Ready Capital Corp
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Earnings Call Transcript

Earnings Call Transcript
2018-Q2

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Operator

Greetings, and welcome to the Sutherland Asset Management Corporation Second Quarter 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce Rick Herbst, Chief Financial Officer. Thank you. Sir, you may begin.

F
Frederick Herbst
CFO & Secretary

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 second quarter 2018 earnings release and our supplemental information.

By now, everyone should have access to our second quarter 2018 earnings release and the supplemental information. Both can be found in the Investors section of the Sutherland website. Joining us on the call this morning is Tom Buttacavoli, Sutherland's Chief Investment Officer.

And now, I will turn it over to Tom Capasse, our CEO.

T
Thomas Capasse
Chairman & CEO

Thanks, Rick. We're pleased with our financial results. For the second quarter in a row, we achieved our stated goal of an ROE of at least 10%. This reflects continued progress in steadily growing our earnings from our small balance commercial origination franchise, combined with alpha from our acquisitions business. The results this quarter in particular begin to demonstrate the earnings potential of our diversified platform. Strong loan origination volumes, portfolio performance and favorable pricing on certain investments helped to offset the sequential decline in the joint venture earnings that drove outperformance last quarter. We believe these results support our strategy of having a multi-pronged platform which provides for greater earnings diversity compared to single-strategy lenders. We can see the benefit from favorable market developments, profitable portfolio acquisitions and additional leverage as evidenced in the following highlights from the second quarter.

Firstly, GAAP earnings were $15.9 million or $0.48 per share, representing a GAAP ROE of 11.2%. There were no material differences between GAAP and core this quarter, and our core earnings were $0.47 per share, with core ROE at 11.1%.

Secondly, our ability to originate and acquire new SBC assets was never more evident than in the second quarter. In total, we added $543 million of new assets in the quarter, up 35% from our record first quarter, comprising $400 million of new SBC loans and $143 million of loan acquisition.

Thirdly, pipelines in both segments are strong, totaling nearly $500 million in new SBC and SBA loans. On the acquisition side, the pipeline is over $145 million as we are seeing numerous accretive opportunities to collapse legacy securitization of seasoned performing loans.

Unlike many property or residential REITs, Sutherland has limited book value volatility as only 7% of our assets utilize fair value accounting. The majority of these assets are mortgage-servicing rights in our residential mortgage segment, which increase in value in a rising rate environment. Our book value increased $0.07 this quarter.

Finally, the capital market demand for our investment-grade real estate secured products remains strong. We closed our second transitional loan -- collateralized loan obligation in June and are working on a legacy asset CMBS transaction. The CLO had an advance rate of 78% for proceeds of $217 million, with a current coupon of 3.2%.

Sutherland has now completed 15 securitization totalling almost $2.8 billion since 2011. The end of the -- since the end of the fourth quarter, sequential spread tightening on senior tranches has allowed us to be more competitive with banks when pricing our loans.

Looking forward, we are nearing the completion of our rebranding effort and hope to be rolling it out this fall. The rebranding will bring greater exposure to our ReadyCap Lending businesses, enabling us to unify our marketing efforts to enhance growth across our platforms. In addition, we are seeing European small balance commercial opportunities where we have a market presence.

Let me offer now a few relevant observations on the small balance commercial markets. To review, an SBC loan is defined as a first lien on commercial property with an appraised value of under $5 million. The market size is substantial, comprising approximately 15% of the $3.5 trillion of U.S. commercial real estate debt, with $300 billion annual originations. Given its small size, SBC property prices tend to be more correlated with residential real estate than large balance commercial real estate. This is reflected in current SBC market metrics.

SBC property prices are up nearly 8% year-over-year. At the housing, SBC property prices have only recently recovered from the prerecession peak, whereas large balance exceeds the prior peak by 125% to 200% across sectors.

SBC property market fundamentals, which are also correlated with housing, remains strong. During the second quarter, low SBC real estate space availability resulted in a 2.3% quarterly increase in rents across all sectors, with retail up 6.2% over the last year, bucking the decline in large balance retail rents plagued with dying malls. In conjunction, SBC vacancy rate held at a postrecession lows of 4.4% versus 10% for large balance commercial. SBC retail vacancy rate remains low at 4.3%, reflecting the continued viability of small cap grocery-anchored community and local strip centers serving everyday consumer needs versus big box malls impacted by e-commerce.

