Net Change in Unrealized Gain (Loss)	862
Credit default swaps | Credit Risk
Notional Amount	15,000	15,000
Asset Derivatives Fair Value	$ 295
Liabilities Derivatives Fair Value		$ (66)
Interest Rate Swap Agreement
Number of derivative instrument held | item	64	52
Liabilities Derivatives Fair Value	$ (3,625)	$ (216)
Derivative gain (loss)
Net Realized Gain (Loss)	4,272
Net Change in Unrealized Gain (Loss)	(5,323)
Derivatives- effective portion recorded in OCI	(954)
Total change in OCI for period	(954)
Interest Rate Swap Agreement | Not Designated as Hedging | Interest Rate Risk
Notional Amount	411,811	391,381
Asset Derivatives Fair Value		2,898
Liabilities Derivatives Fair Value	(2,349)	(216)
Interest Rate Swap Agreement | Designated as Hedging | Interest Rate Risk
Notional Amount	134,325
Liabilities Derivatives Fair Value	(1,276)
Residential mortgage banking activities interest rate swaps
Derivative gain (loss)
Net Change in Unrealized Gain (Loss)	(783)
Interest rate lock commitments (IRLCs)
Derivative gain (loss)
Net Change in Unrealized Gain (Loss)	(51)
Interest rate lock commitments (IRLCs) | Interest Rate Risk
Notional Amount	144,799	167,533
Asset Derivatives Fair Value	$ 1,775	$ 1,827

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Related Party Transactions (Details) $ in Thousands	1 Months Ended		12 Months Ended
	Mar. 31, 2018 USD ($) loan	Jun. 30, 2017 USD ($) loan	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Nov. 30, 2017 USD ($)
Related-party transactions
Amount unpaid			$ 2,580	$ 2,042
Purchase of loans, held-for-investment			369,418	147,327	$ 98,683
Investment in unconsolidated joint venture			$ 33,438	55,369
Management Agreement
Related-party transactions
Term of agreement			3 years
Automatically renewal period			1 year
Minimum notice period for termination			180 days
Termination fee multiplier			3
Period immediately preceding the termination used as basis for determination of the termination fee due			24 months
Management Fee
Related-party transactions
Fee percentage for results up to threshold			1.50%
Fee threshold			$ 500,000
Fee percentage for results in excess of threshold			1.00%
Incentive Distribution
Related-party transactions
Incentive multiplier			15.00%
Core earnings period			12 months
Percentage of Incentive fee multiplied by the weighted average of issue price			8.00%
The period over which core earnings must exceed the minimum threshold per the terms of the agreement			48 months
Minimum core earnings threshold			$ 0
Minimum | Management Agreement
Related-party transactions
Independent director votes required for approval			0.667%
Manager | Management Fee
Related-party transactions
Fees			$ 8,200	8,100
Amount unpaid			2,100	2,000
Manager | Incentive Distribution
Related-party transactions
Fees			1,100
Amount unpaid			500
Manager | Expense Reimbursement
Related-party transactions
Amount unpaid			4,900	4,900
Reimbursable expenses			$ 3,100	$ 2,400
Waterfall Olympic Master Fund LP
Related-party transactions
Number of loans acquired | loan	75
Purchase of loans, held-for-investment	$ 51,600
Unpaid principal balance	$ 51,800
RCSF III, LLC
Related-party transactions
Number of loans acquired | loan		4
Purchase of loans, held-for-investment		$ 57,300
Unpaid principal balance		$ 57,000
WFLLA LLC
Related-party transactions
Investment in unconsolidated joint venture						$ 54,200

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Other Assets and Other Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Other assets:
Due from servicers	$ 7,284	$ 9,964
Accrued interest	7,253	6,494
Intangible assets	2,915	3,264
Real estate accrued in settlement of loans	7,787	1,644
Deferred financing costs	2,564	446
Deferred tax asset	18,084	17,155
Prepaid taxes		6,014
Deferred loan exit fees	8,668	5,798
Other	8,679	6,061
Total other assets	63,234	56,840
Accounts payable and other accrued liabilities:
Accrued salaries, wages and commissions	18,718	16,508
Servicing principal and interest payable	10,582	5,659
Repair and denial reserve	5,524	5,687
Liability under subservicing agreements	239	1,496
Unapplied cash	340	2,445
Accrued interest payable	14,244	10,317
Payable to related parties	2,580	2,042
Deferred tax liability	19,972	18,506
Other accounts payable and accrued liabilities	1,313	11,976
Total accounts payable and other accrued liabilities	$ 73,512	$ 74,636

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Other Assets and Other Liabilities - Real Estate Acquired in Settlement of Loans (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	$ 7,787	$ 1,644
Texas
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	3,444	97
Missouri
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	2,526
Virginia
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	755
Florida
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	279	303
Illinois
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans		863
Other
Real estate accrued in settlement of loans
Real estate accrued in settlement of loans	$ 783	$ 381

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Other Asset and Other Liabilities - Intangible assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Finite-lived intangible assets	$ 1,915
Total Intangible Assets	2,915	$ 3,264
Amortization expense	400
Total Accumulated Amortization	788
Future amortization of lease intangibles
2019	311
2020	277
2021	248
2022	222
2023	195
Thereafter	662
Net amount	1,915
Loan indemnification reserve
Loan indemnification reserve	1,700	3,000
SBA license
Indefinite-lived intangible assets	1,000	1,000
Trade name
Finite-lived intangible assets	$ 852	1,017
Estimated Useful Life	15 years
Total Accumulated Amortization	$ 371
Future amortization of lease intangibles
Net amount	852	1,017
Favorable lease
Finite-lived intangible assets	$ 1,063	1,247
Estimated Useful Life	12 years
Total Accumulated Amortization	$ 417
Future amortization of lease intangibles
Net amount	$ 1,063	$ 1,247

