Broadmark Realty Capital, Inc. (BRMK) Q4 2021 Earnings Conference Call February 28, 2022 5:00 PM ET
Company Participants
Nevin Boparai - EVP & Chief Legal Officer
Jeffrey Pyatt - President, CEO & Executive Chairman
David Schneider - CFO & Treasurer
Conference Call Participants
Timothy Hayes - BTIG
Steven Delaney - JMP Securities
Stephen Laws - Raymond James & Associates
Matthew Howlett - B. Riley Securities
Operator
Greetings, and welcome to the Broadmark Realty Capital's Fourth Quarter and Full Year 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Nevin Boparai, Chief Legal Officer of Broadmark Realty Capital. Please go ahead, sir.
Nevin Boparai
Good afternoon. Thank you for joining us today for Broadmark Realty Capital's Fourth Quarter and Full Year 2021 Earnings Conference Call. In addition to the press release issued this afternoon, we have filed a supplemental package with additional details on our results, which is available in the Investors section on our website at www.broadmark.com.
As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings.
During this call, we will also be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings.
This afternoon's conference call is hosted by Broadmark's Chief Executive Officer, Jeff Pyatt; and Chief Financial Officer, David Schneider. Management will make some prepared comments, after which we will open up the call to answer your questions.
Now I will turn the call over to Jeff.
Jeffrey Pyatt
Thank you, Nevin, and welcome to our fourth quarter and full year 2021 earnings call. This afternoon, I'll begin with some remarks about our announced management transition. I'll then briefly discuss our 2021 performance and market overview, and we'll then turn the call over to David to provide additional detail on our financial results, investment activity and portfolio. We will then open up the call for your questions.
As we announced earlier this month, effective March 1 of this year, we will have completed our leadership transformation with the hiring of Brian Ward as our new Chief Executive Officer. Brian is an accomplished real estate veteran and has deep leadership experience, including most recently as CEO of Trimont Real Estate Advisors, a global commercial real estate asset management firm with aggregate invested capital under management of $168 billion. When we began the search last year for a President, we envisioned a succession plan that would take place over time. However, in finding an industry veteran and experienced leader in Brian, we were able to accelerate this transition. I welcome, Brian, and I look forward to his vision for our continued growth and the vibrancy I know he will bring to Broadmark.
I will continue to serve as Chairman of our Board of Directors, and I'm excited to help Brian lead our company in the future.
Moving on to our business performance. In the fourth quarter, we generated $249 million of new originations and amendments. We accomplished this volume on the heels of a record third quarter and in the face of increasing competition. Historically, the fourth quarter has been a seasonally slower quarter for originations. This year's fourth quarter activity represented an increase of more than 27% from the fourth quarter of last year. For the full year 2021, we executed $947 million in new originations and amendments, representing a 51.2% increase over the prior year. This level of activity demonstrates the depth of our platform and team, our ability to reach a growing number of high-quality borrowers and the strength of the commercial and residential real estate markets as the economy continues to grow in the wake of the pandemic.
I would be remiss in not discussing the competition in short-term construction lending has continued to build. Specifically, in the single and multifamily residential sectors, we are seeing our competitors underwrite loans at price levels and transaction structures that we view as not commensurate with the level of risk for those projects. At Broadmark, we continue to remain disciplined and thoughtful in our origination approach to ensure we maintain a high-quality loan book, which we believe can withstand ever-changing economic and market conditions. We are unwilling to deviate from our proven underwriting guidelines simply to grow our loan portfolio. In the short term, this discipline may reduce the percentage of our pipeline on which we execute. But compared to our competitors, we believe that we stand to benefit in the long run and will be better prepared to face economic headwinds.
Importantly, we delivered on one of our initiatives to prudently expand our geographic footprint. Specifically, in 2021, we originated loans in 7 new states, and we are now active in 19 states plus the District of Columbia, a 58% year-over-year increase. This expansion is providing access to more loan opportunities and will result in a more diversified portfolio.