In the first quarter, rising rates resulted in a 10% sequential decline in small balance commercial originations, excluding Small Business Administration loans, to $51 billion, versus a 34% decline for large balance. Of note, reflecting industry investment dynamics, there was a shift from primary market, down 15%; to secondary market, up 81%. Also, the market remains highly fragmented with the top 50 lenders accounting for just 18% of originations. To put all this in perspective, we have a current market share of under 1/2 of 1% with a longer-term goal of 1%. We believe we can grow market share without widening our credit box through geographic expansion into the growing secondary markets where we operate selectively using our proprietary geo tier credit scoring model.

I should note that one subset of our investor products, the Freddie Mac small balance multi-family, which competes directly with banks for A-rated properties, experienced decline in new applications starting in the middle of the second quarter when Freddie increased rates 60 basis points. New loan application has started to pick up a bit in the third quarter when Freddie reduced rates 40 basis points.

We recognize that the agency business has more than immediate impact to our financial statements and are considering expanding into other agency products such as Fannie Mae and Federal Housing Administration products. One mitigant was our ability to capture some lost volume in our fixed conduit program which became more -- became competitive with Freddie, but with more flexible credit terms.

Meanwhile, a new record high in the Small Business Optimism Index underpins strong demand for Small Business Administration 7(a) loans, which continue at last year's record pace of 27.5 billion and have doubled from the recession lows. Bipartisan support for the SBA program was evident in recent congressional legislation, providing for streamlining of credit and audit functions for members and raising the annual cap to $29 billion this year, with FTA discretion to increase an additional 15% without congressional approval. We believe this legislation will help the program continue to grow, and we are well positioned to share in that growth.

I'll now hand it off to Rick to discuss our financial results.

F
Frederick Herbst
CFO & Secretary

Thanks, Tom. Before hitting the highlights on some of the slides included in the supplemental information deck, I'd like to discuss a few of the income statement items this quarter. As Tom mentioned, there were a few items that contributed to this quarter's financial results. Among our many goals is to create valuable assets. This quarter, we benefited from a positive mark on the bonds retained in connection with our Freddie securitizations. These bonds have performed very well and are gaining broader acceptance in the marketplace. More competitive bidding for these bonds increased their value by $2.5 million this quarter. Offsetting the quarterly decline from last quarter's outsized joint venture gains were higher gains from loan prepayments and a lower effective tax rate due to a greater proportion of our income being earned at the REIT level versus at the taxable REIT subsidiary level. We believe the tax rate for the cumulative 6-month period is indicative of the effective tax rate for the full year.

Slide 2 depicts some summary highlights for the second quarter of 2018. We are very pleased with the financial results in the quarter and our current balance sheet composition. In particular, I note we added new loans of $543 million for the quarter; by far, our highest quarter ever. Given that GAAP earnings so far this year have exceeded our dividends, our adjusted book value per share is now up to $16.95 per share, up $0.07 from last quarter and $0.27 since the beginning of the year.

On Slide 3, our levered yields continue to be strong, with a 19% levered yield all in. While not as high as last quarter, which was buoyed by the joint venture earnings, this return is almost 300 basis points higher than it was in 2017, reflecting the anticipated pick up from deploying the proceeds of our corporate debt offerings. Much of the increase falls to the bottom line, and we saw that this quarter.

Slide 4 summarizes our loan originations over the previous 5 quarters and speaks for itself with record origination volumes across the board. In addition to the origination shown here, we acquired $143 million of loans during the quarter, a similar amount to last quarter.

Slide 6 covers the activities of the originations segment. The gross levered yield increased this quarter due to increased leverage in the segment and an increasing gains on sales of Freddie Mac loans. The percentage of fixed rate loans that are match-funded remains high at 74%, which is important in a rising rate environment to minimize interest rate exposure on these loans. Credit performance remains outstanding with nominal delinquencies.

Slide 7 summarizes our Small Business Administration segment. The gross levered yield was, again, over 30% this quarter, fueled by an increase in servicing-related income. While the average sale premium was 11% in the second quarter, we are seeing a slight tightening in the market currently with premiums in the 9% to 10% range. Our average coupon on SBA loans is up 20 basis points as these adjustable rate loans reset, further enhancing our levered returns here.

Slide 8 shows some summary information from the acquired portfolio. The returns in this segment are in line with the last few quarters, excluding the impact from the joint venture investment. In the last 3 quarters, we've acquired over $400 million of assets and they are generating accretive risk-adjusted returns. The pipeline here remains very strong, and we will selectively acquire more assets as liquidity permits.

