Financial Performance - The company reported a GAAP EPS of $(0.08) and a GAAP ROE of (3.9)% for Q3 2025[41] - A dividend of $0.18 per share was delivered, resulting in an indicative dividend yield of 12.4%[41] - Non-GAAP Core Segments EAD EPS was $0.20, with a Non-GAAP Core Segments EAD ROE of 16.8%[41] Segment Results - Mortgage Banking (Combined) showed a Non-GAAP EAD ROE of 29%[41] - Redwood Investments had a Non-GAAP EAD ROE of 10%[41] - Legacy Investments had a Non-GAAP EAD ROE of (12%)[41] Volume and Growth - Sequoia's quarterly lock volumes increased by 127% year-over-year[50] - Aspire's quarterly lock volumes increased approximately 4x quarter-over-quarter, reaching $1.245 billion[60] - CoreVest's quarterly funded volume increased by 14% year-over-year, reaching $521 million[67] Capital Allocation and Legacy Investments - Capital allocated to Legacy Investments decreased by 22%[17] - Dispositions of approximately $1 billion of Legacy Assets unlocked $150 million of capital[23] - The company repurchased 5 million common shares[17]

Group 1 - The article does not provide any relevant content regarding company or industry insights [1]

Financial Performance - Redwood achieved record mortgage banking production of nearly $7 billion in Q3 2025, marking a significant growth in market share [3] - The company reported a GAAP net loss of $(9.5) million or $(0.08) per basic common share, an improvement from a net loss of $(100.2) million in the previous quarter [4] - Non-GAAP Core Segments Earnings Available for Distribution (EAD) was $27.1 million or $0.20 per basic common share, up from $0.18 in Q2 2025 [4] - Sequoia Mortgage Banking segment generated a GAAP net income of $34.3 million, with a 29% annualized Return on Equity (ROE) [5] - CoreVest Mortgage Banking segment reported a GAAP net income of $3.5 million, achieving a 21% annualized ROE [5] - Redwood Investments segment had a GAAP net income of $10.3 million, maintaining a low recourse leverage ratio of 1.1x [5] - Legacy Investments segment reported a net loss of $(22.2) million, primarily due to one-time expenses and reduced net interest income [12] - Net income for the three months ended September 30, 2025, was $34.3 million, compared to a net loss of $7.7 million in the previous quarter [20] - The company reported a total non-interest income of $39.4 million for the three months ended September 30, 2025, compared to a loss of $51.9 million in the previous quarter [20] Assets and Liabilities - Total assets increased to $22,601 million as of September 30, 2025, up from $21,333 million on June 30, 2025, representing a growth of 5.94% [19] - Total liabilities rose to $21,602 million as of September 30, 2025, compared to $20,279 million on June 30, 2025, indicating an increase of 6.52% [19] - Unrestricted cash and cash equivalents stood at $226 million as of September 30, 2025, with recourse debt increasing to $3.8 billion [12] Shareholder Actions - The company repurchased approximately five million shares of common stock for about $29 million during the quarter [4] - The number of common shares outstanding decreased to 126,753 thousand at the end of September 2025, down from 131,680 thousand in June 2025 [19] Core Segments Performance - The Core Segments EAD measure is used to analyze the performance of the company's mortgage banking platforms and related investments [28] - Non-GAAP Core Segments EAD for Q3 2025 was $27.1 million, compared to $25.0 million in Q2 2025, reflecting a 8.4% increase [36] - Non-GAAP Core Segments EAD per Basic Common Share for Q3 2025 was $0.20, up from $0.18 in Q2 2025, indicating an 11.1% increase [36] - The annualized Non-GAAP Core Segments EAD Return on Equity (ROE) for Q3 2025 was 16.8%, compared to 14.5% in Q2 2025, showing a significant improvement [36] - The average capital utilized for Core Segments in Q3 2025 was $643 million, down from $689 million in Q2 2025 [39] Investment and Acquisition Activities - Acquisition-related expenses for Q3 2025 totaled $2.0 million, consistent with $2.2 million in Q2 2025 [40] - Investment fair value changes, net for Q3 2025 contributed $7.0 million to EAD adjustments, compared to $84.7 million in Q2 2025 [41] - The total capital utilized across all segments for Q3 2025 was $964 million, reflecting a decrease from $1,095 million in Q2 2025 [41] - Acquisition-related expenses amounted to $2.2 million, primarily associated with the Riverbend and CoreVest acquisitions [54] Business Model and Strategy - Redwood Trust is transitioning to a more scalable and simplified business model, which includes winding down legacy portfolio holdings [26] - Redwood Trust operates through three core platforms: Sequoia, Aspire, and CoreVest, focusing on providing liquidity to underserved segments of the U.S. housing market [55] - The company is committed to technological innovation to enhance risk management and scale operations [55] Forward-Looking Statements - Forward-looking statements indicate potential risks and uncertainties that may affect actual results compared to projections [56]

