Greetings and welcome to Ready Capital Corporation’s First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note this conference is being recorded. I would now like to turn the conference over to your host Mr. Andrew Ahlborn, Chief Financial Officer. Thank you. You may now begin.

Thank you, operator, and good morning, and thanks to those of you on the call for joining us this morning. 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 first quarter 2021 earnings release and our supplemental information. By now, everyone should have access to our first quarter 2021 earnings release and the supplemental information. Both can be found in the Investors section of the Ready Capital website. In addition to Tom and myself, we are also joined by Adam Zausmer, our Head of Credit. I will now turn it over to Chief Executive Officer, Tom Capasse.

Good morning and thank you for joining our first quarter earnings call. Ready Capital is off to a strong start in 2021. We have accomplished much in the first quarter of the year with our small balance commercial or SBC, CRE lending operations and Small Business Administration, or SBA 7(a) lending businesses posting record originations including high volume in round two of the Paycheck Protection Program or PPP. Liquidity in the quarter was bolstered significantly by closing of the Anworth merger, and accretive capital markets transactions. Additionally, post-COVID credit metrics in our SBC portfolio continue to outperform our large balance counterparts. Now to start, we originated a record $823 million of SBC loans. First quarter volume focused on high conviction sectors such as multifamily and industrial, which makes up 90% of 2021 volume. For loans originated to hold on balance sheet, average spreads were 431 basis points and average duration is three years. These efforts increased our net portfolio 13% quarter-over-quarter. Additionally, originations in April totaled $202 million, and our current money-up pipeline is in excess of $420 million. Our multi-strategy SBC theory platform has enabled us to capitalize on post-pandemic loan demand, particularly in transitional and agency multifamily. Transitional loan demand increased due to pandemic-related rental volatility, whereby sponsors have elected to take shorter-term bridge loans for prepayment flexibility to allow them to stabilize the real estate and optimize exit financing at a later time. This strategy elevated bridge loan volumes since the fourth quarter last year and into the first four months of this year. We expect continuation of this trend, along with demand from strong sponsors pivoting to opportunistic acquisitions in sectors hard-hit by COVID, such as hospitality and office to sustain demand into 2022. In multifamily, the Federal Housing Finance Agency reduced the lending cap for the GSEs and increased their affordability mandate, driving more products into the private market while boosting our transitional and fixed programs. Meanwhile, our Freddie Small Balance Loan agency multifamily business has benefited as a large portion of the program meets affordability criteria, leading Freddie Mac to price more competitive rates and leverage versus banks. Again, this is reflected in record SBL quarterly volume and pipeline that trend we project will continue through 2021. Beyond our Freddie SBL program, correspondent agency agreements executed in the third quarter of 2020 will not only allow us to refinance our bridge loans, which we control with an exit fee, but also allow us to access a broader set of GSE products. Our SBA operations are also off to a strong start for the year due to pent-up post-COVID demand from small businesses. As discussed in the prior earnings call, the first quarter decline in 7(a) volume was expected due to the updated FDA guidance released in February. Although the first quarter volume was down quarter-over-quarter to $50 million, originations through April equal $41 million and the money-up pipeline is over $235 million. Increased production is complemented by an attractive market for SBA guaranteed net sale premiums, which have averaged 13% in 2021. In terms of our secondary market strategy, we may sell 7(a) loans at lower premiums, keeping a higher servicing strip. This would increase future servicing revenue versus current loan sale gains, particularly in markets where the strip is undervalued. Similar to our outlook on commercial real estate, we believe we’re at the beginning of increased