Ready Capital CorpRC
Ready Capital Corp Fair Value Disclosure
Note 7. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. U.S. GAAP has a three-level hierarchy that prioritizes and ranks
the level of market price observability used in measuring financial instruments 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). The
Company’s valuation techniques for financial instruments use observable and unobservable inputs. 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:
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 — One or more pricing inputs is significant to the overall valuation and unobservable. 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 financial instruments. Fair value for
these investments is 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.
Valuation techniques of Level 3 investments vary by instrument type, but are generally based on an income, market or
cost-based approach. The income approach predominantly considers discounted cash flows which is the measure of
expected future cash flows in a default scenario, implied by the value of the underlying collateral, where applicable, and
current performance whereas the market-based approach predominantly considers pull-through rates, industry multiples
and the UPB. Fair value measurements of loans are sensitive to changes in assumptions regarding prepayments,
probability of default, loss severity in the event of default, forecasts of home prices, and significant activity or
developments in the real estate market.
The fair value of the contingent consideration in connection with mergers and acquisitions was determined using a
Monte Carlo simulation model which considers various potential results based on Level 3 inputs, including
management’s latest estimates of future operating results. Fair value measurements of the contingent consideration
liability are sensitive to changes in assumptions related to earnings before tax, discount rate and risk-free rate of return.
Contingent consideration also consists of CERs issued pursuant to the Mosaic Mergers. Pursuant to the CER agreement,
if, as of the revaluation date, the sum of the updated fair value of the acquired portfolio less all advances made on such
assets, plus all principal payments, return of capital and liquidation proceeds received on such assets exceeds the initial
discounted fair value of the acquired portfolio, then the Company will issue to the CER holders, with respect to each
CER, a number of shares of common stock equal to 90% of the lesser of the valuation excess and the discount amount,
divided by the number of initially issued CERs divided by the Company share value, with cash being paid in lieu of any
fractional shares of common stock otherwise due to such holder. In addition, each CER holder will be entitled to receive
a number of additional shares of common stock equal to (i) the amount of any dividends or other distributions paid with
respect to the number of whole shares of common stock received by such CER holder in respect of such holder’s CERs
and having a record date on or after the closing of the Mosaic Mergers and a payment date prior to the issuance date of
such shares of common stock, divided by (ii) the Company share value. The probability-weighted expected return
method (“PWERM”) was utilized to estimate the return of capital and liquidation proceeds of the acquired asset
portfolio, considering each possible outcome, including the economic and projected performance of each acquired asset,
using a probability of 65%-100% return of capital. The discounted cashflow technique was utilized by the Company to
assess the updated value of the acquired portfolio as of the revaluation date. The fair value of dividend distributions to
the CER holders was determined using a Monte Carlo simulation model which considers various potential results based
on the CER payments, volatility of the Company’s share value and projected dividend distributions.
The final purchase price allocation associated with the closing of the Mosaic Mergers valued the CERs at approximately
$25.0 million or $0.83 per CER. As of December 31, 2024, the CERs were valued at zero.
In certain cases, the inputs used to measure fair value may be categorized 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 table below presents financial instruments carried at fair value on a recurring basis.
(in thousands) | Level 1 | Level 2 | Level 3 | Total | |||
December 31, 2024 | |||||||
Assets: | |||||||
Money market funds (1) | $86,637 | $— | $— | $86,637 | |||
Loans, net | — | — | 3,533 | 3,533 | |||
Loans, held for sale | — | 125,781 | 2,750 | 128,531 | |||
PPP loans (2) | — | 1,340 | — | 1,340 | |||
MBS | — | 31,006 | — | 31,006 | |||
Derivative instruments | — | 7,963 | — | 7,963 | |||
Investment in unconsolidated joint ventures | — | — | 6,577 | 6,577 | |||
Preferred equity investment (3) | — | — | 92,810 | 92,810 | |||
Total assets | $86,637 | $166,090 | $105,670 | $358,397 | |||
Liabilities: | |||||||
Derivative instruments | — | 352 | — | 352 | |||
Contingent consideration | — | — | 573 | 573 | |||
Total liabilities | $— | $352 | $573 | $925 | |||
December 31, 2023 | |||||||
Assets: | |||||||
Money market funds (1) | $100,238 | $— | $— | $100,238 | |||
Loans, net | — | — | 9,348 | 9,348 | |||
Loans, held for sale | — | 81,599 | — | 81,599 | |||
PPP loans (2) | — | 165 | — | 165 | |||
MBS | — | 27,436 | — | 27,436 | |||
Derivative instruments | — | 2,404 | — | 2,404 | |||
Investment in unconsolidated joint ventures | — | — | 7,360 | 7,360 | |||
Preferred equity investment (3) | — | — | 108,423 | 108,423 | |||
Total assets | $100,238 | $111,604 | $125,131 | $336,973 | |||
Liabilities: | |||||||
Derivative instruments | — | 212 | — | 212 | |||
Contingent consideration | — | — | 7,628 | 7,628 | |||
Total liabilities | $— | $212 | $7,628 | $7,840 |
(1) Money market funds are included in cash and cash equivalents on the consolidated balance sheets
(2) PPP loans are included in other assets on the consolidated balance sheets
(3) Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIEs on the consolidated balance sheets
The table below presents the valuation techniques and significant unobservable inputs used to value Level 3 financial
instruments, using third party information without adjustment.