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Other Income and Operating Expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Other income
Origination income	$ 4,590	$ 4,302	$ 4,144
Release of repair and denial reserve	163	1,013	1,258
Other	833	2,095	3,759
Total other income	5,586	7,410	9,161
Other operating expenses
Origination costs	7,752	6,862	4,098
Technology expense	3,624	3,692	2,945
Charge off of real estate acquired in settlement of loans	1,086	756	1,833
Rent expense	2,524	2,314	1,449
Recruiting, training and travel expenses	2,287	2,389	1,320
Loan acquisition costs	1,458	600
Other	10,017	10,326	5,535
Total other operating expenses	$ 28,747	$ 26,939	$ 17,180

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Stockholders Equity - Common Stock Dividends (Details) - $ / shares																	3 Months Ended								12 Months Ended
	Jan. 31, 2019	Dec. 12, 2018	Oct. 31, 2018	Sep. 11, 2018	Jul. 31, 2018	Jun. 12, 2018	Apr. 30, 2018	Mar. 14, 2018	Jan. 31, 2018	Dec. 13, 2017	Oct. 20, 2017	Sep. 12, 2017	Jul. 31, 2017	Jun. 15, 2017	Apr. 13, 2017	Mar. 14, 2017	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Dividends
Dividend per Share, declared		$ 0.40		$ 0.40		$ 0.40		$ 0.37		$ 0.37		$ 0.37		$ 0.37		$ 0.37	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 1.57	$ 1.48	$ 1.61
Dividend per Share, paid	$ 0.40		$ 0.40		$ 0.40		$ 0.37		$ 0.37		$ 0.37		$ 0.37		$ 0.37

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Stockholders Equity - Manager Equity Incentive (Details)	12 Months Ended
	Dec. 31, 2018
Stockholders’ Equity
Percentage of shares of common stock issued and outstanding on a fully diluted basis	5.00%

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Stockholders Equity - RSU activity (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Weighted-average grant date fair value (per share)
Stock-based compensation	$ 600	$ 700
Non-cash compensation expense not yet charged to net income	$ 1,200	$ 300
RSU | Independent director
Number of shares
Granted (in shares)	23,104	40,000
Vested (in shares)	(23,104)	(40,000)
Grant date fair value
Granted	$ 320	$ 580
Vested	$ (320)	$ (580)
Weighted-average grant date fair value (per share)
Granted (in per share)	$ 13.85	$ 14.50
Vested (in per share)	$ 13.85	$ 14.50
RSAs | Certain employees
Number of shares
Outstanding, Beginning balance	25,851
Granted (in shares)	101,670	25,851
Vested (in shares)	(8,617)
Outstanding, Ending balance	118,904	25,851
Grant date fair value
Beginning balance	$ 380
Granted	1,408	$ 380
Vested	(127)
Ending balance	$ 1,661	$ 380
Weighted-average grant date fair value (per share)
Beginning balance	$ 14.70
Granted (in per share)	13.85	$ 14.70
Vested (in per share)	14.70
Ending balance	$ 13.97	$ 14.70

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Earnings per Share of Common Stock (Details) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018 $ / shares	Sep. 30, 2018 $ / shares	Jun. 30, 2018 $ / shares	Mar. 31, 2018 $ / shares	Dec. 31, 2017 $ / shares	Sep. 30, 2017 $ / shares	Jun. 30, 2017 $ / shares	Mar. 31, 2017 $ / shares	Dec. 31, 2018 USD ($) $ / shares shares	Dec. 31, 2017 USD ($) $ / shares shares	Dec. 31, 2016 USD ($) $ / shares shares
Continuing Operations
Net income									$ 61,457	$ 45,814	$ 55,564
Less: Income attributable to non-controlling interest									2,199	2,524	4,237
Less: Income attributable to participating shares									217	62
Basic earnings									59,041	43,228	51,327
Discontinued Operations
Loss from discontinued operations											(2,158)
Basic — Net income attributable to common stockholders after allocation to participating shares									59,041	43,228	49,169
Diluted Earnings
Net income									61,457	45,814	55,564
Less: Income attributable to non-controlling interest									2,199	2,524	4,237
Less: Income attributable to participating shares									217	62
Diluted earnings									59,041	43,228	51,327
Loss from discontinued operations											(2,158)
Diluted — Net income attributable to common stockholders after allocation to participating shares									$ 59,041	$ 43,228	$ 49,169
Basic — Average shares outstanding | shares									32,085,975	31,350,102	26,647,981
Effect of dilutive securities — Unvested participating shares | shares									16,209	1,509
Diluted — Average shares outstanding | shares									32,102,184	31,351,611	26,647,981
Earnings Per Share Attributable to RC Common Stockholders:
Basic | $ / shares	$ 0.30	$ 0.53	$ 0.48	$ 0.56	$ 0.38	$ 0.37	$ 0.34	$ 0.29	$ 1.84	$ 1.38	$ 1.85
Diluted | $ / shares	0.30	0.53	0.48	0.56	0.38	0.37	0.34	0.29	1.84	1.38	1.85
Income from continuing operations, Basic | $ / shares	$ 0.30	$ 0.53	$ 0.48	$ 0.56	$ 0.38	$ 0.37	$ 0.34	$ 0.29	1.84	1.38	1.93
Loss from discontinued operations, Basic | $ / shares											(0.08)
Income from continuing operations, Diluted | $ / shares									$ 1.84	$ 1.38	1.93
Loss from discontinued operations, Diluted | $ / shares											$ (0.08)
Exchange ratio									0.8356
Conversion spread value on Convertible Notes									$ 0
Impact of Convertible Notes on diluted EPS									$ 0

