RWT - NYSE

Good afternoon and welcome to the Redwood Trust, Inc. First Quarter 2024 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Mauritz, Redwood's Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for our first quarter 2024 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President and Brooke Carillo, Chief Financial Officer. Before we begin, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions and involve risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. With the non-GAAP financial measures provided not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our first quarter Redwood Review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contains time-sensitive information that are only accurate as of today, and we not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. I'll now turn the call over to Chris for opening remarks.

Thanks Kate. In February, we delivered our fourth quarter commentary where our focus was on actions we took in 2023 to lay the groundwork for a long-term positioning. These actions occurred in the midst of one of the worst housing finance markets in decades. More recently, at our March Investor Day, we updated the market on our progress at that point in the first quarter, putting the announcement of a transformational new capital partnership. With the first quarter now behind us, we're pleased to be building on the foundation we established, generating significant increases in net interest income, GAAP earnings, EAD earnings, and GAAP book value. As we'll discuss in today's call, first quarter is emblematic of our long-term strategic vision, demonstrates the potential of our platform to deliver value regardless of the interest rate environment. Our business has been fueled by the strong capital position we've amassed in recent quarters, while allowing us to form generational partnerships with banks and other institutions who now lack portfolio capacity for residential mortgages. With April now behind us, we continue to gain market share, making our trajectory worthy of a second look by macro traders who've been otherwise consumed for the gyrations of the 10-year treasury. Our residential consumer locked volume was up 50% quarter-over-quarter, eclipsing our highest level since the beginning of this Fed tightening cycle. Our residential investor business has also found momentum on the heels of the $750 million strategic partnership that we announced with the Canada Pension Plan Investment Board last month. As a reminder this partnership includes a $500 million joint venture sized to purchase up to $4 billion of residential investor loans in the quarters ahead. But the partnership with the Canada Pension Plan Investment Board is much more than a traditional joint venture. It also provides us with significant corporate liquidity to a $250 million secured revolving facility. Through today we've already drawn $100 million on this facility as it's well-suited to address the anticipated growth trajectory for our residential consumer business. Leveraging this partnership has reduced our need for additional equity capital thus far in 2024. An extended period of higher rates has also driven the expansion of our home equity product offerings closed our first directly originated home equity investment option through our Aspire platform in the first quarter began the process of rolling out traditional second-lien mortgage products through our seller base. As we have for some of our other products, we expect to pursue dedicated capital partners for this asset class in the quarters ahead and scale these offerings over time. Turning to our investment portfolio, fundamentals remain strong. The vast majority of our investments backed by single-family housing credit for homeowners continue to build equity. In particular we've made meaningful progress within our residential investor portfolio where we saw a sharp reduction in credit rate related charges for multifamily bridge loans relative to recent quarters. This eventual flattening was intuitive to us as we made important shifts in our product focus as rates began to rise in late 2022. And we've steered clear of commercial asset classes now experiencing significant stress. Collectively, our progress in the first quarter reflects the unique value that our franchise brings to homebuyers, housing investors, banks, independent mortgage companies and private credit institutions who have come to rely upon Redwood. Our focus will now be on scaling our platforms and growing wallet share at a time when few are capable of doing so. While our business stands to significantly benefit from an eventual Fed easing, the first quarter was evidence that we are well-positioned for growth in an extended, hire-for-longer environment as well. As more banks begin to publicly message their early compliance with the anticipated Baseline Game Rules serves as an important reminder of the growing need for Redwood's products and services. And with that, I will turn the call over to Dash.

