Ready Capital Corp

NYSE:RC

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Ready Capital Third Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce Andrew Ahlborn, Chief Financial Officer. Thank you. You may begin.

[Andrew Ahlborn, executive]

Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2024 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website. In addition to Tom and myself on today's call, we are also joined by Adam Zausmer, Ready Capital's Chief Credit Officer.

I will now turn it over to Chief Executive Officer, Tom Capasse.

[Thomas Capasse, executive]

Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. The third quarter marked what we believe to be at or near the bottom of the commercial real estate cycle, particularly in our core multifamily sector. We're seeing stabilization in both rent growth and property prices driven by 3 key factors: rate cuts, a nearly 50% reduction in multifamily starts and strong occupant demand. To those points, we should begin to see the benefit of the improving market conditions over the coming quarters. Our CRE portfolio is showing stabilizing credit metrics, while our small business lending operations are achieving record growth, supported by strength in the broader economy. At Ready Capital, we continue to make significant progress on the strategic portfolio initiatives outlined at the start of the year, which focus on repositioning nonperforming loans.

Our $8.1 billion CRE portfolio consists of 2 segments, originated and M&A, representing 90% and 10% of the total, respectively, at quarter end. The originated portfolio declined 6% in the quarter to $7.3 billion. The rate of negative credit migration in the portfolio continues to stabilize. 60-day plus delinquencies in the portfolio increased marginally by $53 million and equaled 6.2% of the total portfolio at quarter end. Within our originated portfolio, 21% has been modified with term extensions through the third quarter of 2025 being the primary modification. These modified loans are predominantly multifamily at 76% with average stabilized LTVs of 73%. These loans, while modified, continue to produce cash flow and carry contractual interest rate of 9.2% with 66% being cash paying. More broadly, the CRE portfolio features a 9% contractual rate, of which 78% is cash paying.

Stronger multifamily fundamentals have increased transaction volume, leading to increased payoffs of $490 million. The majority of these proceeds went to reduce leverage in our existing CRE CLO structures. We are also gradually increasing our offensive stance, executing $246 million of new originations and our pipeline has grown 34% since the second quarter to $730 million. Our M&A strategy has historically focused on acquiring and liquidating legacy noncore assets, then reinvesting the proceeds into our core CRE lending business. We continue to reduce our M&A portfolio, which now stands at $850 million, a 17% improvement. Our active asset management has stabilized 60-day delinquencies at 16%. The levered yield in our remaining M&A portfolio has increased to 13.7%.

With the capital invested in our small business lending segment, Ready Capital has become a leading national nonbank lender to small businesses, providing a full suite of loan options from $10,000 unsecured working capital loans to $25 million plus real estate-backed USDA loans. This resulted in a record quarterly origination of $440 million. This consists of $355 million of small business administration or SBA 7(a) loans, $39 million of USDA loans and $46 million of small business working capital loans. Our dual SBA 7(a) strategy targeting both large and small loans has now exceeded our $1 billion annual target. This quarter's volume was split between our traditional large loan channel up to $5 million at 53% and our small loan channel below $350,000 at 47%.

Our Fintech business has grown to be a market leader in the origination of small SBA 7(a) loans. The strategic mix has generated higher SBA guarantee percentages and gain on sale premiums averaging 81% and 11%, respectively. We are now the #1 nonbank and fourth overall SBA lender in the country. We continue to execute 4 initiatives to navigate the CRE credit cycle. First, 72% of our portfolio repositioning efforts are complete following the settlement of $331 million in loan and REO sales across 44 assets. These sales generated $55 million in net proceeds and reduced negative carry by $0.08 per share. Our remaining loan inventory includes 43 assets totaling $218 million in carrying value, comprised of 40% originated loans and 60% M&A loans, of which 5% are office assets, 21% land assets and a mix of multifamily and industrial properties. We have 26 REO assets valued at $140 million currently listed for sale. We expect monetization of the entire position to extend into the first half of 2025.