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Earnings per Common Share - Operating Partnership Units (Details) - Operating Partnership - Noncontrolling Interests - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Noncontrolling interest
Number of common shares issued for OP unit redeemed by a noncontrolling interest unit holder	1
Units held by noncontrolling interest unit holders	1,117,169	1,150,827

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Offsetting Assets and Liabilities - Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Effect of offsetting of the Company’s recognized assets
Gross Amounts of Recognized Assets	$ 295	$ 2,898
Assets Presented in the Consolidated Balance Sheets	295	2,898
Cash Collateral Received	295	2,898
Credit default swaps
Effect of offsetting of the Company’s recognized assets
Gross Amounts of Recognized Assets	295
Assets Presented in the Consolidated Balance Sheets	295
Cash Collateral Received	$ 295
Interest Rate Swap Agreement
Effect of offsetting of the Company’s recognized assets
Gross Amounts of Recognized Assets		2,898
Assets Presented in the Consolidated Balance Sheets		2,898
Cash Collateral Received		$ 2,898

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Offsetting Assets and Liabilities - Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Effect of offsetting recognized liabilities, Derivative
Gross Amounts of Recognized Liabilities, Derivative	$ 3,625	$ 282
Effect of offsetting recognized liabilities, Total
Gross Amounts of Recognized Liabilities, Total	838,172	637,675
Liabilities Presented in the Consolidated Balance Sheets, Total	838,172	637,675
Financial Instruments, Total	834,547	637,393
Cash Collateral Paid, Total	3,625	282
Interest Rate Swap Agreement
Effect of offsetting recognized liabilities, Derivative
Gross Amounts of Recognized Liabilities, Derivative	3,625	216
Liabilities Presented in the Consolidated Balance Sheets, Derivative	3,625	216
Cash Collateral Paid, Derivative	3,625	216
Credit default swaps
Effect of offsetting recognized liabilities, Derivative
Gross Amounts of Recognized Liabilities, Derivative		66
Liabilities Presented in the Consolidated Balance Sheets, Derivative		66
Cash Collateral Paid, Derivative		66
Secured borrowings
Effect of offsetting recognized liabilities, Borrowings
Gross Amounts of Recognized Liabilities, Borrowings	831,574	631,286
Liabilities Presented in the Consolidated Balance Sheets, Borrowings	831,574	631,286
Financial Instruments, Borrowings	831,574	631,286
Promissory note
Effect of offsetting recognized liabilities, Borrowings
Gross Amounts of Recognized Liabilities, Borrowings	2,973	6,107
Liabilities Presented in the Consolidated Balance Sheets, Borrowings	2,973	6,107
Financial Instruments, Borrowings	$ 2,973	$ 6,107

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Commitments, Contingencies and Indemnifications (Details) - USD ($) $ in Millions	Dec. 31, 2018	Dec. 31, 2017
Commitments, contingencies and indemnifications
Commitments to originate loans	$ 124.0	$ 147.6
Unfunded loan commitments
Commitments, contingencies and indemnifications
Unfunded loan commitments, loans held at fair value		9.6
Unfunded loan commitments, loans held-for-investment	161.7	$ 84.7
Unfunded loan commitments, loans held for sale at fair value	$ 4.9

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Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
REIT requirements and income tax information
Percentage of nondeductible excise tax the entity would be subject to if they fail to meet the minimum distributions requirement	4.00%
Number of taxable years an entity would not be able to qualify as a REIT if qualification lapses	4 years
Statutory federal income tax rate (as a percent)	21.00%	35.00%
Income tax benefit related to remeasurement of deferred tax balances	$ 1,000
Recognized net deferred tax asset	2,815
Effective income tax rate, discontinued operations			39.00%
Uncertain tax positions	$ 0	$ 0
Minimum
REIT requirements and income tax information
Percentage of taxable income distributed in the form of qualifying distributions	90.00%
Maximum
REIT requirements and income tax information
Percentage of taxable income distributed in the form of qualifying distributions	100.00%
Federal
REIT requirements and income tax information
Net operating loss carryovers	$ 27,600
State
REIT requirements and income tax information
Net operating loss carryovers	$ 44,700

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Income Taxes - Income Tax Provision (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Current:
Federal income tax (benefit)	$ 356	$ (1,235)	$ 6,441
State and local income tax (benefit)	169	(171)	947
Net current tax provision (benefit)	525	(1,406)	7,388
Deferred:
Federal income tax	1,167	3,779	1,401
State and local income tax	(306)	613	583
Valuation allowance		(1,147)	279
Net deferred tax provision	861	3,245	2,263
Total income tax provision	$ 1,386	$ 1,839	$ 9,651

