Ready Capital Corp
NYSE:RC
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Ready Capital Corp
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Good day, and welcome to the Sutherland Asset Management Corporation First Quarter 2018 Earnings Conference Call.
At this time, I would like to turn the conference over to Rick Herbst, Chief Financial Officer. Please go ahead.
Thank you, Julianne, 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 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 2018 earnings release and in our supplemental information.
By now, everyone should have access to our first quarter release and the supplemental information that I just referred to. Both can be found in the Investors section of the Sutherland website.
With that, I'll turn it over to Tom Capasse, our Chief Executive Officer.
Thanks, Rick. We're pleased this morning to discuss our financial results for the first quarter of 2018. As is evident from the results for the quarter, we're making significant progress in our business plan and are reaping rewards of our efforts.
To review, our focus in 2017 as a newly public company was to increase financial leverage and we successfully raised $345 million through the end of this quarter. In 2018, our focus is to enhance operating leverage by utilizing technology and growing our market presence my rebranding our Ready Cap lending subsidiary. Our core businesses continue to perform well and we're benefiting from favorable market developments, profitable portfolio acquisitions and additional leverage. This quarter, in particular, we benefited from derivative gains as a result of rising interest rates as well as excellent returns from one of our portfolio acquisitions. Acquisitions provide a variable income stream, supplementing the stable spread from our lending business, with sometimes outsized returns as occurred this quarter.
Now before turning it over to Rick to go through some of our financial results in more detail, I'd like to touch on a few highlights.
Firstly, GAAP earnings for the quarter were $18.5 million or $0.56 per share, compared to $0.38 last quarter, representing the fourth quarter in a row of sequential EPS growth. On a core basis, our earnings were $0.47 per share in the first quarter, up 19% over the last quarter. GAAP ROE was 13.1% and core ROE was 11%. As discussed in our last call, unlike many property or residential mortgage REITs, our earnings benefit from rising short- and long-term rates. This was evident this quarter in several ways.
Firstly, since our portfolio consists primarily of adjustable rate loans, our gross yield increased in all 3 of our small balance commercial business lines.
Secondly, the value of our residential mortgage servicing rights increase is due primarily to slower repayment rates. The value of our MSRs increased $9 million in the quarter, 2/3 of which was due to rising rates. While we exclude the fair market value changes from our core earnings, it is a simple fact that the value of servicing rights increases significantly in a rising rate environment, which helps offset volume production in our residential lending segment.
Thirdly, we hedge our fixed rate loan production with interest rate swaps during the aggregation period prior to securitization, which we completed in March 2018, converting $148 million of recourse debt into match funded non-recourse securitized debt. With the dramatic rise in rates, we realized an after-tax gain on these swaps of $2.4 million in the quarter, which was partially offset by an $800,000 decline in the value of our loan inventory.
In periods of rapidly rising rates and tightening spreads, liquid swap hedges often register higher volatility than less liquid loan assets, resulting in a positive basis this quarter.
Finally, beyond the impact on ROE from rising rates, we also note that unlike property and residential mortgage REITs, our book value has been relatively stable with 1% increase in the quarter. Only 6% of our assets are subject to valuation changes, based on mark-to-market fair value accounting, most of which is the MSRs, which, as we noted, increase in value in a rising rate environment.
Now turning to investment capacity in our small balance commercial space, it remains robust. In fact, we originated and acquired $402 million in new SBC assets this quarter, up 7% from the prior quarter. The $402 million comprises 65% new originations and 35% SBC acquisitions. Acquisitions remain a strong late-cycle investment opportunity with $142 million in the first quarter and an additional $67 million so far in the second quarter, with a strong pipeline.
In terms of financings, we completed a tap offering of $40 million on the secured note at the end of January and raised $50 million in 3-year baby bonds in April, both priced at 6.5%, a full 100 basis point reduction for the notes issued last year. We've now raised $345 million of debt capital since we went public in November 2016. At quarter-end, our recourse debt ratio -- debt to equity ratio was 1.7x, within our target range.