growth in our SBA franchise by gaining market share in the projected $25 billion to $30 billion 7(a) market with a three-prong strategy. The first is loan officer hires; the SBA business has actively recruited talent in the SBA lending space and added 19 new members to the production team in the first quarter to manage the increase in demand for SBA loans. The second is affinity programs; we’ve made senior-level hires and are investing in technology to build out affinity programs, providing other financial services companies with access to the 7(a) program. And finally, program extension. As we’ve discussed on prior calls, we continue to roll out our SBA small loan program with our FinTech partner featuring loans under $350,000 approved via a credit score system. Our goal is to continue to grow market share as a leading non-bank SBA lender and expect our second quarter volume to likely exceed $100 million. Knight Capital combined with our SBA license has enabled us to be active participants in round two of PPP over the last four months. Through April 30, we have originated over $1.8 billion of PPP loans in round two. Our focus has been on helping smaller businesses with 55,000 loans originated at an average loan size of $33,000. As of May 3, PPP authority had reached its approved limit with Ready Capital achieving its target goals. Our business will benefit on a go-forward basis from the front-end origination technology we have built for PPP, which will accelerate SBA production and efficiency and capabilities going forward. Now turning to our residential mortgage business, originations remain elevated in the first quarter at $1.2 billion. As expected, cyclical margin compression resulted in the quarter, declining 100 basis points to 150 basis points due to rising rates and additional competition. Over the next few quarters, we expect origination volume to decline approximately 25% from our quarterly run rate over the last few quarters, with margins holding near pre-COVID levels. Notably, we expect our volume and margin metrics to compare favorably to the industry due to a higher focus on purchase channels, which are benefiting from an increase in housing demand. In the current cyclical rates environment, our strategy of retaining mortgage servicing rights as a production head boosted results as we recovered $15 million in MSR value and expect continued depreciation, which will result in book value per share increases going forward. Beyond the day-to-day operations, we successfully closed the Anworth merger and welcome the Anworth shareholders. The transaction added $338 million in common and preferred equity bringing the market cap of the company to over $1 billion and was completed at a dilution level 25% lower than previously communicated. We’ve also successfully executed some of our post-closing objectives, including liquidating $1.8 billion of agency RMBS securities generating $200 million of current liquidity. The remaining $200 million of non-agency MBS assets will be liquidated in conjunction with our go-forward acquisition and origination pipeline. We want to thank the Anworth management team for helping to close the transaction and transition the operation seamlessly. Our small balance commercial portfolio continues to be a differentiated and stable source of revenue for the company. The portfolio currently consists of 4,500 loans totaling $4.7 billion, with credit performance remaining stable and 60-day plus delinquencies in our portfolio holding at 2.3%. I would like to highlight that we have yet to experience a realized loss in our new origination book since the inception of the company. In terms of stability and outlook for our dividend, we continue to grow core earnings with a combination of net interest margin from capital redeployment in our core SBC CRE segment and gain on sale revenue from our government-sponsored businesses. Our declared dividend for the first quarter was $0.40, with separate distributions of $0.30 and $0.10 being a function of the merger mechanics in the Anworth acquisition. Over the last 12 months, our core earnings have covered 140% of our annualized quarterly dividend of $0.40. Future dividend tailwinds from the deployment of Anworth Capital in SBC CRE investment, along with increases in SBA production and deferred PPP revenue, will be included in determining the company’s normalized forward dividend rate. With that, I’ll turn it over to Andrew to discuss financial results.

