New York Mortgage Trust Inc (NYMT) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust Third Quarter 2020 Results Conference Call. (Operator Instructions.] This conference is being recorded on Friday, November 6, 2020. A press release and supplemental financial presentation with New York Mortgage Trust Third quarter 2020 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events and Presentations section of the company's website.

At this time, management would like for me to inform you that certain statements made during the conference call which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York managed -- I'm sorry, although New York Mortgage Trust beliefs and expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission.

Now at this time, I would like to introduce Steve Mumma, Chairman and CEO. Steve, please go ahead.

Thank you, operator. Good morning, everyone, and thanks for being on the call. Jason Serrano, our President, will be speaking to our investment portfolio strategy today. And Kristine Nario, our CFO, will be speaking more -- in more detail about our third quarter results. We will all be speaking to our supplemental financial presentation that was released yesterday after the market closed and is available on our website. Following our presentation, we will open up for questions.

The company delivered another solid quarter, generating $0.24 per GAAP earnings per share and $0.30 comprehending comprehensive earnings per share for the quarter. Company's book value increased to $4.58, an increase of approximately 5% from the previous quarter and 18% for the quarter ending March 31. Including our third quarter common stock dividend of [$0.075] per common share. The company posted a total economic return of 7% for the period. On the balance sheet side, the company continued to strengthen its financial position during the quarter. Completing a residential loan securitization and a non mark-to-market residential loan repurchase agreement with the new counterparty, further reducing our mark-to-market financing exposure to $626 million at quarter end, a decrease of $338 million from June 30.

In October, the company completed a second secured loan securitization, reducing our mark-to-market financing by an additional $236 million. The company continues to focus on financing solutions that minimize mark-to-market or margin calls on our liquidity. Company finished the quarter with over $600 million in cash as we continue to believe that the volatility around the election and the ongoing COVID-19 pandemic will present compelling investment opportunities during the fourth quarter and into the early part of next year.

On Slide 6, we recap where the company ended on September 30, 2020. Our invested portfolio totaled $2.8 million, down approximately $283 million from the previous quarter. Our total market capitalization was $1.4 million, unchanged from the previous quarter. Our GAAP stockholders' equity totaled $2.3 billion currently allocated at 59% in single-family credit and 25% in multifamily credit. The remaining 16% is largely comprised of available cash for future investments.

We continue to be diligent investors in the third quarter, focusing more on financial stability than perceived market opportunities. We have 57 professionals, unchanged from the previous quarter and still working from home. We continue to monitor the COVID-19 situation and determining when and how we will return to our office locations. In the meantime, we continue to run our business effectively from remote locations with minimal disruption.

On Slide 7, we have some of our third quarter key developments. As I said, our book value ended the quarter at $4.58 per share, which was an increase of 5.3% from the previous quarter. We declared a common stock dividend of $0.075 per share, which was an increase of $0.025 per share from the second quarter. We continue to focus on improving our balance sheet strength. Ended the quarter with $650 million in cash, paying down all securities repurchase agreements subject to mark-to-market exposure. Completing a $365 million residential securitization in July and reducing our mark-to-market financing exposure by over $300 million ending the quarter at $626 million.

In October, we completed a second residential securitization for $364 million, further reducing our mark-to-market financing exposure to $390 million. Our financial snapshot slide on Page 9 covers key portfolio metrics on the quarter-over-quarter comparison. Our net interest margin for the quarter was 2.18%, a decrease of 25 basis points from the previous quarter. This decrease was largely due to the increase in financing costs associated with our securitization completed in July. The cost of debt was approximately 4%, but significantly reduces our exposure to margin goals. It should be noted that our second securitization completed in October was almost 100 basis points lower in cost as the market continued to tighten significantly through October.