Thank you, Chris. I'll cover the performance of our operating platforms and investment portfolio before handing it over to Brooke to discuss our overall financial performance. As Chris emphasized, the first quarter of 2024 validated the unique opportunity for our residential consumer business to drive volumes and profitability amidst continued pressure on broader industry volumes. We locked $1.8 billion of loans during the quarter, a 53% increase from the fourth quarter. Gross margins were 107 basis points above our historical target range on the strength of 3 accretive securitizations totaling $1.2 billion, a monthly cadence that drives efficient capital turnover at increased volumes. Credit spreads have remained constructive for issuance. And earlier this month, we priced our fourth securitization of 2024 at our tightest spreads of the year with robust investor demand. This strength of execution pairs well with our longstanding operational advantages and our first quarter volume mix reflected increased wallet share across our network of loan sellers. Our lock volume with banks rose even as overall bank production fell. Meanwhile, our volumes doubled quarter-on-quarter with independent mortgage bankers or IMBs. These partners remain a key driver of non-agency volumes in the market and represent a longstanding strategic moat for the business, critical to us continuing to drive market share higher. We also saw increased momentum from bulk acquisitions, which more than doubled relative to the fourth quarter. This is a development we have been planning for as our enhanced capital position allows us to continue to be more aggressive in this channel and pursue larger season portfolios that complement on the run production. Importantly, momentum in the business continues to grow, notwithstanding the 45 basis point backup in the 10-year treasury yield we have seen in April alone. Lock volumes in April, once again balanced across our seller base and between bulk and flow transactions, outpaced our average Q1 monthly run rate by 25%. Turning to our residential investor platform, our priorities remain prudently growing top-line revenue, proactively managing credit risk and returning the business to sustained operating profitability. For the first quarter, we funded $326 million of loans, effectively flat from fourth quarter volumes. Revenue margins and segment profitability improved quarter-over-quarter driven by tightening securitization spreads. Volume trends picked up later in the first quarter and given recent volatility and benchmark interest rates, we built important momentum in less rate-sensitive products, including single asset bridge or SAB loans. We entered the second quarter with a growing pipeline as more borrowers come to accept the current rate environment and lock-in coupons. Funding volume in April is trending 15% higher than Q1's average monthly run rate, driven in part by the largest month for SAB production since the acquisition of the Riverbend platform in mid-2022. Distribution channels for our residential investor loans remain open and are benefiting from a firmer overall market tone. First quarter bridge production was largely distributed into our Oaktree joint venture and our 3 revolving bridge securitizations. With the CPP partnership in place, we are finalizing warehouse financing for the joint venture and expect to begin selling both bridge and term loan production to this new vehicle towards the end of the second quarter. Delinquencies in our term and bridge portfolios remain stable quarter-over-quarter, and we have continued to emphasize disciplined underwriting and product selection. At March 31st, virtually all of our 90-plus-day delinquencies in the bridge portfolio were for loans originated in the third quarter of 2022 or earlier, one of the key junctures at which we evolved our origination approach. Since late 2022, our residential investor production mix has remained predominantly focused on single-family loans, where performance has remained resilient. This trend bears what we are seeing in our broader investment portfolio, particularly in our re-performing loan, or RPL book, where delinquencies have hit 3-year lows, partly on the strength of steadily improving LTVs. In addition, delinquencies within our securitized Sequoia portfolio remain low at just 20 basis points. As a reminder, our investment portfolio sits with $2.47 per share of discount, much of we continue to believe is recoverable with both continued performance of the underlying investments and further firming of risk sentiment, which could reverse unrealized losses from spread widening taken in 2023. During the first quarter, we found attractive pockets of relative value, deploying approximately $115 million of capital into new investments at an estimated mid-teens blended return. This represented our most active investment quarter since the third quarter of 2022 and we anticipate continuing to deploy excess capital accretively in the coming quarters both in support of our operating platforms and into opportunistic third party investments. And with that, I will turn the call over to Brent to cover our financial results.

