cagkansayin Until very recently, our efforts to optimize results from fixed income investments in a changing interest rate environment have focused not only on securing high current yields but also on potential capital appreciation. Fixed-to-floating rate preferred stocks trading at big discounts to par have been the assets of choice. But now that we have reached the Fed's pivot point of turning from raising rates to cutting rates, those discounts have shrunk, and the floating rate yields will likely begin ...

Redwood Trust ( RWT ) is a California based REIT. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking and Investment Portfolio. The REIT has a high sensitivity to rates, with a high level in mortgages hampering the bread and Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and ...

Financial Data and Key Metrics Changes - Earnings available for distribution (EAD) increased to $0.13 per share, a 70% rise from the previous quarter [6][18] - GAAP book value per share was $8.73, roughly flat compared to the previous quarter, with an estimated increase of 1% to 2% by July 31 [6][19] - GAAP earnings were reported at $14 million, or $0.10 per share, down from $29 million, or $0.21 per share in the first quarter [18] Business Line Data and Key Metrics Changes - Residential mortgage banking's lock volume grew significantly, with an 80% quarter-over-quarter increase in bank volumes, leading to an overall market share in jumbo loans of approximately 6% [10][12] - The Residential Investor segment funded $459 million in loans, up 41% from the first quarter, with term loan volume rising 90% quarter-over-quarter [13][14] - The company achieved record volumes for single-asset bridge and DSCR loans, each growing 50% from the first quarter [14] Market Data and Key Metrics Changes - The company noted a strong demand for residential assets, with $3.5 billion of collateral distributed year-to-date [5] - Approximately 35% of bank lock volume came from seasoned jumbo loans, indicating a shift in bank product strategies [7] Company Strategy and Development Direction - The company aims to leverage its unique strategic positioning in response to regulatory shifts and the emergence of private credit investors [5] - Focus on expanding partnerships with banks and private credit institutions to enhance revenue streams and manage capital usage effectively [8][15] - The company is preparing for potential challenges in the second half of the year, particularly due to the upcoming presidential election cycle [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the macro environment as the Federal Reserve shows signs of ending its tightening cycle, which could facilitate transformative growth [5][9] - The company anticipates continued demand for its products, particularly from institutional capital seeking long-term partnerships [14] - Management highlighted the importance of maintaining strong relationships with banks to capture market opportunities [56] Other Important Information - The company reported a 20% reduction in fixed costs, contributing to improved operating efficiency [6][21] - The company maintained a robust cash position of $276 million at quarter-end, unchanged from the previous quarter [21][22] - The company retired its 2024 outstanding convertible debt, reducing total convertible debt outstanding to $364 million, down 43% year-over-year [22] Q&A Session Summary Question: Can you talk about the bulk pipeline and the economics of the bulk business? - Management remains optimistic about the bulk pipeline, noting positive dynamics with banks looking to dispose of seasoned collateral [25][26] Question: Can you discuss the drivers behind the increase in delinquency rates in the bridge loan portfolio? - The increase was largely driven by multifamily trends, with a modest uptick in delinquency rates due to a smaller portfolio size [29][30] Question: How do you view the decline in revenue margin this quarter? - Management indicated that various factors, including increased issuance activity and collateral mix, influenced the revenue margin [32][34] Question: What are the current thoughts on the dividend and its coverage? - Management feels confident about the current dividend level and anticipates that a potential rate cut could positively impact earnings and dividend coverage [38][39] Question: Can you elaborate on the bank relationships and their maturation? - Management emphasized ongoing efforts to build relationships with banks, which are expected to contribute to increased volume and earnings [55][56]

