Financial Data and Key Metrics Changes - The company reported GAAP earnings of $14.4 million or $0.10 per share, compared to a loss of $8.4 million or negative $0.07 per share in the previous quarter, indicating a significant sequential improvement [22] - Book value per share ended the quarter at $8.39, a slight decline from $8.46 in the fourth quarter, translating to a positive economic return of 1.3% for the first quarter [22] - Earnings available for distribution (EAD) for the first quarter was $19.8 million or $0.14 per share, up from $18.4 million or $0.13 per share in the fourth quarter [23] Business Line Data and Key Metrics Changes - Sequoia's first quarter performance showed $4 billion in locks, representing a 73% quarter-on-quarter growth, driven by wallet share growth and seasoned bulk portfolios [11] - Net income from Sequoia was $25.8 million, representing a 28% return on equity (ROE) for the quarter, up from 23% in the previous quarter [23] - CorVest generated net income of $2.9 million, resulting in a 20% ROE for the quarter, despite a slight decrease in volumes from the fourth quarter [24] Market Data and Key Metrics Changes - The company noted that the mortgage market has not experienced disproportionate effects from recent market volatility, unlike previous years [6] - The company observed a significant demand for the assets created, with trillions of dollars raised by private credit institutions looking to invest in the residential mortgage space [9] - The company reported that the average capital allocation ticked down for the quarter, indicating a focus on liquidity and execution risk management [38] Company Strategy and Development Direction - The company is focusing on strategic partnerships with entities on both the supply and demand side of the market as part of its growth initiatives [10] - The company is advocating for a leveling of the playing field between private capital and government-sponsored enterprises (GSEs) to streamline regulatory burdens [9] - The company aims to achieve annualized EAD returns on equity in the 9% to 12% range by reallocating capital towards operating platforms and reducing exposure to legacy investments [30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the transformation in mortgage financing and the potential for significant growth opportunities in the housing finance policy landscape [8] - The management highlighted the importance of speed and efficiency in managing liquidity and execution risk amidst market volatility [40] - The company is adjusting production priorities in response to emerging local trends to meet growth goals at attractive risk-adjusted returns [17] Other Important Information - The company ended the quarter with unrestricted cash of $260 million, up from $245 million at year-end, indicating improved liquidity [25] - The company has a current share repurchase authorization of over $100 million and is actively evaluating opportunities for buybacks [64] - The company has reduced securities repo by 40% since March 31, reflecting a proactive approach to managing its debt profile [27] Q&A Session Summary Question: How did the company hedge its portfolio during recent market volatility? - Management indicated that they constantly turn capital and move risk quickly, utilizing various transactions to manage the portfolio effectively [32] Question: How does the company manage liquidity and execution risk with high volume locks? - Management emphasized the importance of speed and knowing where risk can be cleared, with half of the pipeline already sold or securitized since the end of the quarter [39] Question: Can you clarify the nature of the $1.9 billion bulk purchases? - Management confirmed that these were closed loans categorized as part of forward purchases, indicating a robust addressable market for such transactions [44] Question: What is the outlook for the bridge loans and the associated risks? - Management noted that the $1.6 per share figure pertains specifically to older vintage multifamily bridge loans, with ongoing efforts to optimize financing and pursue resolutions [49] Question: Can you elaborate on the expected EAD ROE for 2025? - Management indicated a target of 9% to 12% for the full year, with expectations for growth driven by increased flow activity and capital redeployment [59]