Slide 9 summarizes our residential mortgage business. Volumes were generally higher in the second quarter, and the servicing rights portfolio continues to grow. As we've said in the past, the value of servicing rights generally increases in a rising rate environment.

Slide 10 is an update to the summary of the securitizations we've done within Sutherland, and the schedule now includes the adjustable rate CLO transaction we closed in June. As noted earlier, the newly originated product continues to perform well from a credit perspective with nominal delinquencies.

Slide 11 provides information about the interest rate sensitivity of our portfolio. And as you can see, only 21% of our portfolio is fixed-rate product representing loans originated but not yet securitized. We had such interest rate risk, and as a result, are positively impacted by any interest rate increases.

The next few slides is similar to those presented in previous quarters and reflect the diversity of our loan pools and composition of our capital structure and various liquidity sources.

Now I'll turn it back over to Tom for some final thoughts before we take questions.

T
Thomas Capasse
Chairman & CEO

Thanks, Rick. As we enter our second year as a public company, we look to build on our per share of success and continue to execute on our business plan. With the recent capital we raised, we have increased our capacity to fund the growth in our loan origination franchise as well make accretive loan acquisitions. We continue to focus on leveraging technology to provide efficiencies in our loan origination process. We believe our soon-to-be-rebranded ReadyCap platform is poised for continued growth. We thank our team for their ongoing efforts and our shareholders for your continued confidence in our company.

Operator, I'd like to now open it up for questions.

Operator

[Operator Instructions]. Our first question is coming from Steve Delaney of JMP securities. Please go ahead.

S
Steven Delaney
JMP Securities

Tom, you've shared some thoughts -- at aero level, it's hard to see what Freddie's doing directly with its seller servicers. And the 60 basis point rate hike in the face of community bank competition certainly explains why when we looked at your release and the items you were highlighting, you didn't highlight small balance multi-family. I'm curious, because these GSEs can be quirky from time to time. They don't always -- it's not -- the 2 GSEs don't necessarily think alike all the time. What is the possibility of you obtaining a Fannie Mae small balance license as well just to kind of offset some of the idiosyncratic risk of Freddie Mac behaviors as it took place in the second quarter?

T
Thomas Capasse
Chairman & CEO

Yes, there's a number -- there's a handful of both licenses available in the marketplace, more -- much more so than, say, SBA. And as well, the FHA is a relatively streamlined [indiscernible] so we're currently undertaking the potential acquisition of teams with specialization in those sectors, both in terms of origination and underwriting, to enter those markets.

S
Steven Delaney
JMP Securities

So I think I'm hearing you say that multi-family, while it's crazy competitive, especially on the larger ones, CLOs, but it sounds like you are not -- even though it was a tough quarter, you're very much committed to staying in the agency multi-family space and, in fact, growing it. Is that correct?

T
Thomas Capasse
Chairman & CEO

Correct. 100%. In addition, we're looking at other products, what we call alternative agency products like student housing, manufactured housing, tax credit, affordable housing-oriented licenses. So there's a whole panoply of different agency products we're looking at expanding the platform in. But we have 60, 70 people in Dallas, and we're committed to the business.

S
Steven Delaney
JMP Securities

That's great color. And just one follow up from me. Boy, the resi business, profitable. Obviously, it's seasonal, picking up in the spring and summer, but nice to see their results. So given the way that platform is performing now, and I know that some have questioned whether that should -- whether that's really a core business for someone like yourself that's really specialty finance-focused as opposed to commodity credit, are there some things to do there in non-agency mortgages, whether it's -- if not qualified, whether it's single family rental, fix and flip. I mean, are there some things that you can source, some product that you can source, higher-yielding assets, than just generic GSE originations that you'll fit in long term for the Sutherland balance sheet in a securitized form?

T
Thomas Capasse
Chairman & CEO

Yes. The waterfall -- the external manager has a broad commitment to the non-agency market, including undertaking hiring of conduit teams. And we would look to utilize GMFS. Our Baton Rouge-based residential originator, which has a #1 market share in that being in Louisiana, Alabama and Mississippi, to source those products. You've seen that with [indiscernible] and some of the others. But that's definitely in our radar screen. It's something we consider over the next few quarters.

T
Thomas Buttacavoli
CIO

Steve. It's Tom Buttacavoli. Just to add to Tom's [indiscernible]. So only to add one point there. One item with respect to GMFS where we think it to be accretive from a product perspective is really launching an affinity program for the SBA business inside of that business. And we see those parallels in terms of the customers that they see as well as the customers [indiscernible] business. So to answer your question there, there is also an SBA business that we can source product from.