Core Viewpoint - Redwood Trust reported a revenue of $25.3 million for the quarter ended June 2024, reflecting a year-over-year decline of 2.7% and a negative surprise of 10.05% compared to the Zacks Consensus Estimate of $28.13 million [1] Financial Performance Metrics - Earnings per share (EPS) for the quarter was $0.13, compared to $0.14 a year ago, with an EPS surprise of 8.33% against the consensus estimate of $0.12 [1] - Net interest income was reported at $25.30 million, falling short of the average estimate of $28.13 million from five analysts [3] - Total non-interest income was $42.20 million, exceeding the average estimate of $31.17 million from five analysts [4] - Residential Investor Mortgage Banking Activities netted $1.50 million, significantly below the average estimate of $9.39 million from five analysts [4] - Residential Consumer Mortgage Banking Activities generated $11.20 million, slightly below the average estimate of $11.60 million from five analysts [4] - Other income was reported at $6.30 million, surpassing the average estimate of $4.51 million from four analysts [5] - Investment fair value changes netted $1.10 million, compared to the average estimate of $4.58 million from three analysts [6] Stock Performance - Over the past month, shares of Redwood Trust have returned +12.7%, outperforming the Zacks S&P 500 composite's +1.1% change [6] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [6]

Core Viewpoint - Redwood Trust (RWT) reported quarterly earnings of $0.13 per share, exceeding the Zacks Consensus Estimate of $0.12 per share, but down from $0.14 per share a year ago, indicating an earnings surprise of 8.33% [1][2] Financial Performance - The company posted revenues of $25.3 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 10.05%, compared to $26 million in the same quarter last year [2] - Over the last four quarters, Redwood Trust has surpassed consensus EPS estimates only once and has topped consensus revenue estimates just once [2] Stock Performance - Redwood Trust shares have declined approximately 1.9% since the beginning of the year, while the S&P 500 has gained 15.8% [3] - The current Zacks Rank for Redwood Trust is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.14 on revenues of $27.96 million, and for the current fiscal year, it is $0.49 on revenues of $110.38 million [7] - The trend of estimate revisions for Redwood Trust is mixed, which could change following the recent earnings report [6] Industry Context - The REIT and Equity Trust industry, to which Redwood Trust belongs, is currently ranked in the top 27% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8]

Financial Performance - GAAP net income available to common stockholders was $13.8 million, or $0.10 per basic and diluted common share[2] - The company reported a net income of $15.5 million in Q2 2024, a decrease from $30.3 million in Q1 2024[1] - GAAP net income available to common stockholders for the three months ended June 30, 2024, was $13.8 million, compared to $28.5 million for the three months ended March 31, 2024[24] - Non-GAAP Earnings Available for Distribution ("EAD") was $18.6 million, or $0.13 per basic common share[2] - Non-GAAP Earnings Available for Distribution (EAD) was $18.6 million for the three months ended June 30, 2024, up from $11.0 million for the three months ended March 31, 2024[24] - EAD per basic common share increased to $0.13 for the three months ended June 30, 2024, compared to $0.08 for the three months ended March 31, 2024[24] - GAAP Return on Common Equity (annualized) was 4.8% for the three months ended June 30, 2024, down from 10.0% for the three months ended March 31, 2024[24] - EAD Return on Common Equity (non-GAAP, annualized) improved to 6.5% for the three months ended June 30, 2024, compared to 3.9% for the three months ended March 31, 2024[24] Loan Activity - Locked $2.7 billion of loans in Q2 2024, a 49% increase from $1.8 billion in Q1 2024[2] - Funded $459 million of loans in Q2 2024, a 41% increase from $326 million in Q1 2024[3] - Distributed $1.4 billion of jumbo loans through three securitizations in Q2 2024[2] - Residential loans increased to $9,210.2 million in Q2 2024, up from $7,616.6 million in Q1 2024, indicating strong demand in the mortgage market[22] Financial Position - GAAP book value per common share was $8.73 at June 30, 2024, down from $8.78 at March 31, 2024[2] - Total assets reached $16,491.1 million as of June 30, 2024, compared to $15,058.0 million at the end of Q1 2024, reflecting a significant growth in residential loans[22] - Unrestricted cash and cash equivalents were $276 million at June 30, 2024[4] - Total excess warehouse financing capacity was $3.8 billion at June 30, 2024[4] - Secured recourse leverage ratio was 0.6x at June 30, 2024, down from 0.9x at March 31, 2024[3] Income Sources - Income from Residential Consumer Mortgage Banking rose by 49% quarter over quarter, contributing to an increase in overall mortgage banking income[18] - Income from Residential Investor Mortgage Banking increased by 41% quarter over quarter, benefiting from improved distribution economics[18] Expenses and Adjustments - General and administrative expenses decreased by 20% compared to Q1 2024, primarily due to lower fixed employee compensation[19] - Acquisition-related expenses amounted to $2.2 million for the three months ended June 30, 2024, slightly down from $2.8 million for the three months ended March 31, 2024[24] - Organizational restructuring charges were not reported for the three months ended June 30, 2024, but were $2.8 million for the three months ended March 31, 2024[24] - The tax effect of adjustments for the three months ended June 30, 2024, was $3.7 million, compared to a tax effect of $(0.8) million for the three months ended March 31, 2024[24] Other Financial Metrics - Investment fair value changes, net, resulted in a loss of $1.1 million for the three months ended June 30, 2024, compared to a loss of $21.8 million for the three months ended March 31, 2024[24] - Declared and paid a regular quarterly dividend of $0.16 per common share[2] - The weighted average diluted common shares outstanding increased to 132,124 thousand in Q2 2024 from 131,570 thousand in Q1 2024[1] - HEI income, net increased in Q2 2024, supported by improved home price appreciation trends[19] Reporting Changes - The company has made changes to its calculation of EAD and consolidated income statements to enhance clarity and comparability with industry peers[24]