(in thousands) | Fair Value | Predominant Valuation Technique (1) | Type | Range | Weighted Average | ||||
December 31, 2024 | |||||||||
Assets: | |||||||||
Investment in unconsolidated joint ventures | $6,577 | Income Approach | Discount rate | 9.0% | 9.0% | ||||
Preferred equity investment | $92,810 | Income Approach | Discount rate | 12.0% | 12.0% | ||||
Total assets | $99,387 | ||||||||
Liabilities: | |||||||||
Contingent consideration- Madison One | 573 | Monte Carlo Simulation Model | Net income volatility | Risk- adjusted discount rate | 66.0% | 44.3% | 66.0% | 44.3% | ||||
Total liabilities | $573 | ||||||||
December 31, 2023 | |||||||||
Assets: | |||||||||
Investment in unconsolidated joint ventures | $7,360 | Income Approach | Discount rate | 9.0% | 9.0% | ||||
Preferred equity investment | $108,423 | Income Approach | Discount rate | 10.0% | 10.0% | ||||
Total assets | $115,783 | ||||||||
Liabilities: | |||||||||
Contingent consideration- Mosaic CER dividends | $1,591 | Monte Carlo Simulation Model | Equity volatility | Risk-free rate of return | Discount rate | 30.0% |4.7% | 11.5% | 30.0% | 4.7% | 11.5% | ||||
Contingent consideration- Mosaic CER units | $6,037 | Income approach and PWERM Model | Revaluation discount rate | Discount rate | 12.0% | 11.5% | 12.0% | 11.5% | ||||
Total liabilities | $7,628 |
(1) Prices are weighted based on the UPB of the loans and securities included in the range for each class.
Included within Level 3 assets of $105.7 million as of December 31, 2024 and $125.1 million as of December 31, 2023,
is $6.3 million and $9.3 million, respectively, of quoted or transaction prices in which quantitative unobservable inputs
are not developed by the Company when measuring fair value.
The table below presents a summary of changes in fair value for Level 3 assets and liabilities.
Year Ended December 31, | |||
(in thousands) | 2024 | 2023 | |
Assets: | |||
Loans, net | |||
Beginning balance | $9,348 | $9,786 | |
Purchases or Originations | 383 | — | |
Unrealized gains (losses), net | (1,021) | (438) | |
Mergers and acquisitions (1) | 4,851 | — | |
Transfer to (from) Level 3 | (10,028) | — | |
Ending balance | $3,533 | $9,348 | |
Loans, held for sale | |||
Beginning balance | — | 60,924 | |
Sales / Principal payments | (4,009) | (22) | |
Unrealized gains (losses), net | (2,386) | (3,870) | |
Transfer to loans, held for investment | $— | (57,032) | |
Transfer to (from) Level 3 | $9,145 | $— | |
Ending balance | $2,750 | $— | |
Investment in unconsolidated joint ventures | |||
Beginning balance | 7,360 | 8,094 | |
Unrealized gains (losses), net | (783) | (734) | |
Ending balance | $6,577 | $7,360 | |
Preferred equity investment (2) | |||
Beginning balance | 108,423 | 108,423 | |
Unrealized gains (losses), net | (15,613) | — | |
Ending balance | $92,810 | $108,423 | |
Total assets | |||
Beginning balance | 125,131 | 187,227 | |
Purchases or Originations | 383 | — | |
Sales / Principal payments | (4,009) | (22) | |
Unrealized gains (losses), net | (19,803) | (5,042) | |
Mergers and acquisitions (1) | 4,851 | — | |
Transfer to loans, held for investment | — | (57,032) | |
Transfer to (from) Level 3 | (883) | — | |
Ending balance | $105,670 | $125,131 | |
Liabilities: | |||
Contingent consideration | |||
Beginning balance | 7,628 | 28,500 | |
Sales / Principal payments | — | (9,000) | |
Realized (gains) losses, net | (9,109) | — | |
Unrealized (gains) losses, net | (1,872) | (11,872) | |
Mergers and acquisitions (3) | $3,926 | $— | |
Ending balance | $573 | $7,628 | |
(1)Includes assets acquired and liabilities assumed as a result of the Funding Circle Acquisition. Refer to Note 5 for further details on assets acquired and liabilities assumed
in connection with the Funding Circle Acquisition.
(2)Preferred equity investment held through consolidated joint ventures is included in assets of consolidated VIE's on the consolidated balance sheets.
(3)Includes assets acquired and liabilities assumed as a result of the Madison One Acquisition. Refer to Note 5 for further details on assets acquired and liabilities assumed
in connection with the Madison One Acquisition.
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.
Financial instruments not carried at fair value
The table below presents the carrying value and estimated fair value of financial instruments that are not carried at fair
value and are classified as Level 3.
December 31, 2024 | December 31, 2023 | ||||||
(in thousands) | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||
Assets: | |||||||
Loans, net | $8,304,677 | $8,426,700 | $10,622,137 | $10,380,893 | |||
Loans, held for sale | 113,095 | 113,095 | — | — | |||
Servicing rights | 128,440 | 141,513 | 102,837 | 113,715 | |||
Total assets | $8,546,212 | $8,681,308 | $10,724,974 | $10,494,608 | |||
Liabilities: | |||||||
Secured borrowings | 2,035,176 | 2,035,176 | 2,102,075 | 2,102,075 | |||
Securitized debt obligations of consolidated VIEs, net | 3,580,513 | 3,532,765 | 5,068,453 | 5,022,057 | |||
Senior secured notes, net | 437,847 | 421,427 | 345,127 | 317,239 | |||
Guaranteed loan financing | 691,118 | 724,747 | 844,540 | 889,744 | |||
Corporate debt, net | 895,265 | 865,380 | 764,908 | 731,104 | |||
Total liabilities | $7,639,919 | $7,579,495 | $9,125,103 | $9,062,219 | |||
As of both December 31, 2024 and December 31, 2023, other assets and accounts payable and accrued liabilities are not
carried at fair value but generally approximate fair value. Further details are presented in Note 18 – Other Assets and
Other Liabilities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 3, 2025 | Showing above |
| 2023 | Feb 28, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.