Thank you, Dash. We reported GAAP earnings of $29 million for the first quarter or $0.21 per share compared to $19 million or $0.15 per share in the fourth quarter, resulting in a first quarter GAAP ROE of 10%. We reported book value per share of $8.78, a 1.6% increase from $8.64 on December 31st. GAAP earnings exceeded our Q1 common dividend of $0.16 per share and we delivered a quarterly total economic return of 3.5% for the quarter. The improvement in GAAP earnings was driven by higher net income from both of our mortgage banking platforms as well as positive mark-to-market changes in the investment portfolio. Net interest income increased 20% or $4 million in Q1 driven by $200 million of accretive capital deployment over the last 2 quarters and improved interest income on bridge loans. This positively impact earnings available for distribution for EAD, which was $11 million or $0.08 per share in the first quarter as compared to $7 million or $0.05 in the fourth quarter. As has been mentioned, we grew box volume and maintained healthy margins above our target gain on sale range in our residential consumer mortgage banking segment, ultimately delivering a 17% GAAP return up from 10% in the prior quarter. We have demonstrated our operating leverage as we rescale the platform, driving down our cost per loan to 37 basis points during the quarter, approaching our run rate target of 30 basis points to 35 basis points in line with historical ranges for the business, contribution from our residential investor mortgage banking segment also improved quarter-over-quarter even with slightly lower volumes due to improved securitization economics from spread tightening. On our last quarter's earnings call, we guided the market to another 5% to 10% reduction in G&A from 2023 levels. We made substantial progress towards this goal in the first quarter, following recent expense reduction initiatives completed in late March. Our first quarter G&A expenses include $3 million of costs related to these actions. In aggregate, we expect our go-forward G&A to decrease by approximately $2 million quarterly or $8 million on an annualized basis. Our strong liquidity position was further bolstered by 2 important new sources of corporate capital. The first was the $250 million secured facility, which was part of the CPP partnership. And the second was the $60 million inaugural senior unsecured debt offering in January. As previously described the CPP financing facility is secured by unencumbered assets as well as by equity in certain of our operating subsidiaries. The facility is structured with revolving capacity, which makes it well suited to address the anticipated growth trajectory of our residential consumer business. Subsequent to quarter end, we completed an initial draw of $100 million and have begun to deploy the capital in line with the mid-teen return targets Dash mentioned. We reported total recourse leverage of 1.9 times for the first quarter, a decrease from 2.2 times from the fourth quarter as a result of lower recourse debt at our operating businesses as we successfully completed 3 Sequoia securitizations during the quarter and reduced our convertible debt by approximately $31 million. Cash and cash equivalents at quarter end were $275 million, compared to $293 million at year-end, which is notable given the $146 million of capital deployed during the quarter inclusive of the corporate debt repurchases. During our Investor Day in March, we took the opportunity to walk the market through our path to higher earnings. Our performance during the quarter serves as a testament toward that goal and we expect to continue to build on the net interest income we generated in the first quarter. We're committed to growing market share and deploying capital effectively to boost earnings in line with the current dividend level over the remainder of this year. And with that operator, we will open the line for questions.

[Operator Instructions] Our first question comes from the line of Rick Shane with JPMorgan.

When we compare the bridge loan maturity on schedule from the fourth quarter to the first quarter, it looks to me like about $165 million or $170 million of the pending first quarter maturities have been rolled in or extended into the second and third quarter. Is that about right?

And as right we had about $155 million of extensions on the quarter that were anywhere between about 6 months to 12 months I think around 8 months on average.

And last year you guys provided, sort of, a pie chart showing the outcomes by -- of 2023 maturities on any broke out how what percentage were extended what percentage were extended with additional commitments on that $155 million was a high percentage extended with additional equity commitments or how should we think about that?

It was more, Rick. You know a lot of those were shorter term in nature. So we always -- we don't extend alone without; #1, procuring economics and #2, for ensuring that our equity position remains sufficient. So in certain of those cases yes, we did ask that bar to re up but in many cases where we feel like we have sufficient equity position and the borrower just needs a few more months on the houses on the market and there is looking to sell it. We don't always require it, but we always obviously pulled out a fresh appraisal and ensure that our equity position is sound.

And that’s – other Rick, right.

I'm sorry, what?

Sorry, I just noting that the associated fees are in other income that Dash mentioned.

And as we move through 2024 under current market conditions reasonable to assume on sort of a roughly 50-50 mix between payoffs and extensions at this point?

We would actually probably expect extension activity to drop a bit on you know just for context since the beginning of the year through today the end of April we've had about $250 million in payoffs in the full bridge portfolio about 80% of that was from 2022 vintage earlier. So you're starting to see a little bit better on velocity particularly as the single-family market remains strong and people are starting to move inventory a little bit more efficiently sort of on the consumers as single-family markets remained strong. So we would historically we've generally seen a third or so. And going forward we would expect this number to trend back closer to that. So Rick -- No just to make sure we don't bury the lead. We thought that the performance of the bridge book this past quarter certainly from a credit perspective was substantially improved. When you dig into the numbers and you look at the slope of delinquencies and on credit there is a significant flattening which I don't think we've observed across the sector. So we're actually really, really pleased with that our asset management team and how we've sort of evolved that book. But I'm sure all of that will be evident in the review.