Thank you, Tom, and good morning, everyone. GAAP earnings and distributable earnings per share were $0.49 and $0.41 respectively, with distributable earnings of $24.7 million and a 10.9% distributable return on equity. We’ve surpassed our 10% target for the fourth consecutive quarter. Our earnings profile is reflective of efforts to grow our loan and servicing portfolio from COVID lows, continued performance from our gain on sale operations, and the trend towards normalization in our residential mortgage banking operations. Interest income in the quarter grew $8.6 million due to a 13% increase in our loan portfolio, as well as the accretion of fees related to recent PPP originations. Interest expense rose in the quarter due to short-term borrowings to fund our PPP originations, increased warehouse balances due to our securitization cycle, and slightly higher leverage due to the Anworth acquisition. $5.4 million of the increase in interest expense in the quarter should be considered non-recurring and is related to short-term borrowings incurred to fund PPP production. Adding to our stable earnings profile was $4.2 million growth in servicing revenue, which is reflective of the quarter-over-quarter growth in our servicing asset. Net realized gains from our SBA and Freddie Mac gain on sale operations were $500,000 due to lower volumes in the SBA 7(a) operations. As Tom mentioned, these declines were anticipated due to updated SBA guidance received in February, which slowed the first quarter pipeline. We expect the quarterly run rate in our SBA business to be higher, and the 90% guaranteed through the end of Q3 is expected to increase gain on sale revenue. A reduction in our SBA business was partially offset by increased Freddie Mac production, where gain on sale revenue increased 76%. As indicated in our last earnings call, mortgage banking income was down $7 million due to the normalization of margins in the back half of the first quarter. Margin declines were offset by elevated volume, which remained at record levels, as well as the recovery in the value of the servicing asset, which increased by $21.7 million. Although not included in distributable earnings, we expect forward valuation increases in the MSR to be a significant source of book value appreciation in the upcoming quarters. While we are pleased with our distributable earnings, there were several one-time items included in the quarter that should be highlighted. The largest is how income related to our PPP originations was recognized. In the quarter, we recognized $73.3 million of net fees related to round two PPP originations, of which $67.8 million was deferred and will be recognized in future periods. Total net income related to PPP for the quarter equals $3.6 million. The first quarter recognition of both deferred fee income from prior quarters of $6.7 million and the recognition of $6.9 million of interest income from round two production was offset by $10 million of expenses incurred due to round two production. Additionally, since the end of the first quarter, we’ve originated $700 million of PPP loans and expect total PPP efforts in 2021 to produce pretax net income in excess of $100 million. This income, in addition to the 65 basis points carry on the portfolio, will be accrued through interest income. The quarterly change in our balance sheet was driven by a few key items, including the completion of the Anworth merger, growth in the portfolio due to increased origination activities, and improvements to our capitalization. Our loan portfolio grew 13% to its highest historical level due to $823 million in originations net of $276 million in principal payments and maturities. The weighted average coupon in the portfolio remained at 5.4% and with rising rates, we expect margins to increase in our floating rate portfolio, which represents 66% of the total. In addition to asset growth, we had several key transactions on the liability side, which reduced our overall cost of funds 14% to 300 basis points. The first was the completion of our fifth CRE CLO $768 million deal, which lowered debt costs 138 basis points and increased advance rates from 70% to 80%. Next, we executed a $200 million baby bond at five and three-quarters to both redeem our existing 6.5% baby bonds and invest in our core strategies. Lastly, we closed a $113 million non-mark-to-market warehouse facility to support our loan acquisition operations. These efforts to both increase the scale of the balance sheet to support growth in our operations, and to pursue lower costs and more conservative financing will be accretive to earnings going forward. I will now turn it over to Tom for closing remarks.