Financial Data and Key Metrics Changes - The company reported GAAP earnings of $14.4 million or $0.10 per share, compared to a loss of $8.4 million or negative $0.07 per share in the fourth quarter, indicating a significant sequential improvement driven by strong performance across operating platforms [22] - Book value per share ended the quarter at $8.39, a modest decline from $8.46 in the fourth quarter, translating to a positive economic return of 1.3% for the first quarter [23] - Earnings available for distribution (EAD) for the first quarter was $19.8 million or $0.14 per share, up from $18.4 million or $0.13 per share in the fourth quarter [24] Business Line Data and Key Metrics Changes - Sequoia's first quarter performance showed $4 billion in locks, representing a 73% quarter-on-quarter growth, while the net income from Sequoia was $25.8 million, representing a 28% return on equity (ROE) for the quarter, up from 23% in the previous quarter [11][24] - CorVest generated net income of $2.9 million, resulting in a 20% ROE for the quarter, despite a slight decrease in volumes from the fourth quarter [25] - Aspire's early lock volumes were just over $100 million, tracking within the same gain on sale margin range as Sequoia [25] Market Data and Key Metrics Changes - The company noted that while money center banks reported steep mortgage volume declines of 20% to 30%, Sequoia's growth was driven by wallet share growth and the emergence of seasoned bulk portfolios from banks [11] - The company observed a strong demand for the assets created, with trillions of dollars raised by private credit institutions looking to invest in the residential mortgage space [10] Company Strategy and Development Direction - The company is focusing on strategic partnerships with entities on both the supply and demand side of the market as part of its growth initiatives [10] - The company is advocating for a leveling of the playing field between private capital and government-sponsored enterprises (GSEs) to streamline regulatory burdens and enhance market efficiency [9] - The company aims to reallocate nearly 20% of capital towards operating platforms and retained operating investments while reducing exposure to legacy bridge investments [31] Management's Comments on Operating Environment and Future Outlook - Management indicated that the current macro environment has rendered most projections for 2025 obsolete, but the company is navigating market volatility from a position of strength [5][6] - The management expressed optimism about the potential transformation in housing finance policy and the opportunity for private sector financing without government support [9] - The company expects to achieve its full-year target despite potential short-term volume fluctuations due to market conditions [31] Other Important Information - The company ended the quarter with unrestricted cash of $260 million, up from $245 million at year-end, and recourse leverage stood at 2.5 times compared to 2.4 times in the fourth quarter [26] - The company has a current share repurchase authorization of over $100 million and is actively evaluating the potential for share buybacks [63] Q&A Session Summary Question: How did the company hedge its portfolio during the volatility in April? - The company emphasized its ability to turn capital and move risk quickly, which contributed to managing the period effectively across the book [33][34] Question: How does the company manage liquidity and execution risk with significant volume locks? - The company highlighted its efficient risk turnover and the ability to pre-sell or know where partners are lined up to execute, which mitigates liquidity risk [39][40] Question: Can the company provide clarity on the bulk purchases of seasoned loans? - The company confirmed that the bulk purchases are closed loans and emphasized their focus on distribution and hedging parameters [44][46] Question: What is the outlook for the bridge loans and the associated risks? - The company noted that the uptick in delinquency was a result of strategic decisions to pursue alternative resolutions and that they expect to resolve these issues throughout the year [50][52] Question: Can the company elaborate on the expected EAD ROE for 2025? - The company expects a year-end 2025 run rate of 9% to 12% for EAD ROE, driven by reallocating capital towards operating businesses [58][60]

Financial Performance - Redwood Trust's Q1 2025 total economic return was +13%[11] - The GAAP book value per share was $839 in Q1 2025[11] - The non-GAAP EAD common dividend per share was $018 in both Q4 2024 and Q1 2025[11] - GAAP segment net income for Sequoia was $258 million with a segment GAAP ROE of 28%[20] - GAAP segment net income for CoreVest was $13 million with a segment Non-GAAP EAD ROE of 20%[20] - GAAP Segment net income for Redwood Investments was $229 million[20] Business Segments - Sequoia's lock volume reached $40 billion, a 73% QoQ increase and a 125% YoY increase[20] - Aspire locked $111 million of loans after launching expanded loan products in January 2025[20] - CoreVest funded $482 million in loans, a 4% decrease QoQ but a 48% increase YoY[20] Capital Allocation and Investments - Approximately $100 million of capital was deployed into accretive Retained Operating Investments with target returns of 15% to 20%[20] - Redwood Investments represented 72% of Q1 2025 average allocated capital, totaling $15 billion[17]

Company Overview - Redwood Trust, Inc. issued its Shareholder Letter for Q1 2025 on April 21, 2025[6] - The company is listed on the New York Stock Exchange under the symbol RWT[4] - Redwood Trust is classified as an emerging growth company under the Securities Act[4] - Redwood Trust has multiple classes of securities registered, including common stock and various senior notes[4] Financial Performance - Redwood Trust reported significant financial results in the attached shareholder letter, which includes detailed performance metrics[6] - The financial statements and exhibits related to the Q1 2025 results are included in the report[8] - Redwood Trust's financial condition and operational results are subject to further detailed analysis in the shareholder letter[6] Compliance and Governance - The report was signed by Brooke E. Carillo, the Chief Financial Officer of Redwood Trust[12] - The company is committed to transparency and compliance with SEC regulations[7] Operational Insights - The shareholder letter provides insights into operational performance and future strategies[6]