Core Viewpoint - Redwood Trust (RWT) is anticipated to report a quarterly earnings per share (EPS) of $0.12, reflecting a year-over-year decline of 14.3% despite an expected revenue increase of 8.2% to $28.13 million [1][2][3]. Earnings Expectations - The consensus outlook indicates a year-over-year decline in earnings for Redwood Trust, which is significant for assessing the company's earnings picture [3]. - The stock price may react positively if actual results exceed expectations, while a miss could lead to a decline [4]. Estimate Revisions - The Zacks Consensus Estimate for the quarter has been revised down by 1.43% over the last 30 days, indicating a collective reassessment by analysts [9]. - The Most Accurate Estimate for Redwood Trust is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -3.23%, suggesting a bearish outlook from analysts [12]. Earnings Surprise Prediction - A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank of 1, 2, or 3 [10]. - The current Zacks Rank for Redwood Trust is 3, making it challenging to predict an earnings beat conclusively [15][16]. Historical Performance - Over the last four quarters, Redwood Trust has only beaten consensus EPS estimates once, which may influence future earnings expectations [19].

Redwood Trust, Inc. (RWT) reached a significant support level, and could be a good pick for investors from a technical perspective. Recently, RWT's 50- day simple moving average broke out above its 200-day moving average; this is known as a "golden cross." A golden cross is a technical chart pattern that can signify a potential bullish breakout. It's formed from a crossover involving a security's short-term moving average breaking above a longer-term moving average, with the most common moving averages bein ...