Our total portfolio of $2.8 million decreased by approximately $300 million from the previous quarter. The portfolio asset yield average for the period was 5.51%, an increase of 26 basis points over the previous quarter. Portfolio is comprised of $2.2 billion of single-family credit investments and $515 million in multifamily credit investments. We had average outstanding portfolio financings, including securitizations of approximately $1 billion at an average cost of 3.33% during the quarter, an increase of 51 basis points from the prior quarter. Our leverage ratios continue to decrease during the quarter with overall leverage of 0.4x and portfolio leverage at 0.3x.

As previously mentioned, in October, we completed our second securitization, further reducing our mark-to-market financing exposure. As we grow our portfolio in the future, we will focus on financing opportunities that limit mark-to-market risk by utilizing securitizations or unsecured borrowing opportunities. Kristine Nario, our CFO, will now go over the quarterly financial results in more detail. Kristine?

Thank you, Steve. Good morning, everyone, and thank you again for being on the call. In discussing the financial results for the quarter, I will be using some of the information from the quarterly comparative financial information section included in Slides 21 to 28 of the supplemental presentation. Slide 10 summarizes our activity in the third quarter. We purchased residential loans for approximately $93 million and closed on $19 million of multifamily preferred equity investments. Also during the quarter, we sold non-agency RMBS and CMBS for proceeds of $370 million. We will continue to opportunistically sell non-agency RMBS and CMBS securities in our portfolio as we believe loans in either residential or multifamily give us better risk-adjusted returns at this time.

We had net income of $91 million and comprehensive income of $114 million attributable to our common stockholders. Our book value ended at $4.58, a 5% increase from the previous quarter. Slide 11 details our financial results, where we had net interest income of $25.5 million, a $3 million decrease from the previous quarter. This decrease is due to the reduction of non-agency RMBS and CMBS securities in our portfolio due to sale activities and higher borrowing costs associated with securitization transactions completed during the second and third quarters. We had noninterest income of $90.5 million, mostly from net unrealized gains of $81.2 million. The credit markets continued to improve in the third quarter, which translated to improved pricing across most of our asset classes.

We also generated other income of $10.4 million primarily from income earned by investment in entities that focus on residential properties and loans. We had total G&A expenses of $10.5 million, a decrease of $1.3 million from the previous quarter. The decrease can be primarily attributed to stock compensation awarded to our directors during the second quarter and fully expensed in the second quarter. We had operating expenses of $2.9 million an increase of $0.6 million from the second quarter due to increased investing activity. We would expect these expenses to continue to increase in the coming quarters as we ramp up our investing activities in residential loans and direct multifamily lending.

The graph on Slide 11 illustrates the change in our book value from December 31, 2019. Our book value increased 5% during the quarter and 18% from the end of the first quarter. We estimate that over $100 million of unrealized losses are potentially recoverable as the economy and markets stabilize. Jason will now go over the market and strategy update, Jason?

Hello. Thank you. Good morning, everybody. On Page 13, I'll be starting by talking through our cash position and going into our portfolio. In a defensive posture, we ended the third quarter with a cash balance of $650 million by focusing the monetization of our securitized bond portfolio, monetizing gains after rallying back from the significant market soft in Q1. We further added $64 million to historically high cash balance for the company through the first 2 weeks of October. We are taking a decisive approach in this market environment. We are aligned to benefit from near-term volatility with our market to move quickly with confidence and without reliance on third-party funding sources such as repurchase agreements. We believe a more attractive entry point for our cash will be available in the near term, allowing us to generate higher returns while also protecting book value.

Our portfolio leverage continued to decline in the third quarter. And this occurred for 2 reasons. First, we are allocating capital to strategies where portfolio leverage is not required to meet our return targets. More on this in a minute. With our proprietary sourcing channels, we are focused on 10% return on asset opportunities plus that is hard to replicate by the market. Secondly, as an issuer, the term securitization market today provides significant value with senior financing borrowing costs at all-time lows. We placed 2 securitizations after the second quarter. And look to expand on this with new deals in different loan sectors in the beginning of next year, with a [7%] economic return in third quarter against 0.2x portfolio leverage we provide exceptional risk-adjusted returns to our shareholders. We are positioned well for future earnings growth.