As of December 31, our portfolio consisted of $1.5 billion of loans secured by high-quality real estate with a weighted average loan-to-value at origination of 59%. We are well diversified across property types with residential representing 59% of our portfolio. We favor the residential sector because of the power demand drivers resulting from population growth in our target markets as well as a pervasive shortage of housing, which we believe will continue to drive new construction well into the future.
We also retain the flexibility to pivot to the high-quality loans that are executable within our underwriting and pricing guidelines regardless of collateral type, as seen in Q4 where 56% of our new originations were collateralized by commercial properties. Approximately 30% of our portfolio at the end of the fourth quarter consisted of commercial projects, including storage, hotels, retail and office. The remainder of the portfolio is secured by land for development.
We are also diversified by geography with 27% of our loan portfolio in the Western U.S., 61% in the Central region and 12% in the East. Over the past 2 years, we have methodically grown our portfolio in the Central and Eastern regions, primarily in Colorado, Texas and the Southeast. Our Southeast region has grown by fourfold during that time while maintaining a 0% default rate, which is a testament to both our underwriting and ability to differentiate ourselves in local markets over time.
As a reminder, while expansion has been and remains a strategic focus for Broadmark, we are not looking to be active everywhere. We are targeting markets with strong demographics, active real estate markets and where housing and finance laws are more favorable for lenders. The market fundamentals remain highly supportive of our lending activities. The economy continues to expand, and household balance sheets are very strong. Furthermore, there remains an acute shortage of housing in many markets, and demand continues to grow as a new generation of buyers enters the housing market and remote working dynamics allow Americans to relocate to the high growth and lower-cost states in which we currently lend.
In the nonresidential sector, after 2 consecutive years of depressed construction spending related to the pandemic, December 2021 data showed notable increases in storage, lodging, retail and office construction. This change aligns with industry expectations of an increase in commercial construction spending in 2022. The expected growth in construction should lead to additional opportunities for Broadmark as we move ahead, the competitive landscape notwithstanding. We continue to monitor inflation, supply chain disruptions and labor shortages, which could potentially impact the cost and time line of our projects.
Fortunately, the short duration of our loans allows us to respond quickly to changing conditions. Inflation has forced the federal reserve to become more hawkish and expectations have shifted to future rate hikes. However, overall mortgage rates remain low relative to historic levels, so we believe the housing market should remain robust even if rates rise modestly.
I'd like to take this opportunity to discuss our commitment to ESG, which are foundational principles for Broadmark. We are committed to making a positive difference in our community and the broader world, and we incorporate responsibility into our organizational structure and business decision-making. We constantly strive to improve on our ESG performance, and I'm proud of our record on all fronts. Importantly, the Board, senior leadership and our entire team are committed to continuing to improve in 2022 and beyond.
Finally, I ask that you indulge me for a few minutes since this is my last call as CEO. I must begin by thanking our shareholders, many of whom were investors in our private funds and continue with us today. Whether you became a shareholder recently or have been around since our inception in 2010, thank you. I also owe a debt of gratitude to all of my coworkers at Broadmark. Many of you have heard me quip that it's easy to loan money, it's much harder to get paid back. From underwriting and origination, through construction draws and finishing with repayment, everyone involved with the lending process at Broadmark is hyper focused on preservation of capital. Add to this our accounting, finance and compliance teams, and you have a crew of which I am proud to be part.
Finally, I must give one last big thank you to my co-founder, Joe Schocken, without whom Broadmark wouldn't have gotten to where it is.
As I hand the reins of leadership to Brian, I couldn't be more excited about the future of Broadmark. I look forward to serving as Chairman of the Board and supporting Brian and his team in any way I can.
And with that, I'll turn it over to David to review the financials.
David Schneider
Thanks, Jeff, and good afternoon, everyone. Our operating results are detailed on Slide 8 of our earnings presentation. For the fourth quarter of 2021, we reported total revenue of $31.3 million and net income of $22.2 million. On a per share basis, this reflects a GAAP net income of approximately $0.17 per diluted common share. Adjusting for the impact of nonrecurring costs and other noncash items, our distributable earnings prior to realized loss on investments for the fourth quarter were $23.9 million or $0.18 per diluted common share.