No look we certainly we certainly see that on the bridge book 20 basis point increase on quarter-over-quarter versus 260 the quarter being or 160 the quarter before so that, that second derivative is very favorable. There's no question on. I'm just trying to understand sort of how the dispositions work.

Yes.

Our next question comes from the line of Bose George with KBW.

I wanted to ask at the Investor Day, you guys mentioned accretion from the JV. I think it was $0.25 to $0.27 over I think it was a 3 year period. And the $0.15 that was mentioned in the review today is that over sort of a shorter time frame and then we'll sort of grow into that some of the higher numbers over the next 3 years or just yet trying to figure out the cadence.

Yes and we're really just reiterating what we had said at Investor Day. So it remains the same and it's a $0.15 annual number for the joint venture in terms of accretion over where we are kind of with our standalone business as it financed today. As you saw with us in Oaktree, it will take a quarter or so. We're actively working on financing facilities for the joint venture. We're seeing a lot of very robust appetite from lenders to finance this facility, as you might expect, which is really going to help us further with our deployment. So we're excited about it, but this will be a later in Q2 deployment as we get those lines established.

And then in terms of deployable capital, how should we think about that now? You have I guess with $274 million of cash, but you've got more obviously more flexibility with the JV. And the reviewed mentions unencumbered assets that you could lever up. So just trying to think of put the pieces together and think about how much sort of flexibility you have?

We think our flexibility is really good, Bose. It's a great question. At the moment, in terms of liquidity on hand, we think we have about $175 million of deployable capital. That does not include further optimization of unencumbered assets, obviously, inclusive of on the ability to draw on the CPP line further. That by the way is net of the July 2024 convert maturity. So we're backing that out. We have just over $100 million of remaining outstandings under that issuance. So net of that today we have about $175 million and that can go up by another $125 million plus or more between further draws on CPP, which as a reminder includes unencumbered assets as well as equity in certain of our operating subsidiaries. So definitely net asset value there that's not otherwise easy to monetize on we can borrow against. And then we have other securities, which we could encumber if we wanted to and more sort of run-of-the-mill repo. So we feel really good about our deployment. It's a big part of the NII walk, which was up 20% quarter-on-quarter. And where we see future growth, we have some information in the review this quarter about that. A lot of that is linked to this deployable capital and just our ability to go on offense and continue deploying that like we did in the first quarter.

Our next question comes from the line of Doug Harter with UBS.

Another question on the bridge delinquencies. Last quarter you gave us a little bit of a -- you gave us a break down kind of where -- whether how much of it was multi versus single asset. Just wondering if you could update us on kind of that mix of those delinquencies. And then kind of on resolutions, have you -- kind of how are the resolutions are trending and kind of where any liquidations that are happening and kind of what the recoveries are there relative to your loans?

Sure. We do still have that information. It is in our Excel tables this quarter. It’s out of the body to review. So it's Table 16 in our Excel tables. I would say the trends are similar. One thing I would note is, we -- as Rick pointed out, about 4.7% 90-plus at 3/31. Chris talked about the flattening of that curve. Since the end of the quarter in April, we have resolved about 1.3% of the portfolio. So that 90-plus numbers now in the 3s, that's not reflected in the review. Those are all as of 3/31. But we were able to continue momentum with resolutions on guarantee during the month of April last year to-date. In terms of outcomes we've been pleased on the bridge portfolio, most of the severities have been zero. They've averaged high single digits in terms of what we've resolved, which in terms of where we have the position marked, we feel very, very good about those outcomes and resolutions. You didn't ask about term, but I'll mention it. We've continued to see good momentum there. Realized severities have been very low in that book sub 1% in terms of the loans to be resolved in the first quarter. So, like we've talked about before. We're not altogether surprised at some of the delinquencies, but we're pleased that they're headed back in the right direction. And obviously, ultimately, it's about the long content. As we resolve, Chris talked about how the asset management team is doing. So we've been pleased with the ultimate outcomes there so far.