In the capital market, we continue to see strong demand for our securitized products. While our posted loan rates rose nominally with rising market rates, it was less than banks for 2 reasons: tighter credit spreads partly offset the rise in market rates, and banks' deposit costs continue to rise due to reduced deposit demand. As such, our quoted loan rates have become more competitive with banks. We hope to close another transitional loan CLO later this quarter and a legacy asset's commercial mortgage-backed security transaction thereafter.
Sutherland has now completed 14 securitizations, totaling over $2 billion since 2011.
Now, a few comments on the continued strength in the small balance commercial property market, which underpins our senior secured lending strategy. Small balance commercial property prices rose 6% in 2017, exceeding large balance commercial real estate price growth of 4%. Further, SBC property sales rose 19% while large balance sales fell 7%. SBC property prices rose 4% year-over-year this quarter and are now 1% below precrisis highs, as compared to a large balance commercial real estate, which is 130% over precrisis highs and housing, which is 5% over. This underscores our premise that the SBC market is earlier in the credit cycle and more correlated to the strong housing market.
Investor -- in terms of loan volume -- investor- and owner-occupied SBC loan volume totaled $250 billion in 2017. Our $1 billion of originations in 2017, represented less than 1/2 of 1% market share with our long-term goal of 1%. This underscores the inherent strength of our business model as the only non-bank lender offering both investor- and owner-occupied small balance commercial loan products, we can build market share without the need to compete by loosening credit criteria.
Our risk-averse approach compares favorably to the highly competitive market for middle market leverage loans where business development companies face loosening covenants and compressed lending spreads.
And with that, I'll hand it over to Rick to discuss our financial results.
Thank you, Tom. I'm going to touch on a few of the highlights on some of the slides included in the supplemental information deck that was attached to our press release last night.
Slide 2 depicts some of the summary highlights for the first quarter of 2018. We're very pleased with the financial results in the quarter as well as our current balance sheet composition. In particular, I note that we added new loans of $402 million for the quarter, which is representative of our ability to deploy the capital that was recently raised.
Given that GAAP earnings exceeded the first quarter dividend, our book value per share increased to $16.88 per share, which is up $0.19 from year-end.
On Slide 3, our leverage yields were up quarter-over-quarter on all 4 of our business lines, and I'll provide additional colors on those in a moment. As we've indicated in previous quarters, we anticipated an increase in our top line ROE, much of which goes to the bottom line that was certainly the case this quarter.
Slide 4 summarizes our loan originations over the previous 5 quarters. This quarter's volume was slightly above last quarter's total volume, with minor variances among the product lines. Year-over-year comparisons continue to show strong growth.
Slide 6, covers the activities of the small balance commercial segment. The gross leverage yields here increased this quarter due to increased leverage in this segment, together with higher coupons on loans. As a result of the securitization closed during the quarter, the percentage of fixed rate loans that are match-funded increased from 60% to over 82%. This is important in a rising rate environment to minimize interest rate exposure on these loans.
Slide 7 summarizes our small business administration segment. The gross leverage yield here was over 30% this quarter, fueled by an increase in leverage in this segment, the volume of loans sold and an increase in the average sale premium from 10% last quarter to 11.6% this quarter. In addition, the leverage yield excluding gains returned closer to historical levels due to higher interest rates on the adjustable rate loans that have repriced.
Slide 8 shows some summary information for the acquired portfolio. As we've discussed in the past, due to the nature of the assets in the acquired portfolio, the returns on this segment can be lumpy and we certainly see that this quarter. The very large increase in leverage yields this quarter is primarily due to outsized returns from the joint venture portfolio we purchased back in the fourth quarter. Absent those, our net interest margin and leverage yield in our legacy acquired SBC loan portfolio remained consistent quarter-over-quarter.