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Income Taxes - Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Reconciliation of federal income tax determined using statutory federal tax rate to our reported income tax provision
U.S. statutory tax	$ 13,207	$ 16,679	$ 22,825
State and local income tax	464	569	2,322
Income attributable to REIT	(11,274)	(10,795)	(14,522)
Income attributable to Non-controlling interests	(400)	(568)	(1,251)
Nondeductible	(194)	748	21
Change in tax rate	(554)	(727)
Change in valuation allowance		(1,147)	279
Return to Provision	(11)	(2,547)
Other	148	(373)	(23)
Total income tax provision	$ 1,386	$ 1,839	$ 9,651

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Income Taxes - Schedule Of Deferred Tax Assets And Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$ 8,408	$ 4,989
Unrealized losses	1,442
Accruals	2,815
Depreciation and amortization	986	997
Goodwill	3,927	3,110
Compensation	279	1,226
Other	227	1,240
Total deferred tax assets	18,084	11,562
Deferred tax liabilities:
Accruals		216
Loan / servicing rights balance	19,210	12,014
Derivative instruments	133	373
Other taxable temporary difference	629	310
Total deferred tax liabilities	19,972	12,913
Net deferred tax (liabilities)	$ (1,888)	$ (1,351)

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Segment Reporting (Details) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2017 USD ($)	Jun. 30, 2017 USD ($)	Mar. 31, 2017 USD ($)	Dec. 31, 2018 USD ($) segment	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Segment reporting
Number of Reportable Segments | segment									4
Interest income									$ 169,499	$ 138,305	$ 137,023
Interest expense									(109,238)	(74,646)	(57,772)
Net interest income before provision for loan losses									60,261	63,659	79,251
Provision for loan losses									(1,701)	(2,363)	(7,819)
Net interest income after provision for loan losses	$ 13,833	$ 14,562	$ 15,848	$ 14,317	$ 14,562	$ 14,664	$ 15,859	$ 16,211	58,560	61,296	71,432
Non-interest income
Residential mortgage banking activities									59,852	83,437	7,630
Net realized gain on financial instruments									38,409	19,329	6,914
Net unrealized gain (loss) on financial instruments									4,853	7,000	17,937
Other income									5,586	7,410	9,161
Servicing income									27,075	22,994	8,658
Gain on bargain purchase											15,218
Income from unconsolidated joint venture									12,148	1,048
Total non-interest income	22,125	42,761	40,288	42,747	37,269	38,370	38,564	27,015	147,923	141,218	65,518
Non-interest expense
Employee compensation and benefits									(56,602)	(55,039)	(24,827)
Allocated employee compensation and benefits from related party									(4,200)	(3,843)	(3,668)
Variable expenses on residential mortgage banking activities									(22,228)	(41,737)	(597)
Professional fees									(6,999)	(8,921)	(13,420)
Management fees – related party									(8,176)	(8,059)	(7,432)
Incentive fees – related party									(1,143)
Loan servicing expense									(15,545)	(10,323)	(4,611)
Other operating expenses									(28,747)	(26,939)	(17,180)
Total non-interest expense	(29,209)	$ (38,859)	$ (39,587)	$ (35,983)	(39,025)	$ (41,001)	$ (42,201)	$ (32,635)	(143,640)	(154,861)	(71,735)
Net income (loss) before provision for income taxes									62,843	47,653	65,215
Total Assets	3,036,843				2,523,503				3,036,843	2,523,503	2,605,267
Corporate-Other
Segment reporting
Interest expense										(3,541)	(1,144)
Net interest income before provision for loan losses										(3,541)	(1,144)
Net interest income after provision for loan losses										(3,541)	(1,144)
Non-interest income
Net realized gain on financial instruments										478	313
Net unrealized gain (loss) on financial instruments										(68)	68
Other income									31
Gain on bargain purchase											15,218
Total non-interest income									31	410	15,599
Non-interest expense
Employee compensation and benefits									(923)	(848)	(162)
Allocated employee compensation and benefits from related party									(3,780)	(3,459)	(3,302)
Professional fees									(2,977)	(3,231)	(5,814)
Management fees – related party									(8,176)	(8,059)	(7,432)
Incentive fees – related party									(1,143)
Loan servicing expense									(32)
Other operating expenses									(2,817)	(2,235)	(1,840)
Total non-interest expense									(19,848)	(17,832)	(18,550)
Net income (loss) before provision for income taxes									(19,817)	(20,963)	(4,095)
Total Assets	70,085				23,169				70,085	23,169	319,984
Loan Acquisitions | Operating Segments
Segment reporting
Interest income									47,243	37,198	49,311
Interest expense									(28,946)	(16,741)	(18,327)
Net interest income before provision for loan losses									18,297	20,457	30,984
Provision for loan losses									(1,727)	(2,026)	(6,419)
Net interest income after provision for loan losses									16,570	18,431	24,565
Non-interest income
Net realized gain on financial instruments									5,023	(323)	(293)
Net unrealized gain (loss) on financial instruments									(1,156)	1,628	4,528
Other income									368	1,766	2,246
Servicing income									20	197	49
Income from unconsolidated joint venture									12,148	1,048
Total non-interest income									16,403	4,316	6,530
Non-interest expense
Employee compensation and benefits									(386)	(576)	(337)
Allocated employee compensation and benefits from related party									(420)	(384)	(366)
Professional fees									(1,310)	(1,501)	(2,735)
Loan servicing expense									(3,926)	(2,981)	(2,743)
Other operating expenses									(3,214)	(4,285)	(3,604)
Total non-interest expense									(9,256)	(9,727)	(9,785)
Net income (loss) before provision for income taxes									23,717	13,020	21,310
Total Assets	644,512				511,427				644,512	511,427	542,643
SBC Originations | Operating Segments
Segment reporting
Interest income									81,752	59,021	40,586
Interest expense									(60,879)	(35,121)	(20,347)
Net interest income before provision for loan losses									20,873	23,900	20,239
Provision for loan losses									(13)	(195)	(86)
Net interest income after provision for loan losses									20,860	23,705	20,153
Non-interest income
Net realized gain on financial instruments									17,482	9,665	2,290
Net unrealized gain (loss) on financial instruments									142	8,125	6,424
Other income									4,366	3,983	5,059
Servicing income									1,396	824	518
Total non-interest income									23,386	22,597	14,291
Non-interest expense
Employee compensation and benefits									(8,815)	(8,509)	(9,359)
Professional fees									(1,285)	(1,351)	(1,537)
Loan servicing expense									(3,883)	(2,355)	(1,348)
Other operating expenses									(10,392)	(9,666)	(6,864)
Total non-interest expense									(24,375)	(21,881)	(19,108)
Net income (loss) before provision for income taxes									19,871	24,421	15,336
Total Assets	1,606,210				1,154,509				1,606,210	1,154,509	796,408
SBA Loan Origination, Acquisitions, and Servicing | Operating Segments
Segment reporting
Interest income									36,706	38,108	46,417
Interest expense									(16,218)	(16,098)	(17,397)
Net interest income before provision for loan losses									20,488	22,010	29,020
Provision for loan losses									39	(142)	(1,314)
Net interest income after provision for loan losses									20,527	21,868	27,706
Non-interest income
Net realized gain on financial instruments									15,904	9,509	4,604
Net unrealized gain (loss) on financial instruments									173	1,315
Other income									621	1,513	1,845
Servicing income									5,390	4,624	5,555
Total non-interest income									22,088	16,961	12,004
Non-interest expense
Employee compensation and benefits									(13,077)	(10,505)	(9,391)
Professional fees									(820)	(1,973)	(3,693)
Loan servicing expense									(260)	1,454	479
Other operating expenses									(4,070)	(4,076)	(3,798)
Total non-interest expense									(18,227)	(15,100)	(16,403)
Net income (loss) before provision for income taxes									24,388	23,729	23,307
Total Assets	455,513				510,006				455,513	510,006	593,091
Residential Mortgage Banking | Operating Segments
Segment reporting
Interest income									3,798	3,978	709
Interest expense									(3,195)	(3,145)	(557)
Net interest income before provision for loan losses									603	833	152
Net interest income after provision for loan losses									603	833	152
Non-interest income
Residential mortgage banking activities									59,852	83,437	7,630
Net unrealized gain (loss) on financial instruments									5,694	(4,000)	6,917
Other income									200	148	11
Servicing income									20,269	17,349	2,536
Total non-interest income									86,015	96,934	17,094
Non-interest expense
Employee compensation and benefits									(33,401)	(34,601)	(5,578)
Variable expenses on residential mortgage banking activities									(22,228)	(41,737)	(597)
Professional fees									(607)	(865)	359
Loan servicing expense									(7,444)	(6,441)	(999)
Other operating expenses									(8,254)	(6,677)	(1,074)
Total non-interest expense									(71,934)	(90,321)	(7,889)
Net income (loss) before provision for income taxes									14,684	7,446	9,357
Total Assets	$ 260,523				$ 324,392				$ 260,523	$ 324,392	$ 353,141