And second, our leverage position remains conservative. Our total leverage of 3.3x is below our long-term target of 4x. Improving sector liquidity has enabled us to pursue opportunities to raise accretive capital and optimize our existing capital structure. Of our 17 outstanding CRE securitizations, 9 are eligible for call with an average current advance rate of 73%. In the third quarter, we called the legacy fixed rate securitization, RCMT 2015-2, generating $9.3 million in liquidity and improving yields by 400 basis points. As discussed on prior calls, our static CLOs have less flexibility than typical managed CLOs in managing delinquent loans, which affects peer group credit comparisons. However, our CLOs remain strong, 6 of our 8 outstanding issuances passed their interest coverage and over-collateralization tests. October remittances showed delinquencies and loans in special servicing improving to 8.7% and 17%, respectively.

We expect our next issuance in the first half of next year using collateral from both called legacy deals and new production. Third, growth in our small business lending operations reached new heights this quarter, marking the highest earnings contribution from the platform in our history. In total, our Small Business Lending segment generated $21 million of pretax distributable income or $0.12 per share. These results exclude any impact from Madison One, our USDA lender or Funding Circle, our small business lending platform acquired in the third quarter. Madison One and Funding Circle are expected to be accretive to earnings once fully ramped. During the quarter, these acquisitions posted a quarterly distributable earnings loss of $1.8 million or $0.01 per share. This loss was due to timing of building a forward pipeline and recognition of post-acquisition operating efficiencies.

Looking forward, the scale and high ROE capital-light nature of our small business lending segment provides a clear differentiator amongst our peer group with the segment's book value at only 8% equity and a significantly higher market value. The growing earnings contribution, along with normalization of our CRE business to historical levels should support a longer-term ROE premium to our peer group. Fourth, our exit from residential mortgage banking progresses well. We are currently marketing our remaining MSRs with a settlement planned for late November expected to generate approximately $40 million in net proceeds. The platform sale is expected to be completed over coming weeks with the settlement pending agency approval in early 2025.

Ready Capital is well positioned to capitalize on the tailwinds in the CRE market. While it will take a few more quarters to fully realize the benefits, 3 key drivers will contribute to our future earnings growth. Our stabilizing CRE platform, continued turnover of our M&A portfolio and sustained growth in our small business lending platform.

With that, I'll turn it over to Andrew.

[Andrew Ahlborn, executive]

Thanks, Tom. Third quarter GAAP losses per common share were $0.07, while distributable earnings showed a loss of $0.28. Excluding realized losses on asset sales, distributable earnings were $0.25 per common share, representing an 8.4% return on average stockholders' equity. The distributable loss primarily reflects the timing difference between the valuation allowances recorded in the first and second quarters and realized losses from settlements in the third quarter. Three key factors impacted our quarterly earnings. First, revenue from net interest income, servicing income, gain on sale and origination income increased $19 million or 22% quarter-over-quarter to $104 million. The change was primarily driven by $8.7 million growth in gain on sale revenue from our small business lending business, with sales of $254.3 million, generating gain on sale revenue of $24.2 million.

$6.6 million growth in origination income from small business working capital loans through the Funding Circle platform and higher SBA 7(a) production. $2.1 million growth in servicing income from MSRs acquired through the Madison One and Funding Circle acquisitions. Net interest income held steady quarter-over-quarter at $51 million. Interest income declined $7.6 million, primarily from portfolio reductions through payoffs and liquidations. This was offset by lower interest expense from deleveraging of our CRE CLOs. Quarterly interest income was 73% cash and 27% accrued or paid in time. This equates to a cash yield in the portfolio of 6.6%. Of the 27%, 50% related to construction assets acquired in the Mosaic transaction, of which 74% are expected to be repaid at the end of the year. Nonaccrual balances remained stable at $260 million, representing 2.8% of the portfolio.

Second, the combined provision for loan loss and valuation allowance decreased $17.9 million. The $53.2 million increase in CECL reserves was due to a $4.6 million decrease in the general allowance plus $57.8 million of specific reserves on several assets. The decrease in the valuation allowance is due to an $88.2 million recovery from loan sales, offset by a $17.2 million increase on loans remaining on the balance sheet at quarter end. The release of the valuation allowance is related to the settlement of $315.7 million of loans. Loan settlements had an incremental impact of $11.5 million net of tax. Third, as expected, operating costs rose 1% to $60.4 million, reflecting $11.5 million in Funding Circle costs and a $4.1 million increase in variable costs related to production.