We're excited about acquiring over $260 million of new small balance commercial loans over the last 2 quarters. The cost of acquisition of these loans is de minimis and they have strong risk-adjusted return profile. The pipeline here remains strong and we'll selectively acquire more assets as our liquidity permits.
Slide 9 summarizes our residential mortgage business. Our strategy has been to retain the servicing rights on loans sold, which increase in value in a rising rate environment. As mentioned earlier, the value of the servicing rights increased over $9 million, reflecting both new servicing rights created in the quarter as well as an increase in the market value of these assets due to the rise in the 10-year treasury.
Slide 10 is an update to the summary of the securitizations we've done within Sutherland. And this schedule includes the fixed rate securitization we closed in March. As you can see, the newly originated product has had virtually no delinquencies.
Slide 11 provides information about the interest rate sensitivity of our portfolio. And as you can see on the lower left-hand chart, rising interest rates actually have a positive impact on our net interest income. The numbers here reflect the impact of rising rates on net interest margin, based on our portfolio as of quarter-end, and does not include the positive valuation adjustments on the servicing portfolio, nor any potential impacts on new loan originations. The reduction this quarter from last quarter is primarily due to the reduction in our interest rate swap positions, which we closed out upon completing the securitization back in March.
The next few slides are similar to those presented in previous quarters and reflect the broad diversity of our loan pools and the composition of our capital structure and our various liquidity sources.
And with that, I'll turn it over to Tom for some final thoughts.
Thanks, Rick. As we enter our second year as a public company, we look to build on our first year of success and continue to execute on our business plan.
With the recent capital we raised, we have increased our debt capacity to both fund additional accretive growth in our loan origination franchise as well as the loan acquisition market. We continue to focus on leveraging technology to provide efficiencies in our loan origination process and we believe our soon-to-be rebranded Ready Cap 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, with that, we'd like to open up the line for questions.
[Operator Instructions] We will take our first question from Tim Hayes from B. Riley FBR.
Appreciate you giving a little bit of color on just what investment activity and the loan acquisitions have been so far this year. But can you just give us an update on how originations are trending, and just kind of what the asset mix is like so far?
For the second quarter, Tim?
Yes, correct.
Yes. Originations continue to be strong, kind of in line with where they were in the second quarter -- sorry, in the first quarter, maybe a little higher. We've seen a little more skewness towards the Freddie product, so far, Freddie and bridge. But the pipeline in all 3 are pretty strong. On the SBA side, same story really, the originations so far are in line with what they were in the first quarter, and the pipeline, depending on how much of it closes, should result in originations at/or above the first quarter numbers.
Got it. Okay. And then, Rick, can you just give us a breakout of the realized gains in the quarter, just kind of what if that if any is considered outsized or nonrecurring?
I guess, the only thing outsized is maybe on the derivatives that Tom mentioned, just due to way that the spreads compressed towards the end of the quarter and the sharp rise in the 10-year. The net impact to that, as Tom mentioned, was about $1.5 million for the quarter, which is, I don't want to say it's nonrecurring because we do derivatives all the time, sometimes they go with us, sometimes they go against us. On a realized side, I think, that was, what I would say, that was unusual or on the like -- on the unrealized side, obviously, the mortgage servicing rights was a big number. And that's going to fluctuate by interest rates. We constantly create new ones. And that will always grow the portfolio with everything else being equal. And if interest rates move up again, that would probably have a positive impact on the valuation.
Okay. Got it. And then, can you just give us an idea at how much cash you got back from that securitization you did last quarter? And then, reflecting that and the April bond issuance and quarter-to-date investment activity so far, just how much liquidity you have on hand today?