Core Insights - The individual has a B.Tech degree in Mechanical Engineering and nearly twenty-five years of experience in the oil and gas sector, primarily in the Middle East [1] - The investment strategy is informed by a background in engineering, operations, and project management, emphasizing efficiency, carefulness, and discipline [1] - The focus on U.S. equity markets includes technology, energy, and healthcare sectors, with a shift from growth investing to a blend of value and growth investing [1] Investment Philosophy - The investment approach seeks to understand the underlying economics of businesses, evaluate competitive advantages, and assess the ability to generate consistent free cash flow [1] - Emphasis on a moderately conservative orientation, looking for upside while minimizing downside, especially as retirement approaches [1] - Recent rebalancing towards income-generating assets such as dividend-paying equities and REITs, viewing investing as a means to achieve peace of mind [1] Community Engagement - The individual joined Seeking Alpha to contribute to and learn from a community of investors interested in real-world business fundamentals and intelligent investing [1] - A commitment to investing in ecologically sensitive businesses is highlighted as fundamentally important [1]

Core Viewpoint - Investors in Redwood Trust, Inc. (RWT) should closely monitor stock movements due to significant implied volatility in the options market, particularly the Oct. 17, 2025 $3 Put option [1] Group 1: Implied Volatility - Implied volatility indicates the market's expectation of future stock movement, with high levels suggesting potential for a significant price change or an upcoming event that could trigger a rally or sell-off [2] - The current high implied volatility for Redwood Trust options may signal a developing trading opportunity, as options traders often seek to sell premium on such options to capture decay [4] Group 2: Analyst Sentiment - Redwood Trust is currently rated Zacks Rank 4 (Sell) within the REIT and Equity Trust industry, which is in the bottom 18% of the Zacks Industry Rank [3] - Over the past 60 days, no analysts have increased earnings estimates for the current quarter, while three have lowered their estimates, resulting in a decrease of the Zacks Consensus Estimate from 20 cents per share to 14 cents [3]