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's total assets increased to **$15.1 billion** in Q1 2024 from **$14.5 billion** at year-end 2023, driven by growth in residential consumer loans, with net income for the quarter reaching **$30.3 million** (**$0.21** per share), a significant increase from **$4.6 million** (**$0.02** per share) in Q1 2023, primarily due to positive investment fair value changes Consolidated Balance Sheet Summary (Unaudited) | (In Thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$15,057,974** | **$14,504,327** | | Residential consumer loans, held-for-investment | $7,104,886 | $6,139,445 | | Residential investor loans, held-for-investment | $4,901,443 | $5,040,048 | | **Total Liabilities** | **$13,833,811** | **$13,301,634** | | Asset-backed securities issued, net | $10,628,189 | $9,811,880 | | Long-term debt, net | $1,707,138 | $1,680,901 | | **Total Equity** | **$1,224,163** | **$1,202,693** | Consolidated Statement of Income Summary (Unaudited) | (In Thousands, except Share Data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | **Net Interest Income** | **$24,210** | **$26,437** | | Total non-interest income, net | $50,339 | $21,098 | | Investment fair value changes, net | $21,837 | $(4,392) | | **Net Income** | **$30,262** | **$4,620** | | Net income available to common stockholders | $28,512 | $3,201 | | **Diluted earnings per common share** | **$0.21** | **$0.02** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The company operates across three segments and clarified its loan classifications in Q1 2024 for enhanced reporting clarity - The company operates in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio, with primary income sources from net interest income and non-interest income from mortgage banking activities[28](index=28&type=chunk)[29](index=29&type=chunk) - In Q1 2024, the company renamed 'Residential loans' to 'Residential consumer loans' and 'Business purpose loans' to 'Residential investor loans' for clarity, without changing account classifications[32](index=32&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=79&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management highlighted increased GAAP earnings and book value in Q1 2024, driven by accretive investments and strong Residential Consumer lock volumes, with a key strategic development being the partnership with CPP Investments, expected to enhance capital certainty and fee-based income, focusing on market share growth, credit risk management in its Residential Investor segment, and improved operating efficiency - The company's strategic focus is on evolving its investment approach by deploying capital alongside institutional partners to drive scale in its operating platforms and diversify revenue streams with more predictable, fee-based income[421](index=421&type=chunk) - A significant milestone in Q1 2024 was the closing of a multi-pronged transaction with CPP Investments, which includes a **$500 million** joint venture with potential purchasing power of **$4 billion** for Residential Investor loans and a new **$250 million** secured revolving financing facility[420](index=420&type=chunk)[421](index=421&type=chunk) Q1 2024 Key Financial Metrics | (In Thousands, except per Share Data) | Three Months Ended March 31, 2024 | Three Months Ended December 31, 2023 | | :--- | :--- | :--- | | Net income per diluted common share | $0.21 | $0.15 | | Return on common stockholders' equity | 10.0% | 7.3% | | Book Value per share | $8.78 | $8.64 | | Economic return on book value | 3.5% | 0.3% | [Consolidated Results of Operations](index=85&type=section&id=Consolidated%20Results%20of%20Operations) Net income significantly increased in Q1 2024 due to positive investment fair value changes, despite a slight decrease in net interest income and lower general and administrative expenses - Net income increased to **$30.3 million** in Q1 2024 from **$4.6 million** in Q1 2023, primarily driven by a **$26.2 million** positive swing in investment fair value changes, benefiting from tightening credit spreads across the securities portfolio[439](index=439&type=chunk)[448](index=448&type=chunk) - Net interest income decreased slightly by **$2.2 million** year-over-year, mainly due to higher borrowing costs on long-term debt and ABS issued in the Investment Portfolio, partially offset by higher net interest income from Mortgage Banking operations[440](index=440&type=chunk) - General and administrative expenses decreased by **$1.0 million** year-over-year, primarily due to lower variable and equity compensation expense resulting from a reduction in headcount, despite incurring **$3 million** in restructuring charges in Q1 2024[457](index=457&type=chunk) [Results of Operations by Segment](index=90&type=section&id=Results%20of%20Operations%20by%20Segment) The Residential Consumer Mortgage Banking segment turned profitable, while the Investment Portfolio's contribution significantly increased, offsetting a wider loss in the Residential Investor Mortgage Banking segment Segment Contribution Summary | (In Thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Residential Consumer Mortgage Banking | $7,019 | $(1,263) | | Residential Investor Mortgage Banking | $(5,509) | $(1,027) | | Investment Portfolio | $57,606 | $35,537 | | Corporate/Other | $(28,854) | $(28,627) | | **Net Income** | **$30,262** | **$4,620** | - The Residential Consumer Mortgage Banking segment's contribution turned positive to **$7.0 million**, driven by a significant increase in loan lock and distribution volumes, with **$1.8 billion** in locks and **$1.4 billion** distributed through securitizations and whole loan