Thanks, Andrew. We continue to believe that our differentiated platform, diversified across markets and across investments, provides stability of earnings and output from our embedded operating companies. With that, we’ll now open up the line for questions.

Our first question comes from Tim Hayes with BTIG. Please go ahead with your question.

Hey, good morning guys. Congrats on another very strong quarter. Sounds like things are all trending in the right direction for you. Just as relates to the PPP earnings, Andrew, it might be helpful if you can just give us a little context on the schedule recognizing those – should we expect it to be kind of straight-line recognition over a certain time period, or is it going to be lumpy? And then as it relates to the carry on the loans on balance sheet? I think that was about like a 65 basis point gross spread, is that how – I guess we'll have to net out some costs. But if you’re going to talk to the economics of that and how long you think those loans will stay on the balance sheet, that would be helpful?

Hi, Tim. Yes, I think the majority of it is going to be accreted over four to six quarters. If you look at sort of the velocity of forgiveness from round one production, that should correlate into that to report a six-quarter timeline. And the recognition of the carry, which is the 65 basis points, will be highly dependent upon how the portfolio moves. So, the earnings profile won’t be straight-lined; I think it will be a little choppy over the next four to six quarters. But that’s the expectation around when the overwhelming majority of this income will be recognized.

Okay. Got it. And then, last quarter, you guys talked about targeting a 10% ROE for, I think, ever since becoming a public company, maybe even before that. But last quarter, you mentioned that your ROE target was a little bit higher than that. I don’t think you’ve put an exact number around it. But can you just give us an idea of the ROE you think you’re able to achieve and whether the target is inclusive of the PPP economics that you’ll be recognizing over the next year and a half? Or if you have something in mind, once you get on the other end of that and no longer have that tail at earnings?

Yes, I think Andrew, please step in, but I think what we’re looking at is a kind of a core ROE from our CRE, more capital intensive business, our SBC acquisition and origination business, high singles, and then another 200-ish basis points of gain on sale income from the government-sponsored operating secondary market companies. We have the residential mortgage banking, the SBA, and Freddie Mac, so Andrew if you would add to that?

And I think that’s right. I know, when we look at our outlook, our goal is to really grow our SBA 7(a) capabilities; that business requires very little equity. And so as we increase production there, those returns are highly accretive on an ROE basis. So, we’re focused on investing in that platform. As Tom mentioned, we hired several front-end people this year, and I think we’ll continue to invest in the technology and front-end customer experience to make that better.

Okay. So it sounds like kind of between a 10% to 11% range is what you should be targeting in a post-PPP world?

Correct.

Okay. And then very strong SBC originations this quarter, record for you guys. How much of that was attributable to expanding the products versus just your normal run of the mill SBC loans that you’ve been originating since inception?

Well, a lot of it is due to the number of secular shifts in the commercial real estate market, particularly related to COVID. So, what we did was pivoted to target, in particular multifamily and industrial sponsors, strong sponsors that otherwise would have opted for a stabilized loan. And instead, we were able to successfully sell them on the benefits of a bridge loan, allowing them time to increase occupancy rates that declined during COVID. They can then exit in 2022 with a much more stabilized loan, higher LTV, and lower costs. So that was part of it, and we designed a product around that, a stabilizer bridge loan, if you will.

Okay, got it. I mean, did that weigh on? I know that maybe, I don’t know how many of your originations this quarter are that origination light product, but is that collateralized by the CRE CLO? Are you still able to get the same ROE on that type of product? I imagine it’s a little bit of a tighter spread compared to some of the other stuff you’re doing, so just wondering how the ROEs there compare to the other SBC loans.

Well, yes, multifamily generally is a little bit tighter, maybe 150 to 100 basis points on an ROE adjusted basis, but with lower loss volatility. But I would say on a blended basis, and Andrew you can correct me if I’m wrong, but the secondary market execution we’ve been looking at and have executed this quarter, we’re still pricing loans about 150 basis points higher ROE in that program than where we were pre-COVID. And yes, I would say it compares favorably to the larger balance reach where there’s definitely been much more margin compression versus what we’ve seen in our lower middle market space.

That’s helpful. Well, thanks for taking my questions this morning. Appreciate the color.

Thanks, Tim.

Thanks, Tim.

Our next question comes from the line of Steve DeLaney with JMP Securities. Please proceed with your question.

Thanks. Good morning, Tom and Andrew. Congratulations on the quarter, but also on the Anworth deal; it’s not a large transaction, but it was, in my mind, a brilliant capital play on your part. So, thank you for helping to roll up the industry and strengthen your company in the process. So, to think about your company, I find it interesting that we’ve been watching the large originators getting wiped out this week on high rates, competition, it’s Rocket, loan depot, and everybody. And you’ve got the same issues at GMFS, despite the purchase focus, but the beauty is the diversification of your platform, you’re not a pure-play, if you will, on residential mortgage by any means. So, yesterday we saw a mortgage REIT, a REIT credit mortgage REIT by a specialty originator. I’m just curious if there are any products out there, credit products that lend themselves to securitization, which is your forte, and anything that you’re not in today that you might find of interest in whether adding another bolt-on platform is something that we might see over the next year or two to broaden your product line even further. Thank you.