Operator

Our next question is coming from Tim Hayes of B. Riley FBR.

T
Timothy Hayes
B. Riley FBR, Inc.

You touched on this a little bit earlier in the call, but I believe [indiscernible] reported SBC industry loan originations are the weakest in about four years this quarter, but you guys obviously had a very strong lending quarter. So can you just touch on what you're doing to take market share? And I know you have kind of the rebranding initiative, and if that's just starting to bear fruit in the early innings.

T
Thomas Capasse
Chairman & CEO

Well, in the case of the investor business in Dallas, 2 factors are at work: One is the market, with the 10-year treasury up over 100 basis points in the last 18 months. That has made us more competitive versus the bank versus -- comparing deposit costs to the execution we get in the commercial mortgage-backed securities market. It would become more rate competitive. Number two, we were continuing to grow organically through hiring of loan officers in core markets where -- utilizing our proprietary geo tier system where we see strong growth in property prices and origination volume. So it's really a combination of those 2 things that have accounted for the growth in that business. Now I'll also point out the total market, even at 50 billion, is 200 billion. And our market share right now is less than 1/2 of 1%. And our goal is 1%. So it really -- so even though there was a year-over-year decline of 10%, which is 1/3 of the 35% decline in large balance, we continue to be able to increase our loan volume given those 2 factors.

T
Timothy Hayes
B. Riley FBR, Inc.

Okay, got it -- oh, yes?

F
Frederick Herbst
CFO & Secretary

Yes, I would just add to that. Looking at our pipeline, our SBA pipeline is the highest it's ever been. Our originations in the second quarter were a record. Same with the fixed conventional product. As we mentioned, the Freddie pipeline is down a bit due to the rate change, but the other 2 products really all-time high in originations and pipeline. So we're not -- because we have such a small fraction of the market, we're not seeing that trend. At least, it hasn't impacted us yet.

T
Timothy Hayes
B. Riley FBR, Inc.

Okay, I appreciate that. And then just following such strong lending activity, can you just give us an update on how much liquidity you have currently to invest?

F
Frederick Herbst
CFO & Secretary

Yes. We have enough, certainly, to last us through at least the end of the quarter, if not throughout the rest of the year. We don't anticipate doing anything. However, if we see a terrific investment opportunity, as we've seen a couple of them in the last couple of quarters, we are always looking at our capital position and we might -- we can access the markets if need be.

T
Timothy Hayes
B. Riley FBR, Inc.

Okay. Got it. And then one more for me. Can you just give us an update on 3Q 18 quarter-to-date investment activity? And maybe just some color around kind of what the asset mix looks like.

F
Frederick Herbst
CFO & Secretary

The asset mix hasn't changed much. We haven't done -- so far at least, the acquisitions have not been where they were in the second quarter. But we do have a bunch of opportunities in the pipeline that may or may not close between now and then.

Operator

Our next question is coming from Jade Rahmani of KBW.

R
Ryan Tomasello
KBW

This is actually Ryan on for Jade. Just firstly, what are your thoughts regarding the outlook for further interest rate hikes and the impact that, that could potentially have on credit? Are you seeing the impact on borrower sentiment? And at what point do you think that we start to see deterioration in credit performance from further rate hikes?

T
Thomas Capasse
Chairman & CEO

Well, there's, I think, three answers to that question in terms of the three silos we have on our business. In terms of the SBA business, debt service coverage ratios in these small businesses are historic lows. Unlike middle market leverage loans, I think, we're -- or in our portfolio, we're at around a 2, 2.5 plan debt service leverage, as well scope for a rising short rate given that the FTA business is based off a prime. So we don't see much of a credit impact on rising short rates in that segment. In the stabilized loan component, we still have debt yields that are in the low double digits, high single digits, which is about 100, 200 basis point premium to the large balance commercial mortgage market. So you also have a lot of room there. And then the one area where we do have some concern is -- where there's a lot of competition is the transitional loans business, which is all floating rate. So there, we're very focused on looking at the impact of a rise in the rates over the 2, 2.5 year trend maturity of that loan. So we tightened our underwrited guidelines to reflect that contingency. But overall, the SBC market is a lot more priced in elastic rate than what you see in, let's say, middle market leveraged loans or large balance commercial.