Core Viewpoint - Redwood Trust (RWT) has been upgraded to a Zacks Rank 1 (Strong Buy) due to an upward trend in earnings estimates, which significantly influences stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in a company's earnings picture, which is a strong indicator of near-term stock price movements [2][4]. - The correlation between earnings estimate revisions and stock price movements is well-established, with institutional investors using these estimates to determine fair value [4][6]. Company Performance Indicators - For the fiscal year ending December 2025, Redwood Trust is expected to earn $0.82 per share, reflecting a 57.7% increase from the previous year [8]. - Over the past three months, the Zacks Consensus Estimate for Redwood Trust has increased by 5.6%, indicating positive sentiment among analysts [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, indicating superior earnings estimate revisions and potential for market-beating returns [9][10].

Group 1 - Redwood Trust (RWT) shares increased by 9.5% to close at $5.42, supported by higher trading volume compared to normal sessions, following a 21.2% loss over the past four weeks [1][2] - The stock price surge is attributed to a broader market rally due to optimism from Trump's announcement of a 90-day pause on reciprocal tariffs for most trading partners, which is expected to ease cost pressures and improve profitability for mREIT stocks [2] - Redwood Trust is projected to report quarterly earnings of $0.16 per share, reflecting a year-over-year increase of 100%, with expected revenues of $26.76 million, up 11.5% from the previous year [3] Group 2 - The consensus EPS estimate for Redwood Trust has been revised 2.7% lower in the last 30 days, indicating a negative trend in earnings estimate revisions, which typically does not lead to price appreciation [4] - Redwood Trust holds a Zacks Rank of 3 (Hold), while another stock in the same industry, Franklin BSP (FBRT), saw a 4.1% increase to $11.56 but has returned -16.2% over the past month [4] - Franklin BSP's consensus EPS estimate remains unchanged at $0.33, representing a year-over-year decrease of 19.5%, and it currently has a Zacks Rank of 5 (Strong Sell) [5]

Business Segments - The company operates in three segments: Sequoia Mortgage Banking, CoreVest Mortgage Banking, and Redwood Investments, with no changes to the composition of the segments[23]. - Sequoia Mortgage Banking primarily generates income from net interest income on loans held-for-sale and mortgage banking activities, including valuation changes and gains/losses from hedges[25]. - CoreVest Mortgage Banking focuses on originating residential investor loans, with term loans typically ranging from 3 to 30 years and bridge loans from 12 to 36 months, generating income from net interest and origination fees[26]. - Redwood Investments includes organic investments from mortgage banking operations and third-party investments, with income sources being net interest income, changes in fair value, and realized gains/losses[27]. Employee Management - As of December 31, 2024, the company employed 283 full-time employees, with 147 (52%) directly engaged in CoreVest operations[32]. - The company reported a voluntary employee turnover rate of 7.5% for 2024, indicating effective employee retention strategies[34]. - The company offers a competitive compensation structure, including financial incentives and health benefits, to attract and retain talent[36]. Corporate Responsibility and Governance - The company prioritizes corporate responsibility initiatives aligned with its mission to make quality housing accessible to all American households[37]. - The Chief Executive Officer and Chief Financial Officer have executed certifications as required by the Sarbanes-Oxley Act, ensuring compliance with corporate governance standards[43]. - The company will post any amendments to its Code of Ethics and waivers for executive officers on its website, ensuring transparency in governance practices[41]. Market Competition and Risks - The company faces intense competition from various financial institutions, including commercial banks and mortgage REITs, which may impact its ability to compete successfully[38]. - Regulatory developments in housing and real estate markets can adversely affect the company's business and the value of its assets[39]. - The company is committed to managing various market risks, including credit risk, interest rate risk, and liquidity risk, to enhance earnings and dividends while preserving capital[547]. - The company actively manages risks based on historical experience to maintain capital levels consistent with identified risks[547]. - The company is subject to various types of risks and uncertainties that may impact its operations and financial results, as detailed in the "Risk Factors" section of the Annual Report[548].