sales[472](index=472&type=chunk)[476](index=476&type=chunk)[481](index=481&type=chunk) - The Investment Portfolio's contribution increased by **$22.1 million** year-over-year, primarily due to positive investment fair value changes from tightening credit spreads, higher HEI income, and improved MSR valuations[472](index=472&type=chunk)[501](index=501&type=chunk) - The Residential Investor Mortgage Banking segment's loss widened to **$5.5 million** due to lower funding volumes and margins amid elevated interest rates, although operating expenses decreased due to headcount reductions[472](index=472&type=chunk)[494](index=494&type=chunk) [Liquidity and Capital Resources](index=106&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong capital and liquidity positions as of Q1 2024, bolstered by new debt issuance and a revolving financing facility, with plans to repay maturing convertible notes - As of March 31, 2024, the company had total capital of **$1.92 billion** and unrestricted cash and cash equivalents of **$275 million**[561](index=561&type=chunk)[562](index=562&type=chunk) - In Q1 2024, the company issued **$60 million** of 9.125% senior unsecured notes due 2029 and entered into a new corporate secured revolving financing facility with CPP Investments with an initial borrowing limit of **$200 million** (subsequently increased to **$250 million**)[561](index=561&type=chunk)[580](index=580&type=chunk)[407](index=407&type=chunk) - The company had **$2.24 billion** of secured recourse debt outstanding, of which **$1.88 billion** was non-marginable, meaning it is not subject to margin calls based solely on a lender's discretionary determination of market value declines[565](index=565&type=chunk) - The company has a convertible note series with a **$116 million** outstanding balance maturing in July 2024, which it expects to repay with cash on hand[582](index=582&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=114&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states there have been no material changes in its quantitative or qualitative exposure to market risk since December 31, 2023, other than developments described in the MD&A section, and refers to its 2023 Annual Report on Form 10-K for detailed information - Information concerning market risk is incorporated by reference from the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023[608](index=608&type=chunk) - There have been no material changes in the company's quantitative or qualitative exposure to market risk since December 31, 2023, apart from developments discussed in the MD&A, such as changes in the fair values of assets[608](index=608&type=chunk) [Item 4. Controls and Procedures](index=114&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 March 31, 2024, with no material changes to internal control over financial reporting during the first quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarter[610](index=610&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[611](index=611&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=115&type=section&id=Item%201.%20Legal%20Proceedings) The report refers to Note 17 of the financial statements for information on legal proceedings, which indicates no significant updates from the disclosures in the 2023 Annual Report on Form 10-K - There are no significant updates regarding litigation matters since the company's Annual Report on Form 10-K for the year ended December 31, 2023[336](index=336&type=chunk)[614](index=614&type=chunk) [Item 1A. Risk Factors](index=115&type=section&id=Item%201A.%20Risk%20Factors) The report states that risk factors are discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, indicating no material changes or new risk factors in the current quarter - The company's risk factors are discussed in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2023[614](index=614&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=115&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In March 2024, the company issued unregistered warrants to CPP Investments for a total of **6,583,017 shares** of common stock in conjunction with their joint venture, and during the quarter, no shares of common or preferred stock were repurchased under the existing authorization programs - In March 2024, the company issued warrants to CPP Investments exercisable for a total of **6,583,017 shares** of common stock, which were not registered under the Securities Act of 1933[616](index=616&type=chunk) - During Q1 2024, the company did not repurchase any shares of its common or preferred stock, with authorization remaining for up to **$101 million** in common stock repurchases and **$70 million** in preferred stock repurchases as of March 31, 2024[616](index=616&type=chunk) [Item 3. Defaults Upon Senior Securities](index=115&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[619](index=619&type=chunk) [Item 5. Other Information](index=115&type=section&id=Item%205.%20Other%20Information) The company reported that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[620](index=620&type=chunk) [Item 6. Exhibits](index=116&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, certifications from the CEO and CFO, and interactive data files (XBRL)

Redwood Trust, Inc. (NYSE:RWT) Q1 2024 Earnings Conference Call April 30, 2024 5:00 PM ET Company Participants Kaitlyn Mauritz - Senior Vice President, Investor Relations Chris Abate - Chief Executive Officer Dash Robinson - President Brooke Carillo - Chief Financial Officer Conference Call Participants Rick Shane - JPMorgan Bose George - KBW Doug Harter - UBS Crispin Love - Piper Sandler Don Fandetti - Wells Fargo Stephen Laws - Raymond James Eric Hagen - BTIG Steve Delaney - Citizens JMP Kyle Joseph - Jef ...