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Discontinued Operations (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2018	Dec. 31, 2017	May 31, 2016
Discontinued operations
Amount due		$ 8,888	$ 6,756
Non-interest income (expense)
Loss on sale	$ (2,695)
Loss before income tax benefit	(3,538)
Income tax benefit	1,380
Loss from discontinued operations	(2,158)
Silverthread | Discontinued operations sold
Discontinued operations
Consideration from sale of discontinued operations				$ 4,000
Assets:
Assets		0	0
Liabilities:
Liabilities		$ 0	$ 0
Non-interest income (expense)
Commission income	2,984
Property management income	263
Other	16
Total other income	3,263
Employee compensation and benefits	(1,071)
Professional fees	(138)
Commission expense	(1,844)
Technology expense	(171)
Rent expense	(268)
Tax expense	(3)
Recruiting, training, and travel expenses	(46)
Marketing expense	(29)
Other	(536)
Total other operating expenses	(4,106)
Loss on sale	(2,695)
Loss before income tax benefit	(3,538)
Income tax benefit	1,380
Loss from discontinued operations	$ (2,158)

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Quarterly Financial Data (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands									3 Months Ended								12 Months Ended
	Dec. 12, 2018	Sep. 11, 2018	Jun. 12, 2018	Mar. 14, 2018	Dec. 13, 2017	Sep. 12, 2017	Jun. 15, 2017	Mar. 14, 2017	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Quarterly Financial Data (Unaudited)
Net interest income after provision for loan losses									$ 13,833	$ 14,562	$ 15,848	$ 14,317	$ 14,562	$ 14,664	$ 15,859	$ 16,211	$ 58,560	$ 61,296	$ 71,432
Non-interest income									22,125	42,761	40,288	42,747	37,269	38,370	38,564	27,015	147,923	141,218	65,518
Non-interest expense									(29,209)	(38,859)	(39,587)	(35,983)	(39,025)	(41,001)	(42,201)	(32,635)	(143,640)	(154,861)	(71,735)
Net Income									9,486	17,569	15,884	18,518	12,730	12,374	11,153	9,557	61,457	45,814	53,406
Net income attributable to Ready Capital Corporation									$ 9,177	$ 16,931	$ 15,296	$ 17,854	$ 12,097	$ 11,841	$ 10,496	$ 8,856	$ 59,258	$ 43,290	$ 49,169
Income from continuing operations, Basic									$ 0.30	$ 0.53	$ 0.48	$ 0.56	$ 0.38	$ 0.37	$ 0.34	$ 0.29	$ 1.84	$ 1.38	$ 1.93
Earnings per common share - basic									0.30	0.53	0.48	0.56	0.38	0.37	0.34	0.29	1.84	1.38	1.85
Earnings per common share - diluted									0.30	0.53	0.48	0.56	0.38	0.37	0.34	0.29	1.84	1.38	1.85
Dividends declared per share of common stock	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.40	$ 0.40	$ 0.40	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 0.37	$ 1.57	$ 1.48	$ 1.61

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Supplemental Financial Data (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Supplemental Financial Data
Ownership percentage	50.00%
Realized gains	$ 38,409	$ 19,329	$ 6,914
Unrealized gains	4,853	7,000	17,937
Income from continuing operations before provision for income taxes	62,843	47,653	$ 65,215
Income from unconsolidated joint venture	$ 12,148	$ 1,048
WFLLA LLC
Supplemental Financial Data
Ownership percentage	50.00%
Girod HoldCo, LLC
Supplemental Financial Data
Interest income	$ 21,182
Realized gains	27,310
Unrealized gains	8,191
Servicing expense and other	(7,972)
Income from continuing operations before provision for income taxes	48,711
WFLLA LLC
Supplemental Financial Data
Interest income	10,570
Realized gains	13,628
Unrealized gains	4,087
Servicing expense and other	(3,989)
Income from continuing operations before provision for income taxes	$ 24,296
WFLLA LLC | Girod HoldCo, LLC
Supplemental Financial Data
Ownership percentage	49.90%

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Subsequent Events (Details) $ in Thousands	1 Months Ended
	Mar. 31, 2019 USD ($) loan	Jan. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Subsequent Event
Current Principal Balance			$ 1,470,532	$ 987,446
Subsequent event | Senior bonds
Subsequent Event
Securities issued		$ 355,800
Weighted average pass-through rate		4.10%
Subsequent event | Fixed-rate SBC loans
Subsequent Event
Current Principal Balance		$ 399,200
Subsequent event | Residential Mortgage Banking | Warehouse line of credit
Subsequent Event
Number of borrowings extended | loan	1
Maximum borrowing capacity	$ 125,000
Subsequent event | Residential Mortgage Banking | Warehouse line of credit | One month LIBOR | Minimum
Subsequent Event
Pricing, spread on variable (as a percent)	1.60%
Subsequent event | Residential Mortgage Banking | Warehouse line of credit | One month LIBOR | Maximum
Subsequent Event
Pricing, spread on variable (as a percent)	2.20%