I also just now you saw that in NII as well, Doug. Our nonaccrual loan bucket declined by about $70 million on the quarter, which contributed about $2 million positive to net interest income for the portfolio. So I think we're -- we try to be pretty conservative about placing loans on nonaccrual sense even in advance of them rolling 90 days delinquent and don't really take them off until kind of we're all caught up by the borrower. So I just wanted to know that to that it may explain to NII.

And can you give us an update on how book value is trending so far in April?

Book, we estimate as of effectively today is flat to down 1%.

Our next question comes from the line of Crispin Love with Piper Sandler.

So just first with banks pulling back on Jumbo. Can you just speak to some of the competition that you're seeing in the space? Are you seeing any new entrants coming in, whether they are mortgage players, asset managers? Just curious on the competitive landscape here, thanks for pulling back and who could be contained with you per share now and who might enter the space going forward.

Sure. The competitors that we've seen more or less over the past year or so have largely been the Wall Street banks, the broker dealers. I think our bank strategy is pretty differentiated because most banks -- their first choice is in to sell loans to banks -- so if you're looking for a capital partner, we're kind of like Switzerland in that regard. And our business operates a lot like the GSEs where we don't service mortgages, we don't originate mortgages, which really are. So from that standpoint, the competitive landscape hasn't changed that much. And we've used this period of time where transaction activity in the housing market has been very low, just to deepen these relationships. We keep adding banks to our seller base. We've actually gained a significant amount of share with the independents as well. So I think just being capital efficient and being a great partner has enabled us to really build our business. And I think we're pretty excited about the growth trajectory of consumer residential. We're printing results there with CAGRs that reflect that. So ironically, obviously, I think the market views an easing of rates is extremely positive for our business, and that's true. But as rates sort of paying out at these levels, every day it's compelling another bank to think about a capital partner. So from that standpoint, ironically, it's been very positive for the relationships that we're building. And hopefully, we can continue to do that through the course of 2024.

And then just on the bridge book. On the quarterly funded volume side, it's decreased, but hasn't but not as much as some other players in the space. So how do you expect funded volume to trend across the bridge and term portfolios? Do you think you could be reaching the bottom here? Are you seeing opportunities? And are the additions pretty much all in SFR, and do you think there are any multifamily or just very little?

Yes. That's a great question, if you think. So as we said in the prepared remarks, April's run rate will be about 15% higher than the average monthly run rate for Q1. There are a few reasons for that. I think the one we're most excited about, frankly, is the growth in the single asset bridge funding. That's a business that we are very committed to. Last quarter, as you saw, was about 16% of our fundings in April, that will probably double or probably 35% of our fundings in April. That's a single-family strategy, largely an area where we feel like we can compete really strongly with the market with our sales team and our fulfillment, but also frankly, our distribution. Our distribution -- across our businesses, but certainly in residential investor at this point is probably in as good a spot as it's been in quite some time. When you marry securitization demand, obviously, the joint ventures with CPP coming online next to Oaktree and also demand for whole loans remains really robust, particularly for those smaller balance single asset bridge loans. And we've used that to our advantage to really grow volume there, take advantage of the funnel. So that's one piece and term volumes are trending in the right direction as well. Even with benchmark rates higher, securitization spreads have tightened. We've been able to use that to our advantage to build a pipeline there. And also frankly we're in a situation with a lot of borrowers are wanting to get out of bridge loans that are very high single low double-digit rates and are willing to accept the somewhat higher term loan rates as a result of our benchmark rates are at this point. So all of those are tailwinds for the business, that it really starts with the right funnel and obviously distribution. And to address your question on multi. Yes, I think we're remaining very selective there. As we said last quarter, there were a lot of multifamily deals over the past 4 or 5 quarters, we could have done and are glad we didn’t. And so I think we're going to be more opportunistic there. There’s a bit of an analog to the bank store and jumbo what you asked about as well, which is an area we are definitely focusing on. We're a lot of really, really good sponsors that have gotten low loan to cost loans from banks over the years are not going to be able to be served by those depositories anymore, multifamily sponsors. That's definitely an opportunity for us, where again, we have this distribution on the other side stronger than we've had in quite some time. So those pieces need to come together in terms of NOIs and just the thoughts on multifamily broadly but at a macro level the pieces are there for that to potentially grow as well.