R
Ryan Tomasello
KBW

And on the traditional side, can you characterize the current level of competition and how that compares to, say, a year ago? Maybe if you're seeing new entrants, where those are coming from? Where incremental loan yields are? And how those compare to, say, 6 months or a year ago?

T
Thomas Capasse
Chairman & CEO

Yes, Tom?

T
Thomas Buttacavoli
CIO

Yes. So we're seeing -- we certainly are seeing more competition in -- well, I mean, certainly, in the larger balance transitional lending space. And a lot of that's driven around just there's more capital chasing that opportunity. And then if you look at the CRE, CLO execution, I mean it's been strong, and so you just have a ton of capital moving into the larger transitional space. On the smaller transitional lending space, it's much more niche-y. Less competition. We are seeing some folks enter -- really trying to figure out their pricing models. They don't really have a track record with respect to the securitization market in terms of what their execution is on CRE CLO. But we're seeing it, but I'm not really concerned about some of the newbies, new entrants in the smaller transitional space given our underlying performance of our loans, coupled with the execution that we've got in the securitization market.

R
Ryan Tomasello
KBW

And just lastly on the dividend. Do you view this current level at $0.40 at -- as the stabilized level for the, say, intermediate term based on the current run rate of earnings? Or do you think that there could be upside in the intermediate term based on your view of continuing to grow the platform at scale and operating leverage?

F
Frederick Herbst
CFO & Secretary

Well, our philosophy when we set the dividend was we think this is sustainable throughout the rest of this year. Obviously, we got to pace that the first 2 quarters, so there's a potential depending on where we end up on taxable income at the end of the year. Is there a potential for an extra distribution? There is, but we're not that far along yet. And then we would reset for the first quarter of next year when our expectations are that we believe are sustainable dividend for next year.

Operator

Our next question is coming from Crispin Love of Sandler O'Neill.

C
Crispin Love
Sandler O'Neill + Partners

Rick, you mentioned tightening in the SBA market sales premium. Are you seeing a similar dynamic in the residential mortgage in on sale?

F
Frederick Herbst
CFO & Secretary

Slightly. On the SBA, as I said where we've been averaging around 11, it's between 9 and 10. I think we've seen maybe about a 10% decline on the residential side. But the volumes have actually held up pretty well. GMFS is outperforming where the MBA is pegging most of the residential mortgage originators. So their profitability has stayed pretty strong as well as the servicing rate values, particularly with increasing interest rates, continue to stay at or above previous levels.

C
Crispin Love
Sandler O'Neill + Partners

Okay. Great. And then also during the quarter, the President signed the small business that made Lending Oversight Reform Act into law. So I was just wondering if you guys have any views on how the bill impacts Sutherland's SBA segment?

T
Thomas Capasse
Chairman & CEO

Yes, the oversight bill was basically, we believe, a very strong affirmation of bipartisan support of the SBA business. And what it did was it was a give and a take. The give was they increased the cap to 29 billion with -- and this was very surprising. They gave SBA 15% of discretion to increase above that cap, like I think that's 31 billion. And the offset, which we think is a net positive for the program, is they gave the Office of Credit Risk Management a greater oversight and audit authority for the SBA members because of the concern that by the -- because of the growth of the program, they want to make sure that the SBA program continues its success of being, I guess, one of the few government programs where the premiums that are charged to borrowers cover the operating costs and losses to the government, unlike other -- obviously, Fannie Mae and Freddie Mac. So yes, so we think on balance and net positive, it underscores the bipartisan support for the SBA program in DC.

C
Crispin Love
Sandler O'Neill + Partners

Okay, great. And just one more. Rick, can you unpack what was in the net realized gains of $8.6 million and the unrealized gains of $4.5 million during the quarter? I think you mentioned it in the beginning of your prepared remarks, but I think I just missed some of the detail.

F
Frederick Herbst
CFO & Secretary

Actually, if you can wait, we put into file our Q tonight and we've added disclosure back in the MD&A on kind of a line-by-line where the gains come from on both realized and unrealized, if that works for you. But it's -- as far I would react, there's 6 or 7 line items rather than lose details on the call.

Operator

[Operator Instructions]. Our next question is coming from Scott Valentin of Compass Point.

S
Scott Valentin
Compass Point Research & Trading

Just with regard to -- Tom, you mentioned the European opportunity, potential European opportunity. Obviously, you have a pretty long runway for growth domestically. Would Europe provide better profitability? Is that the attraction there?