Noncash REO charge-offs included in other operating expenses were $525,000 in the quarter, down from $9.1 million in the second quarter. We recorded a $32.2 million bargain purchase gain from the completion of the Funding Circle transaction, primarily driven by realizing a deferred tax asset, net of valuation allowances. On the balance sheet, book value per share is now $12.59 per share versus $12.97 per share last quarter. The change was primarily due to declines of $0.31 per share related to CECL, $0.11 per share related to net realized losses and $0.06 per share reduction from net changes in cash flow hedges through other comprehensive income. These declines were partially offset by a $0.13 per share increase related to the bargain purchase gain. Distributable earnings absent realized losses covered the dividend. Our strong liquidity position includes $181 million in unrestricted cash and $20 million in committed but undrawn borrowings.

With that, we will open the line for questions.

[Operator]

Our first questions come from the line of Crispin Love with Piper Sandler.

[Crispin Love, analyst]

First, can you just give a little more detail on the loan sales in the quarter? I saw the $110 million loss. What was the total sale amount and the discount you sold it at? And then on what's left to sell, is it $218 million? Or did I get that wrong?

[Andrew Ahlborn, executive]

So, we settled in the quarter a total of $331 million. The pricing was relatively in line with what we disclosed last quarter, which was right around $70 million. The sales generated roughly $55 million in proceeds and the EPS impact of those sales in the quarter was $0.11, a loss of $0.11. In addition to that, we do have a population of $218 million of loans remaining on the balance sheet that we anticipate selling. We took increased valuation allowances of roughly $15 million gross of the effects of tax, and that had a $0.13 effect on EPS.

[Crispin Love, analyst]

Okay. I appreciate that, Andrew. And then just in the third quarter, can you disclose how much interest income was from PIK and just expectations from PIK over the next few quarters?

[Andrew Ahlborn, executive]

Yes. As Tom said in his comments, a little over 20% was either PIK or accrued. When you break those 2 components down, the component is coming from construction loans acquired in the Mosaic transaction. The expectation is that a large portion of those pushing 75% clear out in the fourth quarter and turn to actually sort of cash paying investments. The other subset relates to the modified loans. As Tom also mentioned his roughly 66% of that is cash paying with the component being accrued if the ultimate recoverability is supportable. So that's the breakdown.

[Crispin Love, analyst]

Okay. Great. And then sorry, but is that 20% of interest income or net interest income?

[Andrew Ahlborn, executive]

It's on the top line.

[Operator]

Our next questions come from the line of Douglas Harter with UBS.

[Douglas Harter, analyst]

I guess thinking of the originated portfolio, how do you expect the trajectory of either delinquents or nonaccrual assets to perform, both resolutions and inflows of potential new problem assets?

[Thomas Capasse, executive]

Yes. Adam, do you want to comment on that? And just yes, actually, I think one thing to underscore is the so-called denominator effect, which we're seeing in the industry in terms of the portfolio decline being greater than the new 60-day delinquencies, but maybe Adam, just comment on that more broadly.

[Adam Zausmer, executive]

Yes, sure. On the originated portfolio, as we've been highlighting, the majority is multifamily product, right? So, it's 70% plus in multi. We feel that there's strong equity in these deals. And certainly, the market is improving. And as Tom and Andrew highlighted, the commercial real estate space, specifically the multifamily area where we're so heavily exposed, is certainly on a stabilizing path, especially as rates begin to ease, the fundamentals are certainly more favorable. I'd say that delinquency will remain volatile, right, as we work through the portfolio. But as we've highlighted, it certainly peaked our delinquency. And also, the denominator effect, as we're originating less new loans today, that denominator is going down as loans are paying off. So, we had about $700 million of exits this year, which is certainly reducing that denominator.

We've only had about $50 million of new 60-plus delinquency in the quarter. So, although there was a 90-basis point increase in the 60-plus, it's only attributable to about $50 million of new 60-plus. So as Tom highlights, that denominator effect is certainly impacting the delinquency increase.