Interest income on our loans in the fourth quarter was $23.5 million, and fee income was $7.8 million. For the full year 2021, we produced total revenue of $120.5 million and net income of $82.5 million. On a per share basis, this reflects the GAAP net income of $0.62 per diluted common share. Our distributable earnings prior to realized loss on investments for the full year were $96.6 million or $0.73 per diluted common share.
On the expense side, we continue to balance our G&A reduction efforts with modest headcount expansion to support anticipated growth. For the fourth quarter, we had cash compensation and employee benefit expense of $4.2 million and G&A expense of $1.3 million. With $22.3 million of cash compensation and G&A expense for the full year 2021, we finished the year with about a $4.3 million reduction from 2020. This improvement was partially offset by debt issuance costs and interest expense of $3.3 million associated with our revolving credit facility and bond issuance in 2021.
With regard to origination volumes, which are presented on Page 9 of the earnings presentation, we achieved $249 million of originations and amendments. This is a strong result given the typical seasonal slowdown in the fourth quarter, which we have experienced in the past. As a reminder, origination volumes naturally vary from quarter-to-quarter based on the timing of loan closings. We continue to benefit from our increasing size and scale, which has enabled us to grow our average loan size while keeping our percentage exposure to any individual loan very low.
In the fourth quarter, we executed on 43 originations and risk-reducing amendments with an average loan size of $5.9 million. As we increased our ability to underwrite larger loans, we achieved greater efficiency from an expense perspective, while reaching a borrower cohort that typically has better credit metrics. Further, as we have previously discussed, we are expanding our opportunity set through our dynamic pricing system, which allows us to offer risk-based pricing in today's competitive lending market and reach a pool of borrowers that are typically more experienced with superior credit and collateral.
As of December 31, our portfolio yield was 14.2%, down from 16.5% a year ago. And over the coming quarters, we expect the portfolio yield to stabilize in the range of 10% to 12%. As seen on Slide 10, these reduced asset yields remain higher than our peers. And with a conservative amount of leverage, in tandem with the increased origination volumes that we are capturing, we believe we can offset the impact of lower yields over time and maintain margins. Still, our underwriting standards remain paramount, particularly our maximum 65% loan-to-value, which provides a significant equity incentive to our borrowers to perform. Additionally, our loans remain short term with a weighted average term of 13 months at origination for the fourth quarter. The short-term nature of our loans reduces our exposure to interest rate fluctuations. It also allows us to be nimble and pivot quickly as the environment evolves to shift our capital across property types and markets.
Now turning to our balance sheet as detailed on Slide 18 of our earnings presentation. We had $133 million of cash as of December 31. We quickly deployed the proceeds from our inaugural bond issuance in November, and the higher-than-usual cash balance reflects a few large prepayments during the last 2 weeks of December. This is not something that we typically see and is another indicator of the aggressive lending from competitors. More specifically, we are currently observing bridge and permanent lenders, refinancing borrowers prior to the completion of construction and taking on a level of construction risk without commensurate pricing.
For cash management and financial flexibility purposes, we continue to target a cash balance of approximately $50 million to $100 million. As of December 31, we had $100 million of 5-year, 5% coupon senior unsecured notes outstanding, and we remain fully undrawn on our $135 million credit facility. We did not issue any shares under our ATM in the fourth quarter. And as a policy, it is our intent to only access capital when we believe that it is in the long-term interest of Broadmark shareholders.
As interest rates are expected to rise, our leverage remains very low by industry standards. Unlike our competitors, our leverage is 100% fixed rate corporate debt, and we expect to be able to execute additional debt issuances at competitive coupons and grow our portfolio in a rising interest rate environment, providing borrowers with certainty of execution. Maintaining a fortress balance sheet has always been a part of our DNA, and this will not change even as we remain prudent as we optimize our capital structure that balances risk with achieving a competitive cost of capital.
Turning to portfolio management. As of December 31, we had 31 loans in contractual default, representing $191.4 million in total commitments or 12.9% of the total portfolio by value. As a percent, this was down slightly from the third quarter and primarily reflects our commitment to finding positive outcomes for defaults with minimal losses, albeit at a slower pace than we originally anticipated.