Q4 2024 Redwood Review February 13, 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 and book value, current target returns related to capital deployment opportunities and estimates of upside and potential earnings in our Redwood Investments segment from embedded discounts to par value on securities. For ...

Financial Data and Key Metrics Changes - The company reported GAAP earnings of negative $8.4 million for Q4 2024, compared to positive $13.1 million in Q3 2024, reflecting a GAAP return on equity of negative 3% [40] - For the full year 2024, GAAP earnings were positive $47 million, equating to a GAAP return on equity of 4.1% [41] - The book value per share decreased to $8.46 in Q4 2024 [41] - The total economic return for the full year 2024 was 5.7%, inclusive of common dividends, which were increased twice during the year [42] Business Line Data and Key Metrics Changes - The Sequoia platform achieved $9 billion in total lock volume for 2024, with 40% sourced in bulk form [26] - CoreVest fundings totaled $501 million in Q4 2024, up nearly 10% from Q3 2024, marking the highest volume since Q3 2022 [31] - The Aspire platform was launched in early 2024 to provide innovative solutions for homeowners, expanding its loan product offerings [14] Market Data and Key Metrics Changes - The company noted that banks represented 40% of its lock volume in 2024, doubling from 2023 [12] - The market for alternative loan products is growing, with the Aspire platform targeting a $100 billion addressable market [15][52] - The company expects a 30% plus year-over-year volume increase in its mortgage banking businesses in 2025 [50] Company Strategy and Development Direction - The company's top strategic priority is to capitalize on the downsizing of mortgage activity within the banking sector, which has accelerated recently [11] - The company aims to expand its bank seller network and expects to benefit from increased M&A activity in the banking sector [13] - The focus on GSE reform and addressing housing affordability is seen as a potential opportunity for the company [16][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for significant market share gains despite elevated mortgage rates and flat housing activity in 2025 [10] - The company anticipates strong profitability and growth in its core business and new initiatives aimed at expanding access to credit [21] - Management highlighted the importance of maintaining a strong liquidity position and the ability to capitalize on market opportunities [74] Other Important Information - The company reported a significant increase in unrestricted cash to $245 million as of December 31, 2024 [47] - The company has reduced its convertible debt as a percentage of equity from 65% two years ago to 31% at the end of 2024 [47] - The company is focused on optimizing its capital allocation and leveraging its strong liquidity to support growth [114] Q&A Session Summary Question: Current run rate EAD relative to the dividend - Management discussed the quality of EAD and the impact of nonrecurring income on the dividend, expressing confidence in future EAD growth [54][55][60] Question: Competitive environment in BPL - Management noted that the competitive environment is evolving positively, with a strong product mix and distribution capabilities [67][70] Question: Trends in leverage and liquidity - Management indicated that leverage could trend between 2% to 3% depending on the timing of portfolio activities, expressing confidence in their liquidity position [71][74] Question: Expansion of the credit box - Management highlighted the potential for expanding the Aspire platform and accessing a large addressable market for alternative loan products [76][78] Question: Capital allocation philosophy - Management discussed the flexibility gained from reduced unsecured debt and the focus on optimizing capital allocation for growth [82][86] Question: Mortgage banking results and delinquencies - Management explained the shift in income sources and addressed concerns regarding delinquencies, attributing increases to borrower issues rather than seasonal factors [120][128]

Core Insights - Redwood Trust reported revenue of $27.6 million for Q4 2024, a 38% year-over-year increase, and an EPS of $0.13 compared to $0.05 a year ago, indicating strong growth despite an EPS surprise of -18.75% against the consensus estimate of $0.16 [1] Financial Performance - The revenue of $27.6 million exceeded the Zacks Consensus Estimate of $26 million by 6.15% [1] - Net interest income was reported at $27.60 million, surpassing the average estimate of $25.90 million from four analysts [4] - Non-interest income (loss) was reported at $10.70 million, significantly higher than the average estimate of $5.84 million [4] - Total non-interest income (loss) was $17.60 million, which fell short of the estimated $37.06 million [4] - Investment fair value changes resulted in a loss of $25.50 million, compared to the average estimate of -$5.75 million [4] Stock Performance - Over the past month, shares of Redwood Trust returned +0.6%, while the Zacks S&P 500 composite increased by +3.9% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]