[Douglas Harter, analyst]

I appreciate that. And as you think about kind of the pace of recovery within commercial real estate, how do you think about the difference maybe between lower short-term rates, but kind of a backup in longer-term rates and kind of which one of those is likely to have more of an impact on the market?

[Andrew Ahlborn, executive]

I was going to say just more broadly, we're definitely seeing unequivocally a flattening in the curve on the multifamily space, especially lower middle market. Delinquencies on CoStar were flat at 5.8% for the first time in 4 or 5 quarters, vacancy rate is 5.8% and rent growth has kind of flatlined at around 0.3%. And even some of the negative markets you're starting to see like Austin, which was down year-over-year, 7%, you're starting to see that flatten out as well. So that's on the asset side, you're seeing a definitive stabilization in cap rates and property values. And our mark-to-market LTV is well under 100, especially on the loans that have been modified or have some 4 or 5 risk rating. So that's the relative positive there.

As far as rates, it's an interesting dynamic. The short rates as you see a steepening in the curve, the short decline in short rates will definitely benefit our modified loans by improving the debt service coverage ratio, all else being equal, while they work out their business plans on a delayed basis and improve NOI. So, there's kind of a -- on the back end of the cycle, you're seeing the benefit of the debt service coverage expansion, which got crushed when rates capped out in '22. So, I think that's going to benefit us. And then another subtle thing we're seeing is that there's a lot of new private debt capital coming into this multifamily market. And we're seeing some of our better loans that were extended and modified being taken out by bridge on bridge from private debt.

So, that dynamic is a tailwind. The headwind, however, though, is to the extent long rates, the 10-year stays elevated at above 4.5%, that means our takeout is focused on GSE, Fannie, Freddie, it's going to be harder to hit that debt yield on a takeout. So those are the 2 countervailing trends in terms of rates.

[Operator]

Our next questions come from the line of Jade Rahmani with KBW.

[Jade Rahmani, analyst]

Other assets is a category I've been tracking and the large components include deferred loan fees and accrued interest, about 25% goodwill and intangibles, similar ratio and then deferred tax assets. Is there any risk of write-down or impairment of any of these categories as you sell nonperforming loans? Since presumably some portion of the deferred loan fees, accrued interest relates to that and potentially some of the goodwill relates to the Mosaic and Broadmark acquisitions.

[Andrew Ahlborn, executive]

So, I'll take them in the components. So, the deferred tax asset gets evaluated regularly and impaired based on profitability expectations down at the TRS. So, we don't expect any impairment issues there based on the trajectory of those businesses. On the accrued interest, we are only accruing interest that we believe to be recoverable. With that being said, there are certain circumstances where the asset management staff may recommend something like a DPO. And in that case, the accrued interest would be part of the write-off, though, although we believe the effects of that to be fairly minimal. Goodwill also gets evaluated regularly. At this time, we don't see any impairment on the goodwill.

[Jade Rahmani, analyst]

And does any of the goodwill relate to Broadmark or Mosaic?

[Andrew Ahlborn, executive]

Both of those were bargain purchase gains.

[Jade Rahmani, analyst]

So, is that a no?

[Andrew Ahlborn, executive]

Yes. So, the goodwill -- you can't have goodwill if you have a bargain purchase gain. So no, they do not really trade.

[Jade Rahmani, analyst]

Okay. And then just the -- in your mind, the balance because I know there's a lot of moving parts across the portfolio. Some of the nonperforming loans and REO were inherited through M&A. And clearly, you anticipated some of that. But what's the balance today of nonperforming loans and REO?

[Andrew Ahlborn, executive]

Yes. And do you want to touch on that in the context of the -- Jade, the way we bifurcate the portfolio is the originated portfolio of $7.3 billion. And the M&A portfolio now is down to, what is it, answer's only 10% of our total, $800 million. So maybe the answer to that question in the context of those 2 portfolios.

[Thomas Capasse, executive]

Yes, Adam, do you want to touch on the bifurcation there?

[Adam Zausmer, executive]

Yes. So, from a dollar perspective, pardon me, I just do the math here. So, the originated has delinquency of about $400 million, just north of $400 million. And then on the acquired portfolio, the M&A piece, it is $150 million.