Our next question comes from the line of Don Fandetti with Wells Fargo.

Just to clarify, the $100 million drawdown on the CPP facility, is that – am I thinking about it correctly you're going to use that to essentially fund residuals of residential credit production? Is that how I should think about that?

Yes. We can use it to fund residuals and securitizations as we go forward. We also have a number of residuals that are unfinanced today that represent that $370 million of our unencumbered basket. So I think Dash mentioned the revolving nature of it and we did in our prepared comments as well. I think that's probably the most interesting feature of the facility just because our working capital needs of the residential mortgage business Flex even intra-months as we're securitizing at this cadence once a month. And so it really allows us to accordion with those working capital needs. But yes, it allows us to finance a number of different types of assets between our residuals from all the securitizations that we do as well as some of our other assets within the investment portfolio.

And then in terms of EAD covering the dividend, I guess you mentioned that's going to happen this year probably driven by NII continues to march higher and then you've got some cost saves. Is that sort of the best way to think about it?

Yes, that is. If you think about our earnings available for distribution increasing from $0.05 to $0.08 this quarter, $0.08 really would have been $0.10 if on the pro forma cost structure that we'll have in Q2 marching forward. So the incremental $0.06 towards the dividend is really somewhat driven by the capital deployment that Dash mentioned, but also the April trends that we're seeing in the business. We mentioned a 25% increase in lock volumes for the residential business, a 15% to 20% increase in the investor pipeline as well. And so a couple of pennies of that walk was from increased but reasonable growth assumptions in the near-term for mortgage banking, really underscored by what we're seeing in the pipeline today.

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

Brooke, so you kind of hit on it. And from the Dash’s prepared remarks, the 25% kind of run rate April volume versus the monthly average in Q1 on jumbo. And I think, Dash, you mentioned some of the financing, so even as bank production was down, you're getting a higher share of that. Can you talk about how you view the market share opportunity to continue gaining that? And as you look out 12 or 18 months in the future, what type of quarterly volumes do you think these relationships in the market and your platform can support if you get a little cooperation from rates moving lower say, in 2025?

Yes, it's a great question, Stephen. And we wanted to -- we really wanted to focus on our strong April, given the backup and the point is that even if the market remains constrained, there's a lot of room to the ceiling from a wallet share perspective. We feel like we're currently in that 4% to 5% market share range for jumbo. We talked about the doubling of IMB volumes quarter-on-quarter, which it's a really big deal because as you know, that's been a huge historical moat for the business. Those -- that crowd is always going to be an originate-to-sell model with potentially a couple of exceptions. And so just being on the screws with that cohort is important. But the bank opportunity is really the big one. It's the big ocean, so to speak, in terms of where volume could go, and we're really just getting started there. Bank volume was up quarter-on-quarter, like you said, even though depository volume was down. The big thing with banks, and we've talked about this before is from a wallet share perspective, once you're in, you're in, the vendor management and the setup processes of banks, they do take time. They -- because a lot of these banks are coming back to the market for the first time in a while, it has been a process to get each other switch back on. And that's a really deep moat, right? Because to the extent we're in there locking loans with them now, it's unlikely they're going to run out and go through another several month vendor management process again, right? And so that's a big piece that I think is really, really hard to replicate and something that we really want the market to understand is that these relationships take time to stand up, certainly, personally, but also operationally. And we really think we're in the early innings of the bank volume, and that could be a huge driver going forward.

But definitely agree there and appreciate the comments. Can you touch on the gain-on-sale margins was quite strong for Q1. Can you talk about the margin on the April securitization -- I mean, that's the comment there but curious if those strong margins continued into April?

Yes. Yes, our pricing on our April securitization was actually even stronger than our March deal. So we continue to see really strong margins. I think part of, the commentary that we wanted to make sure came across today is just the durability of what we've, done in terms of some of the changes to how we're efficiently financing the business that's come through in net interest income and also to margin on the business this quarter and also some shifts in our hedges as well. So I think that's definitely helping from a margin perspective.