Yes, I mean, as you know, we’re always looking, given our track record in acquisitions, we’re always looking for accretive add-ons. Just look at the impact that Knight Capital, the small secured business down in Florida, acquired; they have crushed it with a layer of technology on our SBA business for PPP, and now that’s going, that investment will be leveraged into a more technology affinity-based expansion of the SBA business. So, it’s similar in the commercial side; we’re looking at two silos. One is bolt-ons for the residential business, run by a new group that would round out the agency component of it. For example, looking at things like syndicated tax credits, competitive niches, that’s one thing we’re looking at. Then the other – and you’re also looking at the other aspect of our business. We’re true SBC, small balance commercial, which is a $0.5 million to $5 million space. We’re looking at potentially going downstream to micro, which has a heavy weighting towards single-family commercial, providing credit to SFR, for example. That’s within the commercial space. Then on the more broad side, I would say the other two things we’re looking at is continued expansion in Europe, as the market recovers, because remember, we had a flow arrangement with a bridge lender in Ireland, which we’re going to reinstate, and other products we’re looking at include manufactured housing, as well; we call it the broad swath of residential commercial, build-to-rent loans is another example. So, yes, we are definitely looking with the strong liquidity position we have, with Anworth, not just the capital that we have currently, but the additional ability to leverage the unsecured standpoint, recourse debt on the incremental equity we’re definitely looking to redeploy into those two silos.

Great. Well, sounds like you’ve got a full widescreen out there of where the opportunities are. So, thanks for that color, Tom.

Okay.

I’m good.

Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Thank you very much. I was wondering on the dividend, if it’s reasonable to expect that a full quarter $0.40 dividend will be declared?

Jade, I think the board, as Tom mentioned earlier, is looking at the income from PPP to be distributed as part of our normalized dividend run rate over the time that income has accreted. So, based on that and the outlook in the rest of the business, I would say $0.40 is most likely the floor for the go-forward dividends over the next few quarters. Then, depending on how much of that PPP revenue is reinvested back into the business to position ourselves in a good place for the future, and that’ll drive moving off of that $0.40.

Thanks. And one commercial mortgage rate that is also managed by a company that manages BDCs declared a regular dividend and a supplemental dividend as their distributable earnings are running ahead of the current dividend. But given potential spread compression, I don’t think they wanted to change the run rate dividends. So, they introduced that distinguishing characteristic; is that something you might consider?

I think. Yes, go ahead, Tom.

Andrew, sorry, I was going to say in that case, that’s really more, that’s a single strategy CRE. Again, we’re seeing definite margin compression in the larger, more upscale from us, that kind of like $25 million plus bridge loans. And that’s due to an influx of private debt funds that had gotten wiped out during the first quarter last year that are coming back. So I think that’s more tactical to keep the dividend to not have a situation where you have an increase in the dividend that you have to distribute and then reduce it because of margin. More of the normalized core earnings that’s lower due to the margin compression. So, we’re not in that situation, as Andrew said; we’re in a situation where we have the earnings over 40 quarters from PPP, and we see a normalization and an increase in our other businesses, particularly the SBA and the continued deployment of the Anworth Capital and the SBC business. So, that’s my view of that situation and how it does not apply to us.

Thanks. Just on credit, I know I noticed you said that the 60-day delinquency bucket or 60-day plus delinquencies were constant at 2.3%. Could you give the percentage of loans in the CRE book on non-accrual? And how that compared with last quarter? And any color on the percentage of loans that are in forbearance?

Andrew and Adam, can you?

Yes. Hey, this is Adam on the side. Yes, so loans on forbearance it’s only 1.5% of our total CRE portfolio. I think just from a performance perspective, loans that had been in forbearance, about 85% plus remain current. And then loans on non-accrual it’s less than 0.5% is non-accrual.

Thanks very much.

Thanks, Jade.

Thanks, Jade.