We -- okay -- a couple of questions there. On the bond issuance, we got about close to about an 88% advance rate on that. We were financing on warehouse lines probably closer to 78%. We financed about $150 million of debt. So 10% advance rate haircut, call it about $15 million on that. In terms of the acquisitions, we've acquired about $75 million so far this quarter. The pipeline is strong, but we do need to reserve liquidity for our loan originations because that pipeline is strong also. We dip into the market, the acquisition market while we do have some excess liquidity. There are some in the pipeline that we are contracted to close, they are not as significant as some of the other ones, in terms of an equity commitment because we will get -- we have prearranged leverage on those, 70% and 80%. So we'll see -- we should see a handful more in the rest of the second quarter.
We will now take our next question from Ben Zucker from BTIG.
The Freddie Mac originations deliveries were up only 3% year-over-year with the GSE, while your originations were up an impressive 60%. What do you attribute that strength to? Have you guys been hiring or expanding your networks there at all? Or is this just a function of having a little more capital so you can play offense? And kind of the same question with your SBA originations where your volumes continue to grow not just year-over-year but also quarter-over-quarter.
Just a couple of questions there. Just to highlight one aspect of both programs. Both are obviously government programs, where we have -- we're selling into the secondary market at a profit and retaining servicing. But they utilize very little capital. We do retain a 10% subordinate bond on our -- the Freddie Mac program and on the SBA program, we take 25% retained interest pari passu. But both of those can be leveraged with non-recourse debt.
So in terms of -- just to highlight that, so it's not liquidity driven, it was really more driven -- our increase is more driven by improved penetration with the broker community affinity and refocusing the loan officers on the Freddie product.
Yes, Ben, just one follow-up to that. You mentioned that capital commitment required. Both of those businesses actually require very little capital and then in case of Freddie we basically table fund with 100% advance rates so it doesn't require any -- there's obviously capital required for the operations, but in terms of buying a loan or originating loans, no capital required. And the SBA business, we generally sell 75% of the guaranteed portion of the loan at a -- this quarter was over 11% premium. We retained 25% and put that on a warehouse line with a 60% to 70% advance rate. So neither of those products require a lot of capital. So when capital is tight, that will not constrict either of those products from continuing originations.
That's a great point. And from a strategic perspective, have you guys looked at or considered acquiring a Fannie Mae DUS license so that you could open up another high ROE origination and servicing channel that again is very light on the capital commitments? I know, the SBA product is also protected as you guys just mentioned and that's very unique to your platform. But it seems like Fannie would be a very natural fit and extension for you guys.
Yes, we are looking, we just actually had some internal planning with our Ready Cap lending staff on the investor products. And yes, we are looking more broadly at expanding into other agency products, which may include the Fannie DUS products, which also has the small balance program.
Great. And I guess, the last one. Could you just help me tie down some of the items that caught my eye in your income statement? The income from an unconsolidated JV, Rick, I think, you mentioned that in your prepared remarks, that was from an earlier acquisition. So was that just some kind of successful resolution or sale there? And also I noticed a little spike in servicing expenses. So if you could just kind of let me highlight that, that would be great.
Sure. On the joint venture, this was a loan pool of about $400 million, some performing, some nonperforming assets. We partnered up with another party, we own about 24% of that loan pool. And we bought it at a kind of like $0.52 on $1. So what happens with these and for better or worse, over the couple of years, we had kind of stepped out of the acquisition because we didn't have the capital to fund it. With the proceeds from the offering, which we've talked about when we did the offering that, that would open up the opportunity to do those types of acquisitions. In this case, because we bought it at $0.52 on the $1, a few loans paid off in January and February. And when those loans -- and they paid off in full, and they're pretty large nose. When they paid off in full, you recoup all of that discount and that's what fueled the outsized returns and they were greater than we -- we underwrite to kind of mid to high teens return assuming nominal prepayments. When prepayments comes in, and we've had this experience in the past, it really generates outsized returns on those investments, which we saw this quarter. I would caution you, it's not going to be -- I don't think it's going -- we don't have a lot of visibility because it's a joint venture, they're not our borrowers specifically. We don't have a lot of visibility going forward when loans are going to prepay, but certainly these types of pools give the opportunity for such returns like that. Not always going to happen, sometimes they are singles and doubles, and sometimes you hit a home run. For this quarter obviously it was a home run. I'd also point out with that, that particular pool was located primarily down in the Southeast Louisiana and that area. We were able to leverage the skills of our GMFS, the residential business that stand in that area to help underwrite and look at the economics and perform the due diligence in that pool. And this was a loan that was sourced by the Waterfall team here and referred into Sutherland. So that was kind of a good team effort and obviously good result. In terms of servicing fees, we did pay some incentive type fees when loans due pay off, not in the joint venture that I just spoke about but other acquires. We have subservices and they sometimes get incentive fees when those loans pay down or pay off. And then, just the overall volume as the portfolio increases, there are more servicing expenses going on. Just one other thing, we also had to pay advances from time to time on -- for whether it's -- there are loans, that require us to advance for taxes insurance and that kind of thing. This quarter -- a little bit seasonal this quarter, we did see a little bit of spike in that.