T
Thomas Capasse
Chairman & CEO

Yes. We look at everything on, obviously, a risk adjusted return basis. And the market in Europe is very much oriented towards small businesses, what they call small and medium-sized enterprises or SMEs. So we have a very strong team in London, and they're constantly sourcing opportunities. So it's not something where that's imminent, but it's something we're definitely looking at in terms of the market. But yes, we would look to see returns at least on par or 100 or 200 basis points above the target ROEs in the U.S. market.

S
Scott Valentin
Compass Point Research & Trading

Okay. And then on the completed CLO, you mentioned the 78% advance rate. Do you think there's room for that to move higher, to get higher advance rate as you issue more paper?

F
Frederick Herbst
CFO & Secretary

It's hard to tell. It's been a very favorable market for those types of securitizations. I think 78 is probably the highest we've done on the CLO market. They're very attractive rates. I think we'd be happy if it sustained at this level. We don't have any CLOs untapped at the moment, so I can't really comment on what the pricing might be. We do have a couple of other legacy securitizations of existing products, and we continue to see a pretty good execution on those. So we're hopeful that, that will continue.

T
Thomas Capasse
Chairman & CEO

Yes. I will just add to that. Advance rate in the securitization structure is really a function of underlying loan-to-cost, loan-to-value. So if you think about it, if you had lower loan-to-cost loan-to-value, presumably, it could potentially get more -- a little bit more advanced. But I agree with Rick's point, that, that's probably the right advanced level where we'll see pickup is pricing. We'll see pricing tighten up a little bit.

S
Scott Valentin
Compass Point Research & Trading

Okay. And then just one final question. I think you mentioned the rebranding -- the ReadyCap rebranding effort probably should be completed, I think, or rolled out by year-end. Are there any cost saves to be had going forward once that initiative ends and it's kind of in place? Or do you invest in the reduction in cost elsewhere?

F
Frederick Herbst
CFO & Secretary

I think it's more of the synergy between all of our lending platforms so we can have one combined logo, marketing material, standard look. So there will be some cost saves. I'm not sure how material it is. It's more presenting a unified front to the market.

Operator

Our next question is coming from Ben Zucker of BTIG.

B
Benjamin Zucker
BTIG

Two quick ones for you. First, I wanted to talk about the SBA business where we've seen some nice growth in origination volumes over the last year or so. And I think I heard your comments about a record pipeline. So I was curious, how much production do you think SLD is capable of doing in a given year, absent any major shocks to the overall market? Is this something like a $50 million-a-quarter, $200 million-a-year business? Or is there an ability to push this up to, I don't know, $300 million with the current team? Just wondering how you guys see the opportunity in that market.

F
Frederick Herbst
CFO & Secretary

With the current team, we're in that kind of $50 million range per quarter. What we are doing currently and continue to do is add boots on the ground and to add some really talented business development officers or loan officers. So the more of those folks we can attract, the higher the volume. It's really kind of -- it's linear based on the number of folks we have in-house. Certainly, we can do more volume with the back-office staff we have, but we're looking to add loan officers to increase that volume. And we acquired CIT's business. CIT is to do over 1 billion a year. And I'm not suggesting to anybody here that, that's what we're targeting. But there's plenty of room to -- on the upside from where we are today.

B
Benjamin Zucker
BTIG

That's helpful, Rick. And then if could, I'd just like to ask that exact question on the Freddie Mac business, and I'm obviously focusing on Freddie and SBA because these are both capital-light and high-ROE businesses, where I'm not sure we've seen the full run rate of origination powers yet. So Freddie, obviously, will be more competitive in the market as rates move like you alluded to in your prepared remarks. But outside of that, how much business do you think like your team can be generating right now in any given quarter?

F
Frederick Herbst
CFO & Secretary

Yes. I think it's a similar answer. We -- again, we're adding loan officers in that business. Those loan officers have relationships with either brokers or direct borrowers. And so Freddie is a little bit different because of the nature of -- the dynamic of the interest rate that Freddie sets and how competitive that is with other bank products and our other products. What we saw as a dramatic increase, as the Freddie pipeline dropped a little bit, we did see an equal increase in closings on the conventional fixed product. So they tended to offset each other. But as we add -- again, as we add folks, we should be able to increase those volumes.

Operator

At this time, I would like to turn the floor back over to management for any additional or closing comments.

T
Thomas Capasse
Chairman & CEO

We appreciate everybody's continued support, and we look forward to the next earnings call in November.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.