[Jade Rahmani, analyst]

And the balance of REO?

[Adam Zausmer, executive]

The REO is $160 million in a sale process today.

[Jade Rahmani, analyst]

Okay. Could you give the dollar value of modifications were completed in the quarter? The 20% PIK is a really high number. It implies $45 million of PIK interest in the quarter, which I think was up from, you said last quarter, $21 million. So, it basically doubled. If you could just give the dollar value of modifications and correct me if any of those numbers are not right.

[Adam Zausmer, executive]

Yes. So, the modifications on the bridge book were about $250 million in the quarter. Previous quarter, it was approximately $700 million. So, across the entire bridge portfolio, the modifications are roughly $1 billion across 32 assets. And the vast majority of those sit within CLOs.

[Jade Rahmani, analyst]

Okay. But it is around $45 million of interest income. Do you think the $45 million increases or stay stable, decreases?

[Andrew Ahlborn, executive]

Jade, as I said earlier, a good chunk of that is coming from those construction loans acquired in the Mosaic transaction. And the expectation is that 77% of that balance pays off at quarter end or is rolled into a cash-linked loan at quarter end. So, I think that number is going to come down.

[Jade Rahmani, analyst]

Okay. And when those pay off, do you think they're going to pay off at par and there won't be issues, credit issues there?

[Andrew Ahlborn, executive]

Well, the takeout of those loans can take a variety of forms. Part of the platform we built is staying involved in the economics of these projects through the life cycle. And so, the payoff could come in, in the form of an actual payoff via refi somewhere else or movement into a cash flow bridge loan on our balance sheet. So, it could take a variety of different forms.

[Thomas Capasse, executive]

Yes, that's an important differentiation, Jade. Well, our business model now is to the whole life cycle. So, you start with ground-up construction. And once the project is near stabilization, it slipped into a bridge loan. And ultimately, if it's multifamily, we'll do a multi-PSE loan. But we're looking to stay with these sponsors across the project life cycle.

[Operator]

Our next questions come from the line of Stephen Laws with Raymond James.

[Stephen Laws, analyst]

Tom and Andrew, I appreciate the color you guys have provided so far. You've covered a lot. I wanted to touch on CECL. Can you talk about the reserve build and how that's allocated between general and specific? And what assets kind of drove that CECL reserve build this quarter? I guess, confidence around this level or considerations about potential increases in that as we move forward?

[Thomas Capasse, executive]

Yes. So, I'll let Adam talk on the specifics. But overall, the CECL reserve today is a little over 1% and 32% of the total CECL is in the general bucket. Adam, do you want to talk on the movements this quarter?

[Adam Zausmer, executive]

Yes. And then the movements this quarter, that $50 million, it's almost entirely in the M&A portfolio across a broad range of property types, office, industrial, and there's some multi in there.

[Stephen Laws, analyst]

Okay. Great. Appreciate some color there. As we think about the distributable earnings number, ex losses, $0.25. As we think about sequential change moving into Q4, what are the onetime items in that number that we need to think about? Or do you feel comfortable that distributable earnings ex losses can continue to cover the $0.25 dividend?

[Adam Zausmer, executive]

Yes. I think the $0.25 level is a good baseline. When I think about go-forward earnings, I think there are a few things that are important. The first is the contribution of the small business lending platform, given all the growth and capital investments we've made over the last couple of quarters and years, is now substantial to the totality of the company, contributing over 350 basis points of return to the overall platform. And that is a level we expect is sustainable and grows as some of the businesses we've purchased come online. And so when you think about how that affects go-forward earnings, as the CRE portion of our business, which accounts for the majority of the equity, rebounds and migrates back to historical return levels as the portfolio turns over and the M&A portfolio is repositioned, migrates back to that 600 to 800 basis point return level, we get closer to our original thesis of building the business this way, which is having that small business lending platform provide a premium to sort of competitive commercial real estate returns.

And so, I think there is a growth path from these levels. There are no onetime items that I'm aware of with the exception of there's still a bucket of loans held for sale where you are going to have the impact of realized losses flow through the distributable earnings cal. But absent those losses, I think there's a growth path headed into 2025.