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Schedule IV – Mortgage Loans on Real Estate - product type (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Schedule IV – Mortgage Loans on Real Estate
Number of Loans that exceed one percent of total carrying amount | loan	0
Percentage of total carrying amount of all mortgages	3
Loan Count | loan	3,588
UPB	$ 2,587,106
UPB of loans subject to DQ principal or interest	99,081
General allowance for loan losses	(1,937)	$ (2,096)
Total Loans	$ 2,529,624	$ 2,070,122	$ 1,848,477	$ 1,716,072
Acquired loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	895
Carrying Value	$ 548,703
UPB	572,942
UPB of loans subject to DQ principal or interest	$ 31,146
Acquired loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	602
Carrying Value	$ 120,430
UPB	131,387
UPB of loans subject to DQ principal or interest	$ 13,343
Acquired loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	0.00%
Acquired loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	18.00%
Acquired loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	159
Carrying Value	$ 104,926
UPB	109,677
UPB of loans subject to DQ principal or interest	$ 5,521
Acquired loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	3.50%
Acquired loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	10.25%
Acquired loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	62
Carrying Value	$ 70,490
UPB	74,323
UPB of loans subject to DQ principal or interest	$ 4,668
Acquired loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.37%
Acquired loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.71%
Acquired loans | 1.5mm -2mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	28
Carrying Value	$ 45,476
UPB	47,975
UPB of loans subject to DQ principal or interest	$ 1,806
Acquired loans | 1.5mm -2mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.00%
Acquired loans | 1.5mm -2mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.64%
Acquired loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	8
Carrying Value	$ 17,902
UPB	18,146
UPB of loans subject to DQ principal or interest	$ 2,440
Acquired loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.25%
Acquired loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.00%
Acquired loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	36
Carrying Value	$ 189,479
UPB	191,434
UPB of loans subject to DQ principal or interest	$ 3,368
Acquired loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.10%
Acquired loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	11.00%
Acquired SBA 7(a) loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1,499
Carrying Value	$ 318,488
UPB	357,977
UPB of loans subject to DQ principal or interest	$ 29,942
Acquired SBA 7(a) loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1,254
Carrying Value	$ 111,187
UPB	136,584
UPB of loans subject to DQ principal or interest	$ 16,002
Acquired SBA 7(a) loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	0.00%
Acquired SBA 7(a) loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	10.50%
Acquired SBA 7(a) loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	176
Carrying Value	$ 115,296
UPB	124,312
UPB of loans subject to DQ principal or interest	$ 8,869
Acquired SBA 7(a) loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.75%
Acquired SBA 7(a) loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Acquired SBA 7(a) loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	59
Carrying Value	$ 69,080
UPB	73,794
UPB of loans subject to DQ principal or interest	$ 5,071
Acquired SBA 7(a) loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.00%
Acquired SBA 7(a) loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Acquired SBA 7(a) loans | 1.5mm -2mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	4
Carrying Value	$ 6,572
UPB	$ 6,664
Acquired SBA 7(a) loans | 1.5mm -2mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.00%
Acquired SBA 7(a) loans | 1.5mm -2mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Acquired SBA 7(a) loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1
Carrying Value	$ 2,290
UPB	$ 2,242
Acquired SBA 7(a) loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Acquired SBA 7(a) loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Acquired SBA 7(a) loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	5
Carrying Value	$ 14,063
UPB	$ 14,381
Acquired SBA 7(a) loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.00%
Acquired SBA 7(a) loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.50%
Originated Transitional loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	139
Carrying Value	$ 664,733
UPB	668,353
UPB of loans subject to DQ principal or interest	$ 5,687
Originated Transitional loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	16
Carrying Value	$ 3,047
UPB	$ 3,089
Originated Transitional loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.06%
Originated Transitional loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.26%
Originated Transitional loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	8
Carrying Value	$ 6,558
UPB	$ 6,562
Originated Transitional loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.01%
Originated Transitional loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.25%
Originated Transitional loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	7
Carrying Value	$ 9,172
UPB	$ 9,184
Originated Transitional loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.76%
Originated Transitional loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.79%
Originated Transitional loans | 1.5mm -2mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	12
Carrying Value	$ 20,020
UPB	$ 19,997
Originated Transitional loans | 1.5mm -2mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.99%
Originated Transitional loans | 1.5mm -2mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	12.00%
Originated Transitional loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	7
Carrying Value	$ 15,676
UPB	$ 15,723
Originated Transitional loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.35%
Originated Transitional loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.44%
Originated Transitional loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	89
Carrying Value	$ 610,260
UPB	613,798
UPB of loans subject to DQ principal or interest	$ 5,687
Originated Transitional loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.44%
Originated Transitional loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	9.19%
Originated Freddie Mac loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	7
Carrying Value	$ 23,322
UPB	$ 22,973
Originated Freddie Mac loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	2
Carrying Value	$ 2,968
UPB	$ 2,900
Originated Freddie Mac loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.56%