Overall, during 2021, we resolved $94 million of loans in contractual default, and at year-end, our default rate was down by 3.6% from the prior year. At year-end, we owned 8 foreclosed properties with $68 million in carrying value. During the fourth quarter, we foreclosed on 2 loans and received payoffs or cures on 6 loans in default, representing a total commitment of $41.7 million.
As a reminder, loans in nonaccrual status continue to have a drag on earnings. For the fourth quarter, the earnings drag was approximately $0.04 per share. We continue to work diligently to resolve these issues over time to achieve the best result for Broadmark shareholders, although this is likely to take time in the current environment.
From a dividend perspective, our Board of Directors continues to consider various factors when setting our monthly dividend and maintains a focus on achievable dividend coverage over time while limiting instability. As we look ahead, while we have a long-term positive view on earnings, we understand it will be difficult to grow in 2022 given that we're going to remain disciplined in our approach to underwriting and that we continue to navigate the nonaccrual loans. While our new CEO and his strong experience have invigorated us all and we are invested in building on last year, we realize it will take time to restart EPS growth under the current market conditions and with some of the challenges discussed.
As we look ahead, we believe Broadmark is well positioned to distinguish itself from peers and to outperform. To that point, I would like to highlight factors that differentiate Broadmark and that we believe will drive growth while providing a stable dividend to our stockholders.
First, conservative capital structure. We currently have over $1.1 billion in equity value and just $100 million of debt. This equates to a debt-to-equity ratio of 8.7%. It's very rare to find a mortgage REIT below 200%. We believe we are well positioned to take advantage of lending opportunities as our competitors, most of whom carry large amounts of variable rate debt on their balance sheets, experience the impacts of servicing and refinancing their debt in a rising rate environment.
Second, internally managed with scalability. Our interests are aligned with our shareholders, and we believe we have the ability to grow our portfolio size significantly while incurring minimal increases to headcount and expenses.
Third, our marketing strategy. We funded nearly $4 billion in loans since inception in 2010 with limited marketing. Enhancing our digital marketing strategy should significantly increase our lending leads over time.
Fourth, geographic expansion. We're beginning to ramp up originations in the Southeast region, but still just scratching the surface, while the Northeast remains relatively untouched. In addition, we have recently begun lending in Arizona and Nevada and are currently seeking our lending license for the state of California. Increasing our presence in these geographic areas over time provides significant opportunities for growth.
And finally, complementary product expansion. To date, we've limited our product offering to construction loans. However, there are various other business purpose loans of interest to our borrower type. These factors, individually and as a whole, give us confidence in Broadmark's long-term prospects as we look to the future.
This completes our prepared remarks. We will now open up the line for questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Tim Hayes with BTIG.
Timothy Hayes
Well, first of all, Jeff, congratulations on the transition, and best of luck for kind of the next stage of your involvement with the company and whatever else you're going to do. Exciting stuff.
Jeffrey Pyatt
Thank you, Tim.
Timothy Hayes
No problem. Yes. Well, first question, and you guys outlined a lot of this on the call, right? I mean there's a lot of strong tailwinds supporting resi housing investment, but at the same time, there are some challenges aside from the competitive landscape, right? Like supply chain issues, cost inflation, labor shortages and then higher mortgage rates.
Can you just talk about the impact any of that is having on borrower demand right now? And any other impacts you foresee in the near term from those factors?
Jeffrey Pyatt
Sure. You've touched on a lot of the subjects that I think impact the borrower, their overall opinions. And I think right now, Tim, there's still just a lot of confidence among our borrowers. And so we are seeing plenty of demand. There's still like, I think the number is about 3.8 million housing units that demand exceeds supply. So there's plenty of opportunity there.
You talked about supply chain issues. There's everything from cabinets to appliances to garage doors -- or garage door openers or their issues there. But those have been going on long enough that the borrowers really, I think, have learned how to deal with that. They're planning a little further ahead, getting their orders out a little quicker so they're being less impacted by those kinds of things. And then the inflation, because of the short-term nature of these loans, inflation isn't going to have as big an impact as it would on a 5- or 7-year sort of a project. So overall, I think they remain optimistic and are looking for projects.