[Stephen Laws, analyst]

Great. I wanted to touch on the CLOs. You guys talked about them, I think, every call this year. They're different, as you mentioned, the static nature. And earlier this year, you talked about the special servicer and your thoughts on potentially changing that or doing it in-house. Can you talk about how that relationship is and your ability to kind of manage some of these assets and how quickly you can start or you have to continue to let them go bad before you can actually step in and start to do something?

[Thomas Capasse, executive]

Adam, maybe kind of frame it in the context of the relative success we've had with the existing servicer in terms of changing the protocols around how quickly we address mods and that dynamic with our asset management team. So maybe touch on that.

[Adam Zausmer, executive]

Yes. I think at the onset of this stress due to the rate environment towards the end of the last year, I think as we started to see relief requests from our clients, I think the special servicing industry, I think, struggled with how to address the environment, what type of modifications they would employ. I think early on, we certainly struggled to execute market modifications and to provide our clients with relief. I think in Q2 and especially this quarter, we have made significant progress with our special servicer, again, continuing to execute industry standard mods, to help these projects have some breathing room to kind of navigate through this challenging environment. These modifications help the tenant base in terms of putting capital into these projects and not having to utilize different alternatives versus a mod. So, in summary, I'd say our relationship with our special servicer remains healthy and the pace at which we are executing solutions for our clients is healthy as well.

[Operator]

Our next questions come from the line of Christopher Nolan with Ladenburg.

[Christopher Nolan, analyst]

Tom, am I correct that your comments earlier were sort of you thinking that you're through the worst of the commercial real estate cycle for Ready Capital?

[Thomas Capasse, executive]

Yes. We're definitely seeing, as evidenced by Adam's comments in terms of the kind of sawtooth down in the absolute dollar delinquencies and what we're seeing in terms of the migration of the 4, 5 assets as it relates to the originated portfolio, it definitely is mirroring what you're seeing in terms of the macro data in the multifamily sector.

[Christopher Nolan, analyst]

Great. And then in your earlier comments in terms of lower interest rates, improved coverage ratio, is your coverage ratio calculation before or after property taxes and other municipal fees?

[Adam Zausmer, executive]

Adam, do you want to comment that in terms of the calculation on the debt DSCR? I mean it's somewhat formulaic because we look at it from Fannie, Freddie methodology, but maybe, Andrew, comment on that in terms of the OpEx.

[Thomas Capasse, executive]

Yes, sure. Yes, the coverage ratios are after taxes and reserves.

[Christopher Nolan, analyst]

Okay. And final question is, given all that, what's the outlook for the 10% distributable ROE target you guys discussed in previous quarters?

[Andrew Ahlborn, executive]

So, absent the realized losses was in the mid-8s this quarter. Given my comments before about the sustainability of profitability from the small business lending segment as the CRE part of the business recovers, I think we march towards that 10% target.

[Christopher Nolan, analyst]

Okay. So, the calculation should be excluding realized losses going forward because before, I didn't think that was really an issue.

[Andrew Ahlborn, executive]

So, the realized losses that we posted are related to the population of assets we transferred into held for sale primarily. And so not 100% of that bucket settled in the third quarter. So, you are going to see some noise as the remaining $218 million settles into next year. So, the economic impact of that transfer for the most part has been felt through the book value of the company, but you will see the realized components flow through distributable earnings. So, we think that distributable earnings less realized losses is an important metric just to have comparability of the core operations of the business across periods.

[Operator]

Our final questions will come from the line of Matt Howlett with B. Riley Securities.

[Matthew Howlett, analyst]

Tom, did you say you freed up $55 million in cash from the loan sales this quarter?

[Thomas Capasse, executive]

Yes.

[Matthew Howlett, analyst]

So, what would be -- just walk me through the cadence of the loan sales in the fourth quarter, you get the mortgage company. How much cash are you going to continue to free up in the next few quarters from these sales?