Originated Freddie Mac loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.72%
Originated Freddie Mac loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	2
Carrying Value	$ 4,167
UPB	$ 4,095
Originated Freddie Mac loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.88%
Originated Freddie Mac loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.95%
Originated Freddie Mac loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	3
Carrying Value	$ 16,187
UPB	$ 15,978
Originated Freddie Mac loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.70%
Originated Freddie Mac loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.14%
Originated Residential Agency loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	347
Carrying Value	$ 69,674
UPB	67,486
UPB of loans subject to DQ principal or interest	$ 1,563
Originated Residential Agency loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	343
Carrying Value	$ 66,867
UPB	64,713
UPB of loans subject to DQ principal or interest	$ 1,563
Originated Residential Agency loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	3.25%
Originated Residential Agency loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.38%
Originated Residential Agency loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	4
Carrying Value	$ 2,807
UPB	$ 2,773
Originated Residential Agency loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.25%
Originated Residential Agency loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.50%
Originated SBA 7(a) loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	430
Carrying Value	$ 106,569
UPB	109,402
UPB of loans subject to DQ principal or interest	$ 2,340
Originated SBA 7(a) loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	379
Carrying Value	$ 63,049
UPB	65,839
UPB of loans subject to DQ principal or interest	$ 1,235
Originated SBA 7(a) loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.50%
Originated SBA 7(a) loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Originated SBA 7(a) loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	43
Carrying Value	$ 29,451
UPB	$ 30,066
Originated SBA 7(a) loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.25%
Originated SBA 7(a) loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	8.00%
Originated SBA 7(a) loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	5
Carrying Value	$ 5,870
UPB	5,874
UPB of loans subject to DQ principal or interest	$ 1,105
Originated SBA 7(a) loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.75%
Originated SBA 7(a) loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.75%
Originated SBA 7(a) loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1
Carrying Value	$ 2,165
UPB	$ 2,013
Originated SBA 7(a) loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.75%
Originated SBA 7(a) loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.75%
Originated SBA 7(a) loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	2
Carrying Value	$ 6,034
UPB	$ 5,610
Originated SBA 7(a) loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.75%
Originated SBA 7(a) loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.25%
Originated SBC loans
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	265
Carrying Value	$ 777,408
UPB	765,648
UPB of loans subject to DQ principal or interest	$ 28,403
Originated SBC loans | 0 -500k
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	9
Carrying Value	$ 4,065
UPB	$ 3,946
Originated SBC loans | 0 -500k | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.09%
Originated SBC loans | 0 -500k | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.30%
Originated SBC loans | 500k -1mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	46
Carrying Value	$ 37,331
UPB	36,554
UPB of loans subject to DQ principal or interest	$ 2,099
Originated SBC loans | 500k -1mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.50%
Originated SBC loans | 500k -1mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.42%
Originated SBC loans | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	39
Carrying Value	$ 48,694
UPB	47,847
UPB of loans subject to DQ principal or interest	$ 2,443
Originated SBC loans | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.06%
Originated SBC loans | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.42%
Originated SBC loans | 1.5mm -2mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	42
Carrying Value	$ 74,804
UPB	73,492
UPB of loans subject to DQ principal or interest	$ 3,105
Originated SBC loans | 1.5mm -2mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.56%
Originated SBC loans | 1.5mm -2mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.52%
Originated SBC loans | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	25
Carrying Value	$ 57,715
UPB	56,698
UPB of loans subject to DQ principal or interest	$ 4,241
Originated SBC loans | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.66%
Originated SBC loans | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.52%
Originated SBC loans | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	104
Carrying Value	$ 554,799
UPB	547,111
UPB of loans subject to DQ principal or interest	$ 16,515
Originated SBC loans | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	4.50%
Originated SBC loans | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.95%
Originated SBC loans, at fair value
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	6
Carrying Value	$ 22,664
UPB	$ 22,325
Originated SBC loans, at fair value | 1mm -1.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1
Carrying Value	$ 1,438
UPB	$ 1,376
Originated SBC loans, at fair value | 1mm -1.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.38%
Originated SBC loans, at fair value | 1mm -1.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.38%
Originated SBC loans, at fair value | 1.5mm -2mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1
Carrying Value	$ 1,692
UPB	$ 1,608
Originated SBC loans, at fair value | 1.5mm -2mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.25%
Originated SBC loans, at fair value | 1.5mm -2mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.25%
Originated SBC loans, at fair value | 2mm -2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	1
Carrying Value	$ 2,318
UPB	$ 2,235
Originated SBC loans, at fair value | 2mm -2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.23%
Originated SBC loans, at fair value | 2mm -2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	6.23%
Originated SBC loans, at fair value | >2.5mm
Schedule IV – Mortgage Loans on Real Estate
Loan Count | loan	3
Carrying Value	$ 17,216
UPB	$ 17,106
Originated SBC loans, at fair value | >2.5mm | Minimum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	5.57%
Originated SBC loans, at fair value | >2.5mm | Maximum
Schedule IV – Mortgage Loans on Real Estate
Interest Rate	7.75%