On Page 14, with $650 million of cash at the end of the third quarter and $574 million of undrawn available loan financing, we have over $1 billion of investments to deploy. While this dry power is significant, so are the opportunities we are seeing in the market. We reviewed over $6 billion of assets in the third quarter, but advanced on only 6% of these opportunities. An extraordinary low rate environment, part of the market has come back, utilizing short-term repo to bridge target returns. This fact, coupled with deteriorating borrower performance on the balance sheet of smaller bank portfolios, we believe patients with our capital will be rewarded with more options in the near term. By simply putting 50% of our dry powder to work and 10% returning investments, we can increase our quarterly earnings by $0.05 per share. We are excited about this opportunity to deliver even stronger earnings in the near-term with our single-family and multifamily strategies.

On Page 15, starting with single family. Where we have 59% of our portfolio positioned, we feel really good about our book, which was optimized over the past few months. Our RPL strategy launched by rehabilitating distressed loans continues to see stable payment profiles with our underlying borrowers. The combination of low LTVs with elevated coupons is hard to replicate in this market. And in performing loans, we are seeing the most compelling opportunities today with either high coupon residential bridge loans or in newly originated loans under conforming guidelines sourced at significant discounts to par from loan originators.

As of yesterday's closed, we saw the 30-year fixed rate coupon at 2.78%, well below our current residential mortgage coupons on our balance sheet. While performance continues to improve, we are excited about the opportunity to monetize the price discount of these loans held on our balance sheet by assisting borrowers to lower mortgage rate refinances. Lastly, on our call, I discussed how we exited most of our non-QM securitization bond holdings. I thought it would be helpful to discuss our current position today. While we've been active in our last 2 quarters as a buyer of securitized bonds, have not been active -- our remaining holdings mostly acquired in 2018 and 2019 have significant downside protection containing wider spreads than today's market issuance. At today's tight spreads, we are a better issuer than a buyer of securitized debt, and we will look to continue for opportunities to sell and reinvest the cash into loan portfolios, including multifamily debt, more on this in a minute.

On Page 16, performance of our portfolio has absolutely outperformed our expectations. At the end of 9/30, we had just 2% of our entire residential loan portfolio under a COVID-19 assistance plan. That level for our distressed loans noted as the RPL sector in the table to the right is [shockingly low]. The significant equity borrowers are sitting on our portfolio created very strong alignment to stay current. This can be further witnessed in our distressed loan transition rates shown in the bottom right graph. Today, we have nearly 2x more performing loan delinquencies from our purchase date. That's after a 7% of our portfolio has prepaid off at par, since purchase date. Our loan prices have rallied back from the lows experienced at the end of Q1 as borrowers continue to stay current.

As discussed earlier, we recently securitized $729 million principal balance of loans in our RPL strategy. In our last deal, we placed senior debt at a market low of 2.875% on the fixed senior rate bond. After locking in this execution, we see over a 12% return on our equity cash flows, we also structured a non mark-to-market warehouse line for new loan investments. This is intended to bridge our performing loan strategies to a-rated securitization takeout. Our redeployment efforts is focused on new investments in single-family bridge sector, more affectionately named Fix and Flip loans. The underwriting in this space has shown marked improvement in 2019 -- from 2019 under reduced competition in this space.

We have on-boarded 3 originators in the quarter. We have 5 plus originators in our pipelines, and we're watching the loan pipelines grow into the fourth quarter into next year. We also expect to be more active in multifamily, which I'd like to switch our focus to.