PART I — FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Redwood Trust reported a net loss of $98.5 million for Q2 2025 and $82.3 million for the six months ended June 30, 2025, a significant downturn from prior-year periods, primarily due to negative fair value adjustments on investments and growth in total assets to $21.3 billion Consolidated Financial Performance Summary (Q2 & H1 2025 vs 2024) (In Thousands) | Financial Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | **Net Interest Income** | $13,834 | $25,293 | $41,776 | $49,503 | | **Total Non-interest (Loss) Income** | ($51,937) | $42,154 | ($6,031) | $92,493 | | **Net (Loss) Income** | ($98,492) | $15,534 | ($82,345) | $45,796 | | **Net (Loss) Available to Common Stockholders** | ($100,249) | $13,777 | ($85,852) | $42,289 | | **Diluted (Loss) Earnings per Share** | ($0.76) | $0.10 | ($0.67) | $0.31 | Consolidated Balance Sheet Summary (As of June 30, 2025) (In Thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$21,333,020** | **$18,258,344** | | Residential consumer loans | $14,201,893 | $11,077,823 | | Residential investor loans | $4,339,168 | $4,587,090 | | **Total Liabilities** | **$20,279,557** | **$17,070,481** | | Asset-backed securities issued, net | $15,985,206 | $13,270,204 | | Debt obligations, net | $3,744,868 | $3,462,880 | | **Total Equity** | **$1,053,463** | **$1,187,863** | - For the six months ended June 30, 2025, net cash used in operating activities was **$4.07 billion**, while net cash provided by investing and financing activities were **$1.64 billion** and **$2.56 billion**, respectively[25](index=25&type=chunk) [Note 4. Segment Information](index=13&type=section&id=Note%204.%20Segment%20Information) In Q2 2025, the company established a new reportable segment, "Legacy Investments," to house assets no longer aligned with core strategy, reporting a significant net loss of $104.0 million, while Sequoia and CoreVest Mortgage Banking segments remained profitable - A new reportable segment, Legacy Investments, was established in Q2 2025 to manage assets no longer aligned with core strategic objectives, intended for sale, runoff, or disposition as part of a strategic realignment[32](index=32&type=chunk)[51](index=51&type=chunk) Segment Net Income (Loss) for Q2 2025 (In Thousands) | Segment | Net Income (Loss) | | :--- | :--- | | Sequoia Mortgage Banking | $22,154 | | CoreVest Mortgage Banking | $6,135 | | Redwood Investments | $11,892 | | Legacy Investments | ($103,989) | | Corporate/Other | ($34,684) | | **Total Net Loss** | **($98,492)** | [Note 8. Residential Investor Loans](index=28&type=section&id=Note%208.%20Residential%20Investor%20Loans) The residential investor loan portfolio totaled $4.3 billion as of June 30, 2025, with $886 million of legacy unsecuritized bridge loans and $50 million of legacy term loans moved to the Legacy Investments segment and classified as held-for-sale, reflecting elevated delinquencies and fair value losses - As part of a strategic realignment, **$886 million** of legacy unsecuritized bridge loans and **$50 million** of legacy unsecuritized term loans were reported in the new Legacy Investments segment as of June 30, 2025[118](index=118&type=chunk)[121](index=121&type=chunk) - The fair value of the unsecuritized residential investor bridge loan portfolio decreased, driven by fair value losses from elevated delinquencies, particularly among 2021 and 2022 vintage loans, and strategic sales[125](index=125&type=chunk) - In Q2 2025, the company modified or placed into forbearance loans with a total aggregate unpaid principal balance of **$363 million**, involving adjustments to interest rates, maturity extensions, and covenant terms[150](index=150&type=chunk) - As of June 30, 2025, residential investor loans with an aggregate unpaid principal balance of **$718 million** were on non-accrual status, a significant increase from **$343 million** at year-end 2024[156](index=156&type=chunk)[157](index=157&type=chunk) [Note 18. Debt Obligations, Net](index=53&type=section&id=Note%2018.%20Debt%20Obligations%2C%20Net) Total debt obligations increased to $3.74 billion at June 30, 2025, from $3.46 billion at year-end 2024, utilizing a mix of short-term and long-term facilities, including the issuance of $90 million in Senior Notes in January 2025 Debt Obligations Summary (In Thousands) | Debt Category | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Short-Term Facilities | $1,825,491 | $1,545,899 | | Recourse Subordinate Securities Financing | $356,702 | $267,140 | | Long-Term Facilities | $760,472 | $992,394 | | Corporate Debt | $702,203 | $657,447 | | **Total Debt Obligations, Net** | **$3,744,868** | **$3,462,880** | - In January 2025, the company issued **$90 million** of 9.125% Senior Notes due in 2030[271](index=271&type=chunk) [Note 20. Equity](index=56&type=section&id=Note%2020.%20Equity) Total equity decreased to $1.05 billion from $1.19 billion at year-end 2024, primarily due to the net loss for the period and common stock dividends, with 1.6 million shares repurchased for $9 million in June 2025 - In June 2025, the company repurchased **1.6 million shares** of common stock for a total cost of **$9 million**, with **$92 million** remaining available under the common stock repurchase authorization as of June 30, 2025[297](index=297&type=chunk) [Note 24. Subsequent Events](index=60&type=section&id=Note%2024.%20Subsequent%20Events) Subsequent to the quarter's end, in July 2025, the Board of Directors increased the common stock repurchase authorization to $150 million, replacing the previous $125 million authorization - In July 2025, the Board of Directors approved a new authorization for the repurchase of up to **$150 million** of common stock, replacing the prior **$125 million** authorization[315](index=315&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management detailed a strategic acceleration toward a more scalable and simplified operating model, highlighted by the creation of the Legacy Investments segment to wind down non-core assets, leading to significant fair value and repositioning charges of approximately $(0.79) per share in Q2, while core mortgage banking platforms demonstrated strong growth and profitability - The company is accelerating its strategic transition to a simplified operating model by meaningfully reducing exposure to non-core holdings, now housed in a new "Legacy Investments" segment[323](index=323&type=chunk)[329](index=329&type=chunk) - The strategic wind-down of the legacy portfolio resulted in approximately **$(0.79) per share** of fair value and repositioning charges in Q2, reducing GAAP book value per share to **$7.49** from **$8.39** at the end of Q1 2025[331](index=331&type=chunk) - The company expects to free up **$200 to $250 million** in capital from legacy investments by year-end 2025 for redeployment into operating platforms and other uses[331](index=331&type=chunk) - Core mortgage banking platforms, Sequoia and CoreVest, continued to deliver strong performance with combined GAAP returns exceeding **20%** for the fourth consecutive quarter[329](index=329&type=chunk)[333](index=333&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=93&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company stated that there have been no material changes in its quantitative or qualitative exposure to market risk since December 31, 2024, other than developments already described in the MD&A section - There have been no material changes in the company's quantitative or qualitative exposure to market risk since December 31, 2024, apart from developments discussed elsewhere in the report[526](index=526&type=chunk) [Controls and Procedures](index=93&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of the end of the quarter, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of Q2 2025[528](index=528&type=chunk) - No changes in internal control over financial reporting occurred during Q2 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[529](index=529&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=94&type=section&id=Item%201.%20Legal%20Proceedings) There were no significant updates regarding the company's legal proceedings during the quarter - Refers to Note 19 for information on legal proceedings, which indicates no significant updates from the previous Annual Report on Form 10-K[531](index=531&type=chunk) [Risk Factors](index=94&type=section&id=Item%201A.%20Risk%20Factors) The report refers to the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The company's risk factors are discussed in its Annual Report on Form 10-K for the year ended December 31, 2024[531](index=531&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2025, the company did not sell any unregistered equity securities but repurchased 1.6 million shares of its common stock for a total of $9 million, with $92 million remaining under the repurchase authorization Common Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | April 2025 | — | $— | | May 2025 | — | $— | | June 2025 | 1,560,795 | $5.75 | | **Total** | **1,560,795** | **$5.75** | - As of June 30, 2025, **$92 million** remained available under the common stock repurchase authorization, which was subsequently increased to **$150 million** in July 2025[533](index=533&type=chunk) [Other Information](index=94&type=section&id=Item%205.%20Other%20Information) During the second quarter of 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[537](index=537&type=chunk) [Exhibits](index=95&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and interactive data files