Our next question comes from the line of Stephen Laws with Raymond James. Please proceed with your question.

Hi, good morning. Very nice quarter! Wanted to cover a number of things and appreciate the comments. On the Anworth side, certainly, quickly able to liquidate a lot of the agency securities. I do think they had a SFR type portfolio down in South Florida, maybe some other assets. Can you talk about the non-agency things that came with – sorry, the non-MBS that came with Anworth as well as your intention there on whether those assets are going to be sold or something you’re looking to opportunistically grow?

I just, Andrew you can comment on the disposition, but I would say that that portfolio is targeted for broader liquidation because of the excess demand we have in our core SBC and the ROE available there. But the liquidity for those residential credit assets, given the strength of the housing market, is very strong in terms of the potential base. But Andrew, what’s the current target for liquidation and the strategy there?

Yes, I mean, since quarter-end. We brought down the balance sheet quite a bit, and what remains is roughly $200 million of the non-agency RMBS; there’s a $100 million loan portfolio that you alluded to, as well as some REO that we’re in the process of liquidating; that’s around $25 million. So, I think the plan is on the REO to move out of that in short order and then on the rest of the RMBS and the loan book to liquidate those in conjunction with redeployment. Effectively that will happen sometime over the next two, three quarters as we sort of reinvest not only the liquidity we already generated on top of just our natural liquidity, but the liquidity that’ll come off of those remaining assets. So, I think it’s quarterly liquidation through the end of the year.

But that’s liquidation and not something you’re looking to grow early on with that too? Okay. Steve touched on this a little bit around GMFS, but can you talk to April volumes there, how those have trended given the increase in mortgage rates and what you’re seeing on the mortgage margin front, just given the news in that sector yesterday?

Yes. So, originations in April remained above $300 million, so we haven’t seen a drastic change in our monthly run rates. But as Tom mentioned earlier, no margins are really hanging in around pre-COVID levels.

Great. Lastly, looking at page eight in your presentation, it looks like the 60 plus day delinquency has declined quite a bit in the SBA segment. I think the Q1 number probably doesn’t have a lot of – and I’m not sure how impacted that was. That was my question. Can you give us an idea of where that’s trending, what’s driving that improvement in the performance of those loans and that segment?

Yes, sure! Hey, this is Adam Zausmer. So, the second one of CARES Act payments started in February 2021. But SBA loans originated prior to the pandemic qualified for three months of payments. Additionally, hotels and restaurants qualified for up to eight months of automatic payments up to $9,000 a month. That’s the majority of it. The SBA is really just keeping those loans current, and then additionally there are also some deferments in there as well.

Great. Appreciate the comments there. Thanks for taking my questions this morning.

Sure.

Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question.

Tom, to follow-up on an earlier question on the affinity program; is this sort of a strategic direction in terms of you’re trying to become more like one of the lending clubs or something where you’re going down market to smaller loans and using technology like for apps and so forth to your advantage?

Yes, but in the context of the SBA, we continue to in a measured way, do these smaller unsecured lending. However, it’s really not a material percentage of our total gross portfolio. What that’s being applied to is the SBA small loan program where the SBA allows you to use a credit score and accept more accelerated underwriting versus the larger loans. That’s targeted to the $150,000 to $500,000 segment, and it’s typically not used for real estate; it’s used more for equipment. So that’s how we’re going to take our front-end technology and apply that to that program. There’s actually a private company called SmartBiz that does that. They handle the micro loans below $150,000, but it’s a little bit of applying that same lower customer acquisition cost and quicker underwriting decisions to what you’re referring to on the unsecured side.

Right. And then you package the loans and then just securitize them like you do with others?

Yes. They go right into the SBA 7(a) pools. So our pool, as opposed to being more diversified because they’re real estate, I think Andrew our average balance there has been running what $850,000, $900,000 in the SBA 7(a) space? This would have let’s say a third of the pool being smaller loans with better diversification and more stable prepays, which might justify incremental premium increases in the secondary market.