Turning to Page 17. Much like single-family, we transitioned away from the security markets. In this case, Freddie Mac K-Series bonds in equity instead focused on our proprietary loan origination channels to grow our balance sheet. These assets have demonstrated stability. Our portfolio equity to multifamily strategy is now 25%, as you can see in the top right corner. Opportunities to directly lend to multifamily sponsors fitting our middle market property characteristics is a valuable revenue source for our company. Multifamily loan originations noted as pref equity and mezzanine loan subsector in this table has an excellent track record with zero losses incurred since the strategy was rolled out over8 years ago. With consistent double-digit unlevered returns, we are well positioned to further expand our effort in this market with property sponsor relationships built over ten years.

Lastly, on the securitization side, we further look to monetize our holdings of K-Series, which are currently valued at about a 6-point discount to par on our balance sheet. We see additional tightening with these very stable bond cash flows in the near-term.

On Page 18, as an update to our performance, we currently enjoy a 1.43x DSCR multiple on our multi -- mezz and pref positions as you can see in the table below. We have built out technology to monitor the underlying property cash flows and also have built in low LTV protection, which is why 99% of our portfolio is currently -- is current as of 9/30.

As seen in the bottom right table, our state-by-state distribution is mostly located in the South and Southeast part of the United States. We are seeing strong demand with rental rate increases in most of our markets. Currently undergoing seismic demographic changes, mostly from Northeast regions of the United States. Population migration is truly remarkable to observe where we continue to see rental shortages in many of our markets that we lend to. With an 11.5% average coupon and upfront origination fees earned, the risk-adjusted return is excellent; especially in this low rate environment. This exposure further differentiates us from our peers providing a niche strategy that is very hard to replicate. We're absolutely focused on adding this exposure and have increased our pipelines in Q4 and expect to experience strong growth in 2021.

On Page 19, we focus on generating total risk-adjusted returns by investing assets with low relative risk metrics. We have -- with a high cash balance, we are well positioned to exploit any volatility in this market. With our low leverage, we have an efficient and flexible capability to entering this market and going through both just not just single play but multifamily markets that have provided excellent value to our shareholders.

In the fourth quarter, we continue to monetize unrealized gains in our securities. We're targeting short duration investments with anywhere from one to kind of four-year durations. And we are focused on our asset management strategies and proactively being able to keep our borrowers current, also looking to refinance loans in the pro forma loan strategy in residential as well as monitoring and asset managing our mezzanine loan book and multifamily.

With that, I'll pass it back to Steve. Thank you.

Thanks, Jason. As you can see, we spent a lot of time focusing on structuring and strengthening the balance sheet of the company. And we believe there's going to be tremendous opportunity as we go forward into the fourth quarter and early next year, and so we look forward to getting to that.

So operator, if you'd like to open up questions now for the people on the call. Thank you.

[Operator Instructions.] Your first question comes from Doug Harter at Credit Suisse.

Can you talk about how you're balancing kind of the [patience] for the investment returns that you think will be coming versus kind of using some of that excess capital liquidity today to buy back stock given the discount to book that you trade at?

Yes, sure. I mean, we look at this all the time, Doug. And as a REIT, it's so expensive to raise capital and so difficult to raise capital in many cycles that you go through. We've been very successful in raising a tremendous amount of capital in 2018 and 2019 and the first part of 2020. And we really -- when we look at the alternative of buying back stock, which clearly helps the book value on a onetime hit in the period when you buy it back, but the earnings give up that we believe is out there for the future is not a place where we think it makes sense to go out and buy back stock at this point.

We do look at it. We think our pipeline is building. We wanted to get through the election. We're about through the election. We want to get a sense of where the policies are going to be as it relates to the stuff that we invest in and the impacts it will have. But we do think that we're still dealing with a very large percentage of unemployed people in this country, an unknown in where stimulus is going to be and when it's going to occur and we want to be prepared in the event there's another downturn in the economy like we saw in March. And so we will continue to be very conservative, and we're comfortable in being diligent in timing and getting our investments. We still believe that we have significant unrealized losses to recover, which will continue to build the earnings. We believe our core earnings are around $0.07 to $0.10 right now, and we believe that we can continue, as Jason mentioned, in the part of his presentation, that as we start to reinvest that capital, that will grow anywhere from [$0.025] to $0.10 over the next couple of quarters. So we're very comfortable where we sit today.