We will now take our next question from Crispin Love from Sandler O'Neill.
Just following up on that last question on the JV. So are you kind of saying that, there is kind of no reason that we should be kind of modeling any of those revenues from the JV going forward, just because they're going to be kind of lumpy in nature and not going to be able to see when they're coming? And then, also, were there any related expenses to that during the quarter?
No related expenses to it other than what is built in and any expenses are kind of taken within the body of the earnings that we get, so it's before we record them, so nothing additional on our income statement. I'm not saying you shouldn't model in any returns. I mean, we made a $55 million investment, and we expect these loans from accretion of discount, the coupon, payments on the performing loans at about over 5% coupon, so those loans are paying as we work out the nonperforming loans or get them into reperforming status, there will be some earnings there. So yes, we do expect every month to generate some income, absent there are losses on some bad assets or something that could change. But everything else being equal, we would expect earnings. As I mentioned, we generally underwrite to kind of a mid- to high teens returns for portfolios like this. And then, as we saw this quarter, they could outperform.
Okay. Great. And then, I guess, just kind of your outlook on the GMFS originations, given the rising rates. If we look at kind of year-on-year basis, do you expect GMFS origination to be slightly lower than last year? Or kind of what's the trajectory looking like over the next couple of quarters?
I think, while the MBA is projecting like a kind of 15% decline year-over-year in originations, the first quarter, we saw about 5% decline year-over-year. So we've done a little bit better than the MBA. I think, it will be less than last year. Their pipeline has gone up this quarter. That could be seasonality, there's just kind of a home-buying season for folks who are looking to move prior to -- relocating their kids in school or for whatever reason. There also seems to be an acceptance in the market that interest rates are not going to go down anytime real soon. So people, I think, when rates first tick up, they think they're going to go back down. There seems to be some acceptance in that. So hopefully, we'll see a little pickup in the originations there. But I would expect it to be somewhat lower year-over-year.
I would just add to that, that GMFS has about 70% purchase. There is a strong retail production channel. So yes, obviously with the most of that 15%, 20% decline in the industry space, that's about 80% refinancing. So they are a little bit more resilient in terms of the beta, if you will, to the market in terms of their decline due to the high purchase concentration.
Okay. Great. And then, what's your outlook for the tax rate over the next couple of quarters? Is there anything driving? I think it looks like about 12% tax rate during the first quarter.
It was higher this quarter because of greater percentage of our income occurred down at the taxable re-subsidiaries, which are all of the operating companies. They're all in taxable re-subsidiaries. For example, the rise in the unrealized MSRs, those are all -- we have to put a tax provision against that even though for tax purposes, it's not a taxable item. But there's a tax provision in it. So the greater the percentage of gains, or income, including Freddie Mac gains, SBA gains, which have the more, kind of, an immediate impact to our P&L, the greater the percentage of those gains, the higher the tax rate will be. That's why it was up to 12% this quarter.