Great. And then lastly, I noticed, Euticals release or the deck, but, you know, talked about the first directly originated AGI investment and launched a closed end, closed end second product through your, you know, resi consumer seller network. Can you talk about kind of uptake and outlook for these products and maybe the competitive landscape around those type, the new products you're launching here?

Sure, Stephen, I'll weigh in. Clearly there's a lot of excitement brewing around certainly the second lean products in the market. I think private capital is really crowding in there. I think it's so lucrative that even the GSEs want to be involved, which is interesting. But I think our business is well-suited to source that product. We're kind of in the midst of rolling all of this out to our seller base. It does take time, with the training and with the guides and the process, as Dash mentioned. But we're quite excited about it. We think we've got great institutional capital partners that are interested in working with us, from a distribution standpoint. I think that, you know, AGI's time is coming. You know, you saw a great Case-Shiller reprint today. And as you, like, head out in the horizon and think about, the trajectory of HPA from here, I think AGI is going to continue to grow. And to the extent, we can help institutionalize the product, make it safe, make it transparent, that's a huge TAM for this business. So I think we're very focused on both. You know, I think the home equity product front is going to be a storyline for us, over the next few quarters.

Our next question comes from the line of Eric Hagen with BTIG.

Hey so looking at the capital utilized in the quarter in the jumbo segment it looks like it was $160 million, looks like you took it up, but you ended the quarter around $200 million. Would you say that's a pretty steady level of capital at these mortgage rates? Do you see that maybe moving around much in the near-term? Then can you also share what the return on capital is for the retained tranches from the jumbo securitization right now and maybe how that compares to levels in the past?

Sure, Eric, this is Dash. I think you could certainly see capital allocated to that business going higher. We have talked about again utilizing the CPP facility to support that. But certainly as volumes hopefully continue to trend up, I think you could see it hanging out in the $200 million $250 million range or something like that. That level of capital would support I think our run rate at or in excess of our April run rate of that we talked about. So that's the thinking there. In terms of return on the retained pieces, its low-to-mid double digits at this point, it's largely on the subs and depending on some of the senior on the iOS piece that we typically keep. That's the return profile right now.

Can you share how big the unfunded commitment is in the bridge book at this point? In the CPP funding, be used to support unfunded commitments or is it only for really new loans. You guys don't have a CECL reserve for the portfolio, because you're marking everything to market. But if there was a loss assumption that you could share for the portfolio just for benchmarking purposes that would be kind of helpful.

Sure. We had about $513 million of unfunded commitments at the end of March. And just remember we only had $80 million roughly of draws on the quarter. This number has come down and as you're tracking overtime and so our payoffs have significantly exceeded our draws. And so that will probably be more of a source of self-financing in a bridge that use no capital on the quarter between and the capacity we had in our RPL and facilities as well as our Joint Ventures and our payoffs. And so we will likely not all capital is fungible, but that's not the intention of utilizing the CPP facility. And just in terms of your commentary on our marks. We have about 150 basis points across the bridge portfolio are essentially reserves, given where it's marked at 331 and that varied between certain cohorts. We have about 300 basis points across the entire multifamily portfolio. And our non-performing loan cohort was about 10 points of them of reserves.

Our next question comes from the line of Steve Delaney with Citizens JMP.

Congratulations on the nice start to 2024. I'd like to go back and talk a little bit about IMBs, the mortgage bankers, curious, if you could just give us some general automation of approximately how many or how has that grown over the past year? Are you focusing at the very the largest players in the space, just from a standpoint of efficiency and risk return, just curious about how that has emerged here. Not something that I recall talking a lot about in the past, and your thoughts about, how big this might become?