David Schneider
Yes. And Tim...
Timothy Hayes
Go ahead, yes.
David Schneider
Sorry, it's David. I just want to add real quick. Just when we think about inflation, right, as we think about expected Fed rate hikes and all that. We, at Broadmark, we actually view that as probably beneficial to us. We have 100% fixed rate corporate debt, fixed rate asset yields on our loans. I think a lot of our peers will probably be impacted much more significant for us. And I think given our balance sheet and where we're at, with certainty of execution of our loans, I think we stand to benefit both from an asset yield perspective as well as limited to no impact from a financing perspective to the extent there are rate hikes.
Timothy Hayes
Right. But I mean, do you expect that home price appreciation will -- and economic growth and consumer balance sheets can all handle the impact from higher mortgage rates, and continue to support a healthy construction-lending environment and demand from home buyers in the markets you're in?
David Schneider
Yes. Well, I think we do. I mean we haven't seen -- so I would say multifamily is competitive. We can see it. I don't think there would be much less direct impact on the multifamily perspective. Single-family remains a relatively small portion of our portfolio. We still do loans there when we can.
We mentioned in the prepared remarks, we shifted and did some more commercial this quarter. We think there's going to be a lot of growth in the commercial construction in 2022 and beyond. So we -- given the short-term nature of our loans, like Jeff mentioned, we can pivot as needed. We can close loans where they present themselves and where we feel like the pricing is commensurate with the risk.
Timothy Hayes
Okay. David, that's helpful. And then you just made comments about expected compression of yields in the portfolio over the coming year. And I'm curious, does that all reflect just the construction lending strategy? And what -- the direction of where yield in your kind of core loan product is heading? Or does that also reflect the entrance into some bridge lending or some other type of lower coupon products that might require a little bit more leverage?
David Schneider
Yes, great question. It's primarily -- we definitely are exploring bridge. We have some small amount of bridge loans on our portfolio. Now we'll continue to look at those, but we're really focused on our core construction loans. We talked about in the prepared remarks, the competition we're seeing, the asset yields that we're seeing are lower than I've personally seen. Not always -- competitors are not always getting pricing that we would view as competitive or again, commensurate with the level of risk that they're taking on. So the compression is really coming in the construction industry with just a lot of cheap capital out there. We're seeing structures and terms put out that we haven't seen in many, many years, if not over a decade.
So it's really the competition, it's the timing of when refis are coming in and the terms that we're seeing offered. We're not -- we're going to stand by our underwriting guidelines of 65% LTV. We're out -- we're seeing 75% LTV and 85% -- or 90% LTC, and only getting 8% or 9% all-in yield. That's just what the range of yields is looking like right now. So we're still winning our deals. We're justifying our -- the risk we're taking with the pricing that's coming out of our pricing model. But we're not going to purely just chase pricing and compete on deals where we don't think it makes sense and in accordance with our underwriting.
Timothy Hayes
Got you. Well look, that's a good bridge into just my last question here. It's around your comments about earnings growth and certainly, a lot of challenges and roadblocks towards achieving some significant earnings growth, it sounds like in the near term. So I guess, if there's $0.04 -- $0.18 this quarter, there's $0.04 from defaults weighing on your earnings that would -- assuming you did instantaneously resolve those, you're at $0.22 there, but then you talk about the yield compression and potential headwinds to growth, given you have to be disciplined in a hot market here.
So how do you feel about where the dividend is set in your ability to sustain it in the near to intermediate term? And what is it really going to take for you guys to get -- to see some really nice earnings growth and get the dividend higher?
David Schneider
Sure, yes. That's a great question, Tim. From a dividend perspective, every month, our Board of Directors considers various factors. I would say their focus is maintaining an achievable dividend coverage over time, not being shortsighted while limiting instability in the dividend, right? So we think, can we cover our dividend? Yes. We think we will eventually cover the dividend. We -- how are we going to get there? I think we laid it out a little bit towards the end of the prepared remarks, continued expansion into markets that make sense, find prudent deals. We can find prudent deals in almost any state.