Not to put too fine of a point on it, but it isn’t sort of a pilot – I understand it’s small. Is this sort of a pilot program to roll out for other sectors, say, real estate and things like that, or it’s really just a niche type of application?

It is obviously a niche within the context of the SBA program or the regulatory program. But that being said, we are looking, our Chief Operating Officer, Gary Taylor and his team are looking at rolling this out to the commercial space as well.

Okay. And is this going to affect operating expenses much in terms of the real express to 2021?

No, because aside from hiring maybe a handful of specialist underwriters for maybe $0.5 million to $1 million total incremental expense, the revenue would far outweigh the incremental expenses, given the profit margins in the SBA business.

Great. Okay. That’s it for me. Thank you.

Thanks, Chris.

Our next question comes from the line of Matthew Howlett with B. Riley. Please proceed with your question.

All right, guys. Thanks for taking my question. Just can you give a little more color on the decision to retain more of the servicing strip on the SBA? So premium which you expect to have going forward and then what you’ve seen in the market?

I’ll let Andrew comment. But from my perspective, we always said at some point we’re going to undertake as the SBA business achieves greater volumes, and we have strong coverage of earnings from our capital-intensive SBC business, that we would look to extend the duration of our cash flow stream and the SBA business by instead of selling, let’s say at a 13-point premium for a hundred basis points strip, maybe sell it at par for 200 basis points strip. The other thing strategy though, we also look at is in certain markets, the IO strip is valued at in terms of recapture years at its mispriced if there’s excess concerns on prepayments that we don’t agree with. That’s another way to capture value in the overall business. I don’t know Andrew, if you want to add to that.

No, that’s it.

And I appreciate that. And then just on the Freddie small balance outlook, they’re obviously doing what affordability mission-driven stuff. Can you give some production guidance on that or outlook on how to think about that in terms of the rest of the year?

Yes, Adam, maybe, because Adam manages that from a credit perspective, Adam, what are your views in terms of the Freddy outlook?

Yes, sure. Obviously, demand for affordable housing in the United States remains extremely strong. There’s certainly a lot of rate movement on the Freddy side. They have mission-driven targets to hit on their fronts. We’re continuing to ramp up and the expectation is going to far exceed the 2020 production numbers.

Do you have a target in terms of league tables? Where are you? Where you could go? I mean, just somebody just taking a really just getting going on this business.

Yes, sure. From the seller services standpoint, we’re certainly top five. I think we’re probably closer to four today.

Every time, our goal would be to be in the top three, that’s kind of the aspiration.

Great. That’s all I have. Thanks a lot.

Okay.

And our final question comes from the line of Crispin Love with Piper Sandler. Please proceed with your question.

Thanks. Good morning. Recent the preferred tender during the quarter, which is, of course, related to the Anworth merger; do you have any interest in tendering the other preferreds that you assumed with the merger?

Yeah. So the Series B and Series D they’re both redeemable now. I think when I look at the dividend there that seems expensive compared to the rest of the capital stack, and certainly compared to what we’ve seen other deals execute in the market recently. So, I just expect us to look into refinements, sometime in the upcoming weeks and months.

Okay. Thanks. That’s helpful. And then Andrew, I just want to clarify something that I thought I heard in the prepared remarks: will future PPP fees all be counted as interest income rather than non-interest income, as you’ve mentioned in past quarters, or is it just that 65 bps spread that should be included in interest income?

Given – we are counting for these as loans, the entire revenue stream will flow through interest income.

Okay. Thank you. And that’s different than how it was in the first round, correct?

Yes. The first round production or the income generated in the first was treated as a service contract. So the fees were non-interest income.

Okay. Thank you.

And with that we’ve reached the end of our question-and-answer session. Now we’d like to turn the floor back over to Mr. Capasse for any closing remarks.

We’re pleased with a strong quarter and the tailwinds we face going forward and look forward to next quarter’s earnings call. Please reach out to management with any additional questions.

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation. Have a wonderful day.