Core Insights - Redwood Trust reported revenue of $13.8 million for the quarter ended June 2025, a decrease of 45.5% year-over-year, and EPS of $0.18, up from $0.13 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $32.59 million, resulting in a surprise of -57.65%, while the EPS also missed the consensus estimate of $0.19 by -5.26% [1] Financial Performance Metrics - Net interest income was reported at $13.8 million, significantly below the estimated $32.62 million by analysts [4] - Non-interest income from Sequoia mortgage banking activities was $24.4 million, exceeding the average estimate of $20.89 million [4] - Total non-interest income was $36.7 million, compared to the average estimate of $51.98 million [4] - Non-interest income from mortgage banking activities was $40.9 million, surpassing the estimated $33.19 million [4] - HEI income reported a loss of $12.9 million, contrasting with the estimated income of $9 million [4] - CoreVest mortgage banking activities generated non-interest income of $16.5 million, above the average estimate of $12.3 million [4] Stock Performance - Over the past month, shares of Redwood Trust have returned +0.5%, while the Zacks S&P 500 composite increased by +3.4% [3] - The stock currently holds a Zacks Rank 1 (Strong Buy), suggesting potential outperformance against the broader market in the near term [3]

Group 1: Earnings Performance - Redwood Trust reported quarterly earnings of $0.18 per share, missing the Zacks Consensus Estimate of $0.19 per share, but showing an increase from $0.13 per share a year ago, representing an earnings surprise of -5.26% [1] - The company posted revenues of $13.8 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 57.65%, and down from $25.3 million year-over-year [2] - Over the last four quarters, Redwood Trust has surpassed consensus EPS estimates only once [2] Group 2: Stock Performance and Outlook - Redwood Trust shares have declined approximately 7% since the beginning of the year, while the S&P 500 has gained 8.3% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.20 on revenues of $34.85 million, and $0.75 on revenues of $131.65 million for the current fiscal year [7] Group 3: Industry Context - The REIT and Equity Trust industry, to which Redwood Trust belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - The Zacks Rank for Redwood Trust is currently 1 (Strong Buy), suggesting that the shares are expected to outperform the market in the near future [6]