So we'll continue to expand into markets, expand our footprint from there, continue to increase volumes. I think what you saw in 2021 was very heavily weighted towards the second half from a production perspective, but we think we're starting to see where we can come at $249 million of production in Q4. That should be a normal quarter for us. But I think we can also, as you saw in Q3, we did about $333 million. So we're going to give it to increase production. I think that offsets some of the compression that we're seeing in the asset yields, continue to focus on the nonaccruals. Like you said, I think Q4, we have about $102 million of nonaccrual, which has come down from earlier -- from the beginning of 2021. So we'll continue fighting that. And it's not going to happen all in 1 quarter or 1 shop, but I think there's low-hanging fruit and there's definitely a path to earnings growth. And as we grow earnings, management will recommend growing the dividend as well over time.
Operator
Our next question comes from Steve Delaney with JMP Securities.
Steven Delaney
My apologies. I was still on mute. Great. I'd like to just add my congratulations to Tim's comments to you. We'll miss working with you directly, but I just -- you should be very proud of what you and Joe have built together with Broadmark. And I hope you'll take that with you as you move full time into the Chairman role.
Jeffrey Pyatt
Thank you, Steve. That means a lot.
Steven Delaney
Yes. You guys were very clear, I think, in commenting about the competitive marketplace. And I had made note of the Page 6, it was pretty remarkable for 5 straight years. You've had annual net portfolio growth of $200 million or more. And I'm pretty much hearing you say that, that's probably not realistic this year and that you're going to -- you work very hard to maintain your portfolio and get some more of your liquidity dispersed, but you're going to hopefully expand the platform geographically and expand your opportunities while maintaining your level of yield without just caving on yield to get volume. Is that -- is my interpretation an accurate understanding of what you were trying to convey in your remarks?
David Schneider
Yes. Thanks, Steve. Yes, I would say the focus on the growth comments was really on earnings growth. We're looking at ways to grow earnings, to grow the dividend. From a production perspective, I think I just mentioned to Tim, $250 million feels like that is a -- that's a normal run rate that we can hit. So we certainly do expect to be able to grow the portfolio in 2022. I think it's a balance between some of the compression on the yields that we're seeing. Increasing our originations will take away some of the sting of a decrease in all-in yields.
Couple that with some of the continued focus on default resolution. But those remarks were specific to what looks like 2 quarters, Q3 and Q4 looked pretty similar and we've been trending in a similar direction. So we're going to continue focusing on growing origination volume, continue focusing nonaccruals. We do think we can grow the portfolio, put out $250 million or more a quarter, but I think it will be challenging with the competitive nature and landscape from a pricing perspective to grow significant earnings.
Steven Delaney
Yes. Thank you for clarifying that because I had taken it as -- I heard your comment about earnings, but I thought that maybe you were saying sort of the same thing about the portfolio. On the competition and the lower rates that are coming into the market, is this coming primarily from community banks?
David Schneider
I would say it's a mix. We are seeing -- we're seeing banks offer construction loans that we haven't seen in years. We're also seeing nonbanks just really, really competing, whether it's from a structuring perspective, we're offering no recourse, higher-than-typical -- much higher-than-typical loan to cost, higher LTVs than we offer through our underwriting and then getting an asset yield that doesn't look that attractive. So I think it's a mix. It's some of the same nonbank competitors that we always see out there as well as we're seeing banks take on a little bit more risk than we have in prior quarters.
Steven Delaney
Interesting. That's helpful. And just one final thing for me. I'm based in Virginia most of the time and so I know West Virginia pretty well. I'm just curious what submarket and property type that you -- opportunity did you find in West Virginia?
David Schneider
The West Virginia was one of several storage facilities that we execute. I'd have to get [indiscernible] and I'll follow up online on that. But we talked a little bit in the prepared remarks about commercial -- doing a little bit more commercial this quarter. And most of that was concentrated in storage facility. We did over $90 million of collateral in storage facilities. West Virginia was one was the new state. That was our first loan that we did there. It was a collateral storage facility as well as Georgia, Tennessee, and then we did some storage in Texas as well. So those are attractive [indiscernible]. All those loans have no construction risk for the most part or limited construction risk and were acquisition loans where we deployed capital immediately. So there wasn't any construction holdbacks or money that's not being put to use.