XML

Schedule IV – Mortgage Loans on Real Estate (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Reconcile mortgage loans on real estate
Balance at beginning	$ 2,070,122	$ 1,848,477	$ 1,716,072
Origination of loan receivables	3,342,099	2,963,128	936,682
Purchases of loan receivables	386,899	158,522	98,683
Loans acquired in connection with reverse merger			189,197
Proceeds from disposition and principal payment of loan receivables	(3,332,886)	(2,993,642)	(1,125,919)
Net realized gain (loss) on sale of loan receivables	57,613	75,595	20,691
Net unrealized gain (loss) on loan receivables	(3,121)	8,865	1,149
Non-cash proceeds on creation of MSR			(6,117)
Accretion/amortization of discount, premium and other fees	14,474	13,825	26,809
Transfers			(951)
Transfers to Real estate owned	(3,875)	(2,285)
Provision for loan losses	(1,701)	(2,363)	(7,819)
Balance at Ending	2,529,624	2,070,122	1,848,477
Loans, net
Reconcile mortgage loans on real estate
Balance at beginning	1,854,100	1,666,680	1,716,072
Origination of loan receivables	934,607	454,975	315,339
Purchases of loan receivables	369,418	147,327	98,683
Proceeds from disposition and principal payment of loan receivables	(746,162)	(422,059)	(479,965)
Net realized gain (loss) on sale of loan receivables	(5,454)	(3,203)	6,349
Net unrealized gain (loss) on loan receivables	(720)	5,328	4,131
Non-cash proceeds on creation of MSR			(951)
Accretion/amortization of discount, premium and other fees	14,474	13,825	26,809
Transfers	(503)	(4,125)	(11,968)
Transfers to Real estate owned	(3,693)	(2,285)
Provision for loan losses	(1,701)	(2,363)	(7,819)
Balance at Ending	2,414,366	1,854,100	1,666,680
Loans, held for sale, at fair value
Reconcile mortgage loans on real estate
Balance at beginning	216,022	181,797
Origination of loan receivables	2,407,492	2,508,153	621,343
Purchases of loan receivables	17,481	11,195
Loans acquired in connection with reverse merger			189,197
Proceeds from disposition and principal payment of loan receivables	(2,586,724)	(2,571,583)	(645,954)
Net realized gain (loss) on sale of loan receivables	63,067	78,798	14,342
Net unrealized gain (loss) on loan receivables	(2,401)	3,537	(2,982)
Non-cash proceeds on creation of MSR			(5,166)
Transfers	503	4,125	11,017
Transfers to Real estate owned	(182)
Balance at Ending	$ 115,258	$ 216,022	$ 181,797