[Andrew Ahlborn, executive]

Yes. So, maybe take the components. So, on the refi side, as Tom mentioned, the MSRs are currently in market. The expectation is the sale of those net of any financing clears roughly $40 million of incremental cash. The platform itself most likely settles in the first quarter of next year and the impact of that transaction is roughly $10 million in that range. So, there'll be some earn-out component, but the upfront cash will be roughly $10 million. Absent that, we do expect the settlement of the remaining assets to flow into next year, and that should clear roughly $40 million or so of cash as well. And then you're just going to have the normal cadence of the portfolio paying off, but those are the main items.

[Matthew Howlett, analyst]

Okay. So, you have $180 million in cash. It seems like that's going to obviously go up with those sales. My question is this, you have one small maturity next year, like $120 million. My question is this, I mean, financing, are you talking to the banks? We're hearing the banks are out there, they want to lend. Could you have assets secured? Obviously, could you do an unsecured deal? And then two, I'm assuming you didn't buy back any stock this quarter. Why wouldn't you really get aggressive with the buyback since the worst is over, stock at 60% of book. Obviously, there's value in SBA that's not reflected in book. I think we'll both agree that. Why wouldn't you get aggressive here and take advantage of this discount the worst is over?

[Thomas Capasse, executive]

Maybe I'll take 2 components there. On the debt maturity for next year, we are certainly talking to all of our banking counterparts and previous lenders about refi that into a new issuance. With that being said, we are positioning the company to take care of that maturity in cash should those not materialize. And then on the buyback program, I think we agree that at this price, the stock looks attractive from a buyback perspective. And I do expect it's something you will see from the company in the upcoming months.

[Matthew Howlett, analyst]

Okay. I mean obviously, we can do the math, but it's enormously accretive at this discount. But when you say paying in cash, I mean, are there any other financing options? I mean you're not really levered on a recourse basis. I mean, there are other you could pledge.

[Matthew Howlett, analyst]

Yes, we are exploring all of those, refi into an unsecured issuance. We have a significant amount of unencumbered assets on the balance sheet that we could use for secured issuance. There's a variety of other structures we are also exploring. So that is obviously the preferred path. I think just to be conservative; we are also planning the company's liquidity profile to make sure that, that maturity is not an issue for us in the upcoming months.

[Thomas Capasse, executive]

Yes. So, you can see the -- and I think it's significantly underappreciated in our peer group just given that it is a nuanced regulated capital-light government insured business. But in terms of the iBusiness aspect, we purchased them back in 2019. They were a leader in unsecured small business lending. And then they adopted their tech to pat the PPP, which was very accretive. And since then, there's been the initiative within the SBA to emphasize small loans below $350,000, which many times are minority women-owned businesses. And so that's been a significant initiative by the SBA. So, what we've done. And there, you could use a scorecard methodology, which is very similar to how you underwrite unsecured loans. So, what we've done is we've developed -- the iBusiness has developed a tech stack, which is now being marketed as a third-party underwriting model for banks.

Banks just do not focus at all. Even if they do SBA loans, it's mostly for larger loans, again, above the $350 million to $5 million. So, the idea with iBusiness is to grow the, if you will, the revenue stream from this software-based business. And then once it achieves, as you pointed out, the valuation in a mortgage REIT is nowhere near what it would be in a stand-alone C-corp. So, the idea would be to look at a kind of a backdoor IPO via a tax-free spin-off to shareholders. Again, that's kind of how we think of Ready Capital in a way, for these capital-light businesses that achieve scale, it's as if we're a private equity fund that has the ability to finance these businesses very cheaply versus venture capital and then spin it off. So anyway, a long-winded answer to your question, but the growth you've seen in the SBA 7(a) business is testimony to that strategy in that we're achieving our traditional large loan around $500 million and roughly $500 million on a run rate basis this past quarter in the small loan as well.

[Matthew Howlett, analyst]

But that could trade off a multiple to revenue. Will you begin providing a separate data on that at some point, what it's doing and the financials on it?

[Thomas Capasse, executive]

Yes. As the business scales and achieves what we believe to be scale in terms of the number of bank customers and revenue streams as it relates to that, we would look to do segment reporting.

[Operator]

That concludes our question-and-answer session. I'd like to hand the call back over to Thomas Capasse for any closing remarks.

[Thomas Capasse, executive]

We appreciate everybody's time and look forward to next quarter's call.

[Operator]

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.