Steven Delaney
Got it. So you're funding -- you were funding the lease-up period, is that correct? So you didn't have construction risk, but you're stepping in and whether it takes 18 months, 2 years, whatever, but that's your time in the life of the property?
David Schneider
Correct. Correct.
Operator
Our next question comes from Stephen Laws with Raymond James.
Stephen Laws
Jeff, as others have said, congratulations on your transition, and job well done as your time as CEO.
Jeffrey Pyatt
Thank you.
Stephen Laws
Yes. David, I think in the prepared remarks, you touched on the leverage, certainly given where you price the unsecured notes accretive given new investments. As you look down the line, kind of what do you think the acceptable amount of leverage is for the portfolio? And given when do -- and also, when do you think that might happen? It sounds like there's some competitive forces here, focus on portfolio performance as well. So how do you think about adding more leverage and what that level might be and when?
David Schneider
Sure. Yes, that's a great question, Stephen. So I wouldn't say we have an exact targeted number. I think if we look out 3, 5 years, I think we're planning to strategically introduce more leverage to the balance sheet. But we want to keep our distinction. We view our balance sheet as a huge differentiator from all of our peers. We think we can go out and raise capital debt financing over the next 3 years, slowly increase that debt-to-equity ratio to something still potentially below 100% debt-to-equity ratio, which is still very rare to find in a mortgage REIT. So I think we're only going to go out and read capital when we really need it and when we're going to do it in increments that we can put out quickly.
The $100 million deal that we did in November was really good for us, not just from a structure perspective, from a covenant perspective. Pricing was obviously competitive 5%. We like the type of investors that came into that deal. And we were able to put out $100 million basically. We ended the year a little bit higher cash balance than we expected. I think we mentioned there were some payoffs, prepayments in the last 2 weeks. But we basically put the $100 million out almost in 6 weeks, and then we had some payoffs come in that brought elevated the cash balance at year-end. But that's a nice size for us that we can put out quickly into new loans, in conjunction with our normal payoffs coming in.
So as I think about a target leverage ratio, 3, 4 years out from now, we could fund our balance sheet, fund growth in the portfolio of 20% each year and still probably below 100% debt-to-equity ratio. Just -- and obviously, that's subject to change. We'll see as we look to diversify products and in things like that, that could alter how we source capital and the types of structures. But that's just kind of where we're at today, how I would kind of view it.
Stephen Laws
Great. That's helpful, David. And then as we think about expenses looking out for the year, kind of run rate comp and then run rate G&A. What are your expectations this year?
David Schneider
Sure. Yes. So we came in under -- so I think we came in at like $22.5 million of -- I referred to as cash expense in the prepared remarks. So that's comp and benefits and general administrative cash expense. It excludes amortization of RSUs and amortization of intangible assets as well as excluding interest expense. So obviously, we'll have to factor in, we'll have a full year of interest expense in 2022 and beyond.
But I think that target ratio -- we were targeting $24 million of cash expenses with those exclusions for this year, and we came in $1.5 million under that. I think somewhere around that $24 million is still a good target for those cash comp and benefits and G&A expenses.
From an interest expense perspective, and this will be in our 10-K, but we've got the 6% coupon on the $100 million of bonds that we issued in November. So you'll have a full year of that. To the extent we go raise capital, you might see some additional interest expense in the second half of the year. And then you've got your typical kind of amortization of debt issuance costs.
So I don't want to throw an exact interest expense number because that will partially be driven by how much additional capital we need in 2022, but you can probably figure it out. As of today, we're at about $100 million in cash. So we're good for the near term from a cash and liquidity perspective and aren't looking for financing at this moment.
Operator
Our next question comes from Matthew Howlett with B. Riley.
Matthew Howlett
Congrats again, Jeff. I certainly look forward to hearing from Brian shortly.
Jeffrey Pyatt
Thank you.