Financial Data and Key Metrics Changes - The company reported a GAAP net loss of $100.2 million or $0.76 per share for the second quarter, primarily driven by the decision to accelerate the wind down of the legacy portfolio and associated fair value changes [20][21] - GAAP book value per common share decreased to $7.49 at June 30 from $8.39 at March 31 [20][21] - Core segments earnings available for distribution (EAD) for the quarter was $25 million or $0.18 per share, equating to a 14.5% annualized return on equity (ROE) [21][22] Business Line Data and Key Metrics Changes - Sequoia locked $3.3 billion of jumbo loans in the second quarter, representing a 15% increase in current coupon flow volume versus Q1, marking the highest quarterly flow volume since 2021 [11][22] - Aspire's lock volume tripled sequentially to $330 million, driven by engagement from a growing network of originators [14][22] - CoreVest funded over $500 million in loans during the second quarter, its highest volume since mid-2022 [17][22] Market Data and Key Metrics Changes - The company has sourced and is reviewing over $55 billion of seasoned bulk jumbo pool opportunities from regional banks, indicating increased demand for capital-efficient solutions [8][9] - The overall housing activity remains subdued, but the company has expanded loan acquisition volumes and market share due to the retrenchment by banks and mortgage lending [8][9] Company Strategy and Development Direction - The company is transitioning towards a more scalable and simplified operating model, reducing exposure to non-core legacy assets [5][6] - The decision to wind down the legacy portfolio is expected to free up $200 million to $250 million of capital by year-end 2025, which will be redeployed into higher quality, more predictable earnings [7][24] - The company anticipates a long-term target to reduce capital allocated to legacy investments to between 0% to 5% by 2026 [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for transformative housing market reform and GSE privatization, which could create significant opportunities for the company [9] - The company remains engaged with regulatory and market stakeholders to shape housing policy and expects to be positioned advantageously irrespective of policy outcomes [9] - Management highlighted the importance of capital allocation towards core platforms to enhance profitability and shareholder value [26] Other Important Information - The company has introduced a new reporting segment for legacy investments to enhance investor transparency [20] - The company has begun repurchasing common shares, buying back 2.4 million shares since June 2025, with plans to be more aggressive in share buybacks [7][25] Q&A Session Summary Question: Should the 9% to 12% EAD for 2026 be calculated based on the $7.49 book value? - The response indicated that the EAD figure is a blended number inclusive of the legacy portfolio, so it should be calculated on the full book value [29] Question: What changed regarding the home equity investments moved into the legacy piece? - Management explained that the decision was part of speeding up the evolution of the operating model, focusing on capital light strategies [30][32] Question: What types of prices are expected for the disposition of bridge loans and legacy portfolio? - Management clarified that the expected capital generation includes various legacy investments, and they are trying to maximize value during transactions [38][40] Question: Can you discuss the drivers behind the Sequoia gain on sale margin? - Management noted that while they are hesitant to forecast above the long-term average, they are optimistic about maintaining strong returns in Sequoia [42][44] Question: Can you help compartmentalize the $0.79 loss? - The response indicated that the loss was largely driven by older vintage multifamily and bridge loans, with a focus on near-term resolutions [47][49] Question: What is the sensitivity of net interest income (NII) if the Fed cuts rates? - Management confirmed that there is sensitivity to Fed cuts, which could provide a modest benefit to NII [69] Question: How does the company plan to maximize opportunities in the prime jumbo segment? - Management emphasized the focus on market share and the potential for refinancing as rates decrease, which could accelerate business growth [75][78]

Q2 2025 Redwood Review July 30, 2025 R E D W O O D T R U S T . C O M Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2025 forward outlook and strategic priorities, key drivers to increase earnings, book value, and mortgage banking volumes, current target annualized non-GAAP EAD returns on equity, current target returns related to capital deployment opportunities, estimates of upside and potential earnings in our Redwo ...