Okay. And then, good job getting to that 10% ROE target that you've guys have been targeting. I think guys were actually at 11% on non-GAAP basis. Do you think that's going to be -- do you feel like kind of that's sustainable going forward or it can be jumping around that 10% range? Or can you give any kind of over that hurdle?
I think what we said in the past quarter or 2, and I think, it holds true, last quarter we were at 9%. Our goal is to get it to sustainable 10% during the course of this year. Obviously, this quarter, we jump-started that a bit. But I think, our basic business model, absent kind of the significant performance from the joint venture would gradually get us up north of that 10% this year. How quickly will it happen second, third quarter? We haven't committed to that, certainly that would be great if we could do that. But our goal is to get it over 10%, certainly by the end of the year.
Okay. And then, on the interest rate sensitivity, was the full impact from -- I think, it was you said it was about $0.12 last quarter to $0.07 this quarter of kind of uptick in NII from 100 basis point move in LIBOR, was that all because of the reduction in interest rate swap positions. And then, how large were those positions?
Yes, it was -- it was all based on closing at the swaps. We had notional swaps of about over $100 million in preparation for the securitization.
We will now take our next question from Jade Rahmani from KBW.
Can you quantify what the impact of the $5.4 million of JV income was? Just the net earnings impact if it needs to be tax affected or anything else?
It is not tax affected, it's held up at the parent company. So it's dollar for dollar.
Okay. What's your view regarding the likely impact of additional interest rate increases? Are you seeing any concerns in the market from borrowers? And at what point, would you anticipate any change in credit performance?
Well the answer to that is, it's segment-specific. In terms of the fixed rate business, as I said before, we're actually benefiting there because as rates rise in nominal terms, with tightening credit spreads, we get a benefit. So we -- our rates don't rise in lockstep with the 10-year, and then the -- in addition to that banks are now facing tighter deposit costs, especially community banks, we compete against in local markets. So all of that in terms of our fixed rate product will tend to improve our conventional program in the small balance commercial space. Now the Freddie program, that may have some impact because there you're competing with the banks. The Freddie program will become a little bit more competitive, but just the absolute rise in the rates versus the currently where multi-family projects are trading on a cap rate basis could impact that segment at the margin. As far as the SBA, you really need a big gap out in LIBOR. Let's say that it's kind of 5%, 6%, 7% range because it impacts demand because the SBA products is really a 25-year amortizing loan. And the current benefit versus a bank loan, is probably about 40% monthly payment, which for a small business is more important than a normal rate. So yes, that should not have an impact in terms of volume. Obviously, it will have a positive impact on our balance sheet. And lastly, the transitional loan program, there you also need, I think, a very large increase in LIBOR, more than -- again that 5%, 7% range to impact demand because a lot of these transitional loans for our products can bear a higher debt service coverage ratio, given that the loans are only between 1 and 3 years of duration while properties are repositioned. So overall, I would say it has a neutral to minor impact on our loan volume, but a very positive impact on our balance sheet holdings.
And just on the Freddie Mac program, is the impact that you anticipate on the volume side? Or would you anticipate any deterioration in credit performance?
Yes, the volume could be impacted again, just because of the simple math around where these multi-family cap rates are in terms of the acquisition cost. And I would point out, cap rates are probably about 50 basis -- 75 basis points lower in small balance versus large balance. So it's less of an issue for our small balance product. But yes, that could -- you're talking about 3.5%, 4% 10-year, you will definitely see an impact on volume. And then as far as the credit risk, just to point out, we currently retain very modest exposure in terms of our net equity capital. It's roughly, 6% of our total NAV currently. But that being said, the credit did -- the cumulative net losses that Freddie experienced in this product during the recession were only 50 basis points. So the -- and we've been underwriting to more -- to conservative standards, in relation to the Freddie guidelines. So we're very comfortable with that credit exposure.
Are you at all concerned by competition increases in the bridge lending space? And are you seeing any landers push leverage or make structural concessions?