And your next question comes from the line of Christopher Nolan of Landenburg Thalmann.

Congratulations on a nice quarter. I guess the dry powder, am I correct that's 5 -- deploying half of that would be $0.05 added per quarter?

That's right.

And what is the -- I mean, is the thinking that this is going to be a deployment in the first half of 2021? I know it's opportunistic, and there a lot of balls in the air, but where is your thinking in terms of when this could be deployed?

No. I think -- when you say the first half, we would -- right now, as we see our opportunities starting to build, I would anticipate our investment pipeline growing substantially towards the end of the fourth quarter into the first quarter. And we would -- again, this is based on what happens in the economy and whatever -- how the election unfolds. But our anticipation would be we would be getting close towards fully invested as we get through the end of the first quarter into the second.

Got you. And then the $100 million and potentially recoverable unrealized losses, given the tightening credit spreads and so forth, what do you think the timing for something like that could be?

We did a securitization in October. That was 100 basis points tighter than our securitization in July. And certainly, at very tight levels, much tighter than where our bonds and loans were marked at 9/30. So again, given where the market is and given the supply demand imbalance, it would appear that spreads would continue to tighten on those particular asset classes.

Great. And then just a follow-up on the dividend question from Doug. You're at least on a GAAP basis and a comprehensive basis, you're well out earning the dividend, I mean, comfortably, but does it make us increase the dividend when your stock is trading at such a discount? What are your thoughts about the dividend? I mean, should we sort of think about incremental small step increases as the performance of the company returns or --

Yes. Look, we certainly have enough cash and liquidity to support a higher dividend. We always are looking at what we need to distribute from a taxable standpoint, what we think makes sense to distribute from a shareholder standpoint. We reinstated $0.05, grew it to $0.075, and to your point, we want to get back to a level that our shareholders have been used to. And so over time, we'll continue to look to grow the dividend. But at this point, I don't think we're really in a position to specifically state at what rate or level, but I would anticipate it going upwards in the future.

And your next question comes from the line of Stephen Laws from Raymond James.

I hate to ask a third question on the dividend. But can you give us an update on where REIT taxable income stands, as I understand it, losses on securities are 4 to 0 and can offset ordinary income. I mean, are you guys satisfying the distribution requirement? Are there considerations that will need to go into that about future dividends or spillover income? Or where do you stand through 9 months on a REIT taxable income basis?

No. I mean we're fine where we stand on a REIT taxable basis. And clearly, we focus -- we certainly don't want to pay any type of excise tax for not meeting our distribution -- minimum distribution requirements. So that is a consideration when we're looking at setting our dividend policy. But -- and we do have some realized losses, and you are correct, you can't offset that against ordinary income. But some of our business takes place in [TRS's], which is taxable. So there's (inaudible) and the distribution requirement there that allows us to retain some income.

So there is a combination of factors that occur in the company and that we're comfortable with and we are in compliance in are not in concern about not being able to meet something or doing some kind of special dividend in the fourth quarter. At this point.

Right. I appreciate that color, Steve. Switching to securitizations and I was a couple of minutes late, so apologize if this was covered. But you did one in Q3, one subsequent to quarter end. Can you talk about is it possible to compare the deals if the assets were somewhat similar? How is demand improving? How is pricing improving? Do you see those trends continuing, or do you think the securitization market is kind of back to a level where it's going to plateau for a bit? Can you give us some color on what you're seeing on that side of the market?

Yes. The market has obviously tightened up quite a bit, even approaching pre-COVID level securitization spreads. So we were able to take advantage of that in middle of October at the 2.875% coupon that I mentioned. But since then, the senior bonds have plenty of demand in the market. There's also a dearth of new supply. The non-QM channels have dried up quite a bit. So you're not seeing a lot of issuance there in other similar markets.