Matthew Howlett
The question -- the first question, just to get it out of the way, will be the question on buybacks. I mean with the excess cash, I know you want to grow originations, but you have that availability under the revolver. If the stock price does continue to weaken, does it make sense to have authorization in place to potentially buy back stock in periods of weakness?
David Schneider
Thanks for the question. Yes, we don't have a stock buyback program in place. We've talked about in the past with our Board, whether it's prudent or something we have. It's not something that we're focused on from a use of funds. But I agree with you, it could be something that could exist.
Again, it's not something that we have right now. But for a case, which I hope doesn't occur, where it would absolutely make sense, we have explored setting one up. But again, it's something that we would have to talk further with our Board and see if -- right now, we've got places to put our cash. I expect we'll see a nice deployment of capital in Q1, into really good loans that we feel good about.
So nothing at this time, but understand and appreciate the question. It's something that comes up most quarters, and it's something we've at least considered setting up to at least have the availability to do if we want it.
Matthew Howlett
Just as -- you're really one of just a few internally managed players in the space that are public. And certainly, you think you look at ROEs different than maybe some of the other players that -- you never know how the market is sort of a -- the market could be volatile just to maybe to have it at your hip pocket at some point in time given the volatility of the market. I mean it could be well received from shareholders.
With that, the second question is on the subject of loss mitigation. What can you tell us in terms of improving the loss mitigation department? Are there plans to beef it up to trying to get to nonaccruals, which are just ordinary course of business in and out quicker and not have the drag on earnings every quarter?
David Schneider
Yes. That's a great question and a huge focus from my perspective as well as the company. And I think you'll continue to see that from Brian as well once he starts tomorrow, actually. I would say, Matt, we have gotten -- I'd say we've adapted in the last 2 quarters, I would say we've gotten more aggressive.
We've always identified, through our watch list, what loans have potential going into default. And again, this is technical, contractual default, not a monetary default. We know -- we have a good idea before they go into default when they have. And I think starting in second half of this year, I think we started being more proactive in looking to modify those loans and make amendments where -- which made sense both for us and the borrower to avoid them ever entering into default. So I think that's one thing we've been doing to try to limit the extent of new defaults.
And I think the other thing you started seeing in 2021, we have a history of awaiting foreclosure where possible and only using where it makes the most economic sense. We did -- we foreclosed on 8 properties in 2021, and that was just because those loans -- it was economically made the most sense. It was prudent. We expect to have positive economic outcomes, no losses on most, if not all, of the REO that we have on the balance sheet as of 12/31. So being more aggressive with foreclosures, not giving the borrower the benefit of the doubt, moving forward with foreclosure where it makes sense, taking control of the property and then really having that control will allow us to exit quickly at better outcomes for us.
So I think you can see -- you'll continue to see that more proactive, probably more aggressive default management, I think, to continue to evolve in the coming quarters because it is a sticking point for us that -- trust me, I hate telling you that there's $0.03 or $0.04 of earnings lost on nonaccrual each quarter. I think we have bought the nonaccrual balance down, but it's going to continue to probably be one of the top priorities for us, looking for creative ways to avoid new defaults as well as get through this last lug of kind of legacy defaults.
Matthew Howlett
Would you still believe the 6%, 7% to total balances, sort of, would normalize run rate level?
David Schneider
So we're at like 12.7% as of year-end. Historically, with a much smaller portfolio pre-COVID, we were somewhere at 5% or less. I'd like to see us get somewhere in between those 2 numbers realistically. So I think somewhere 7% or 8%. I think there's -- it's going to take time to get there. I think we've got a lot of work ahead of us in 2022 to get through existing REO, get through -- to hopefully cut that nonaccrual population lower. But definitely, we've made progress, but there's still a lot of work to be done there.
So do I think 12.7% is not a normalized rate? Do I think 5%, with the size of our portfolio, is normalized rate? Probably not. I'd like to see us get somewhere in between those 2 numbers as we look out into the coming year.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Jeff Pyatt for closing remarks.
Jeffrey Pyatt
Thank you again, everyone. And allow me again to say it's been an honor leading Broadmark Realty Capital. I wish you all the very best, and look forward to participating in these calls on the other side. Take care.
Operator
This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
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