Yes. That's a very good question. They're definitely is a influx of these bridge lenders. I mean, if you look at all of the commercial mortgage REITs that went public recently -- sorry, within the last year or 2, yes, they are all large balance lenders, but the market is very bifurcated in the sense that, very, very, very large loans there's not as much competition and where we target -- our average balance is roughly $6 million, $7 million in our bridge product, we had some that we may hit $20 million, but in that space, there's probably about - we track maybe about 65, 70 bridge lenders including a few banks. We would say only a fraction of those are involved in our market. So we -- yes, we've definitely seen some -- as we go upstream to that $25 million plus, we've seen stuff like 90% of cost with equity kickers and what have you, but in our sector, there is some modest increase in competition, but about a fraction of what is being experienced in the large balance transitional space.
Just on the overall, company G&A, I think, you mentioned technology. Is that designed to streamline processing? Or is that designed to reduce the company's overhead?
Both. I guess. I mean, it's meant to streamline the origination process. As we grow our origination volume, we're hoping we can do it potentially with less people, which would lower the cost or at least, maintain the cost without having to add people. We really haven't had a -- with ramping up, we've hire a couple of technology folks, we're really trying to ramp up the system so that there is little bit more leverage across the different platforms using the same technology, which we think will result in some operating efficiencies.
And just lastly on dividend. With all the Tier Ss , is it your anticipation that if originations increase and execution goes as planned, that you'll be able to -- that the board would be inclined to increase the dividend? Or do you prefer to retain that capital and use it to reinvest in the business?
Probably a little bit of both. Frankly, there is an argument that retaining some and increasing the book value is good to reinvest that capital. However, we want to have a competitive yield to be attractive to our shareholders. My sense is we would still be dividending at a significant portion, and by that I mean, north of 90% of core earnings. Obviously, we have to adhere to the tax regulations and what we need to do for tax purposes to maintain the REIT status. But our basic mantra at this point is dividend north of 90% of core earnings.
We will now take our next question from Steve Delaney from JMP Securities.
Most of my prepared questions have been covered. Just 2 things based on your remarks. Tom, if I could start with you, in your remarks you mentioned Ready Cap and used the phrase rebranding. Could you give us some sense of a time frame for that project?
Yes, we embarked on it in October of last year. We've retained an industry-leading branding firm. And we're looking across the various products. We've had a number of internal meetings with the business unit heads and have settled on the logos and what have you. But it's really -- the whole idea is to present a clear, simple representation of our company, in terms of being leading non-bank, small balance commercial lender across a variety of products, be it investor or own-occupied. So with all of that will probably result in a brand launch sometime in September.
September. Okay. Very good. That's helpful. And then Rick, for you, obviously, $0.47 is a huge beat against consensus and against your dividend. Would you -- as far as items that you would caution us not to get too caught up in terms of looking at that as a run rate, is it simply the magnitude of the JV income, that you would point us to? Or is there something else that I missed?
That's certainly the major one, Steve. And by the way, I agree with you, it is nice to have all the analysts on the call. We really appreciate everybody's interest in the company. But yes, that's the one item that kind of jumps off the page. There was nothing really material. I mean, in every quarter, there are some positives and negatives, and this quarter is no different. But that would -- I wouldn't want to see you model -- I'm not modeling $5 million of JV income. If we got it, that would be great. But I wouldn't anticipate that. The other thing is the derivatives were a little higher than usual. I think that was an unusual kind of circumstance, the way spreads compressed in the interest rate rise, as Tom mentioned. That was probably a net of $1 million, $1.5 million. So it's part of what we do and it's going to happen plus or minus. But that was little unusually large this quarter.
[Operator Instructions] We will now take our next question. It appears that participant may have stepped away. We currently have no further questions on the telephone.
Okay. With that, we're pleased to have the participation today. And we look forward to reconvening again in the second quarter.
That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.