So supply and demand of balance is back to being a technical positive where pre-COVID it was actually becoming more negative. There was more issuance than roll-off of senior paper. So that's obviously helped. Also spreads in this space have stayed a little bit wider than even comparable corporates. So I think you're seeing some crossover buyers in the space that have come in and looking at the bonds.

But since that issuance, I'd say senior bonds are pretty stable when your -- fixed rate senior bond space, especially with latest rally in treasuries. In the more of the mezzanine sector, I think you're seeing more people take a slightly more risk-off stance coming into election. We've seen spreads widen out and mezzanine type of bond offerings in the market about 25 to 30 basis points. But I think right now, given the supply side of the equation, there's enough demand that's meeting it. You're seeing deals continuously be oversubscribed, which is a good trend and showing strength from that side of the equation.

So I see kind of plateauing here. Senior bonds about staying flat. And with the recent winding of the mezzanine bonds, I think it pretty much stays at this level into the year. And outside of some kind of technical or volatility in the equity markets.

Great. And lastly, on the security side, taking leverage, there's no financing in place there as of the end of the quarter. Can you talk about what you're seeing on unlevered returns there as you look to -- I don't know if it's the (inaudible) you're looking at or kind of what type of return on assets you're seeing there? And what's the outlook longer term? Will you go back to putting some leverage on the securities portfolio? Or how do you view that as we move into 6 and 12 months from now?

So the current -- we took out a new repo warehouse line in the quarter. This was a non mark-to-market warehouse line for performing loan opportunities. And to answer your question on securitization, our goal is to take performing loans that we're buying in both Fix and Flip strategies, Scratch & Dent and RPL strategies and use that as a bridge to a securitization takeout where there's -- financing there is very efficient.

As it relates to our security portfolios, we are not in the market and don't foresee in the near term buying security positions and looking to use repo or other financing, similar financing to bridge the target returns. We do see some market participants doing that again, coming back from end of Q1 where that kind of dissipated, and there was a lot -- a lot of the technical distress came from. We don't like the risk metrics there. We don't like the -- I'll call it, is excess liquidity in that market, where you have plenty of financing, not a lot of bonds, and that can quickly turn over with volatility in the equity markets as a whole. So we're not looking there.

We're also not focused on [case] responses down the capital stack. On the senior bond side of the equations, it's too tight and a lot of leverage is needed to earn a decent return, double-digit return there. In the mezz part of the capital structure, we have sold a lot of our bonds at premiums. We still have bonds that are left that we will be looking to sell opportunistically over time. And down in the cap structure and the equity that's a strategy where it's at 7%, 8%, 9% type of coupon or our accretion return leverage is required to get to a double-digit -- solidly in the double-digit area. And we do not want to bridge short-term financing with long-term -- longer duration asset exposure. So from that equation, we're not going to be involved in that market.

Where we see better opportunities is to create our own equity. In our loan channels, buying loans, creating an equity with term financing. That's matched funding against it as well on the mezzanine loan space, in pref, in multifamily, we don't need financing to earn their target returns in that space given the coupons and total returns in the 11.5% range. So we would not be utilizing financing in that space.

Yes, Steve, our ROA on the assets that we're holding is really coming from the recovery of the prices. We could put financing on them, but was $650 million in cash, there's no need to. And we're comfortable with our -- as our position goes down to just selling these into the marketplace. And as Jason said, focus on our loan business because we just think there's a better risk-adjusted return there.

And your next question comes from the line of Jason Stewart from JonesTrading.

If you pull up and think about liquidity and leverage over all the medium to long-term, given what you've described on the asset side, where do you think that trends to as you take it out a little bit more than, say, 2 or 3 quarters?

Yes, certainly. Look, to Jason's point on a previous question, the goal is to generate equity returns. On term funded securitizations, where there is really no call risk back to the company or mark-to-market risk. So to the extent that we have a larger portion of that type of risk on the balance sheet, you can run a much tighter liquidity book that probably represents closer to between 8% and 10% of the equity of the company.