Sure, I can start there Steve. So our total seller base from banks and nonbanks about 190 discrete institutions of that about 115, 1-1-5 are nonbanks. And as you obviously know, we've grown the bank piece of that to about 75 particularly over the past few quarters. But like we talked about, IMB's have always been you know a core foundation of our volumes. We lock loans because you can tell with a wide variety. There's a lot of the biggest household names in that list on. We talked a little bit about this last quarter, but it's worth underscoring which is just the diversity of our overall volumes across the seller base. We had a $1.8 billion loss quarter. We had a big April, generally no one seller is more than 5% or so of production. And you can sort of see that when our Sequoia deals are in the market just the distribution there. And that's really important because we have really broad reach, which we're really proud of. As you know Steve that's years of building this network particularly on the IMB side. So, it's interesting in terms of volumes that we had a minute ago we talked about the banks and obviously that's there's a huge runway there for us to do more. But you know over the past couple of quarters, really the last several years, I suppose you've as you well know you've seen IMB's become a more a meaningful part of overall production. They were there when a lot of the banks step back last year with some of the volatility in the banking sector. So things will move around a bit, but we remain very bullish on the IMB opportunity and we're thrilled we have that we have those relationships because we've been at a point the past year where frankly they have continued to take share. And we've been there now to provide liquidity to.

But I think they've invested in the technology. They're way ahead of the banks. The banks have the consumer relationships, but they just don't have the infrastructure if you will the AMD's have for sure. Just one quick one to follow up on both. You know, there's an old saying who's got all the money will it's the bank. So who's got all the mortgages would be the bank to. When we hear about bank, both is, it working directly with banks or possibly with Wall Street treat both brokers and might be representing smaller banks that you don't have a relationship. Just curious, where the flow is coming from on the bulk packages.

It's definitely all of the above. There are some IMB'S that on that execute in both fashion and that was a part of the story in Q1. Certainly, partnering with larger Wall Street banks that have platforms that can ours is something we've done a lot of over the years and have continued to do. I think we are really just scratching the surface probably in the batting practice zone in terms of getting bulk packages off of bank balance sheets. I think Chris said, it well as rates hang out here you know, even if some of those sale prices are a little bit out of the money, it is going to compel banks to come to the table, finding more quickly and so that, that remains just a huge opportunity that we're excited to hopefully partner with flow relationships going forward with them.

Yes I'd say Steve a few things, we are -- as we partner up with some of these very large institutions like CPP Investments, Oaktree, others, I think we've continued to become more formidable as far as our ability to be aggressive and both in terms and size. So I think over time, we should continue to see more of bulk transactions. I do think, it's worth noting that on things like CRT even bulk, one of the challenges with portfolio lenders, who haven't been attuned to distributing to the capital markets, is you still have the same challenges, you've got the loan files, it's got to be in order on a lot of these for CRT, any ratings. And so for bulk, whether it's whole loans or securities, there's still a lot of work that goes into those transactions. I think the efforts that we put into to work with these banks on the flow side. I think we'll pay dividends over time on the bulk side. And we're now just starting to see that. Bulk was a pretty meaningful part of our Q1 volume. And so we're very open for business to do more on that front.

Our next question comes from the line of Kyle Joseph with Jefferies.

Kind of to follow-up on fees. Obviously, we don't know what that will end-game is going to look like in the end. But nevertheless, it sounds like banks are already preparing in terms of reducing mortgage exposure. And obviously, that's a huge opportunity. But on the other side, have you anything any sort of incremental capital formulation to take advantage of the banks exiting? Or have you seen basically any changes in the competitive environment on the other side besides banks leaving?

Nothing overly formidable to this point. One thing I will say that I think is meaningful, as you did, starting with this earnings call cycle, you did start to hear. Certainly the large banks, voice that they expect to be compliant with the end-game rules. So, as they do that, other banks will follow. And then over time, banks who aren't messaging early compliance, will sort of be in a different category with concerns that they can't comply currently. So I do think that was a really positive sign and validation that large banks expect the rules to change. So, we’ve been -- obviously, we out in front of that. We've talked about how regulatory changes really drive the cycles in our business. And I think we're just going to keep on building these partnerships. Certainly over time, I think there's great interest in things like CRG. There's a lot of some private credit funds out there that would love to be involved. There are challenges to getting CRG off the ground, certainly regulatory challenges but also just operational challenges as I laid out a few minutes ago. We are quite differentiated there, because we do have the capacity to help walk banks through that process. And so hopefully, there's certainly going to be capital that is demanding these types of transactions outside of the walls of Redwood. But I do think we're arguably better positioned than anyone at this point to take advantage of it.