The mezz business in multifamily is an unlevered business. So it doesn't really require excess liquidity to manage that business. So that's why we -- we're very comfortable looking forward towards our earnings. There's a lot of earnings growth potential in our balance sheet right now in the ways that we're putting new investments on a book. So I think as a guide, probably 8% to 10%, and it could be lower depending on the mix of residential securitizations relative to direct lend in multifamily.

Okay. That's helpful. And then on the cost of funds side, I mean, you've done a lot of work on the liability side of the balance sheet. If you could give a sense of where you think that trends to over the next couple of quarters given the securitization activity, is 3Q going to represent a low point? Or does it dip again in 4Q? Any color there, given the amount of work that you've done would be incredibly helpful.

Yes. Look, the -- one thing that's changing rapidly, and we're in the process of closing, we have 2 warehouse lines that roll in the fourth quarter. So we're in the process of negotiating spreads there. But if you look at our securitization that was done in July at about 4% on the A1 bond, 4 and an 8, and to Jason's point, our A1 bond in October [wanted] 2.875, financing costs have come down substantially. So I would anticipate, and LIBOR has gone down, I would anticipate the 333 average for the third quarter. We have a chance of lowering that because we're going to have a bigger base with a lower cost being added to it. So I think we would see that plateauing and hopefully going down slightly if the market continues to go the way it's going.

I'll also add that the mix of securitizations that we're going to avail ourselves to in 2021 will be quite different than in 2020. We're looking at a 2 different types of securitizations for the first quarter of next year in the rated securitization space with respect to RPL loans as our portfolio seasoned, and we have more current pay borrowers that are more seasoned payers, 12-month plus, we can avail ourselves to the radiation market, which will definitely drive our funding costs on our loan book lower, as well as looking at bridge loan securitization opportunities as well. So the expectation is that the mix of funding will change from non-rated deals to rated deals, which should drive down our funding costs in 2021.

[Operator Instructions.] And your next question comes from the line of Bose George from KBW.

If you could just repeat what you said about the current core earnings run rate, and then just a commentary about the benefit from the deployment of cash and what you said about the timing of the deployment, I think you said into early next -- I think the first quarter?

Sure. Look, we look at our core earnings right now between $0.07 and $0.10, and it's hard to calculate when you're looking at our financials because we have a lot of different accounting methodologies going on. But when you look at our net margin and components of the other earnings categories, we think it's around $0.07 to $0.10 right now. And as we look at deploying the capital in one of the graphs that we put out there that Jason talked to, at about a 50% deployment, at a 10% average asset return, which is lower than what we're actually experiencing today on some of the investments that we have done. That generates about an additional $0.05 per share per quarter in earnings growth.

And so obviously, that's a low bar that we're trying to put out there as a representation, but our goal is to do better than that as we go forward in time. And as we add more securitizations, residential securitizations, I think you'll start seeing a transition of our core earnings that is more definable for you guys as analysts. It's been very difficult historically for us because we've had a lot of different components of earnings. But I think as we go forward and look at some of these strategies we are focusing on today, you'll see more core like earnings being developed.

Okay. And then the dollar amount you said in terms of unrealized losses that could reverse over time. What was that again? What was -- when you talked about unrealized losses that could reverse over time, did you give a dollar amount? I wasn't sure if you did that.

Sure. Yes. We said we have over $100 million still on securities and loans that we hold on our balance sheet that are still below where they were at March 31, essentially, that's how we look at that. And we've seen significant recovery. And as we said in our securitization we did in October at new lows in terms of cost, that would infer that prices continue to strengthen into the fourth quarter today.

And at this time, there are no further questions. You may continue with any closing remarks, Mr. Steve Mumma?

_

Thank you, operator. Thank you, everyone, for being on the call. We look forward to recapping our 2020 year in the early part of 2021. Be safe and healthy and have a happy Thanksgiving. Thanks, everyone.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.