Redwood Trust(RWT) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements Redwood Trust reported Q1 2025 net income of $16.1 million ($0.10 diluted EPS), down from $30.3 million in Q1 2024, with total assets growing to $19.9 billion - The company declared a common dividend of $0.18 per share for the first quarter of 2025[18] Q1 2025 Key Financial Highlights | Financial Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $27.9M | $24.2M | | Net Income | $16.1M | $30.3M | | Diluted EPS | $0.10 | $0.21 | | Total Assets (End of Period) | $19.9B | $15.1B | | Total Liabilities (End of Period) | $18.7B | $13.8B | | Total Equity (End of Period) | $1.18B | $1.22B | Consolidated Balance Sheets Total assets increased by $1.6 billion to $19.9 billion, driven by residential consumer loans, while total liabilities rose by $1.6 billion to $18.7 billion Balance Sheet Comparison (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $19,871,775 | $18,258,344 | | Residential consumer loans, at fair value | $12,752,258 | $11,077,823 | | Residential investor loans, at fair value | $4,439,834 | $4,587,090 | | Cash and cash equivalents | $259,918 | $245,165 | | Total Liabilities | $18,688,281 | $17,070,481 | | Asset-backed securities issued, net | $14,458,243 | $13,270,204 | | Debt obligations, net | $3,760,685 | $3,462,880 | | Total Equity | $1,183,494 | $1,187,863 | Consolidated Statements of Income Q1 2025 net income was $16.1 million, down from $30.3 million in Q1 2024, primarily due to a negative swing in investment fair value changes Income Statement Summary (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income | $27,942 | $24,210 | | Mortgage banking activities, net | $33,053 | $14,556 | | Investment fair value changes, net | $(5,188) | $21,837 | | Total non-interest income, net | $45,906 | $50,339 | | General and administrative expenses | $(37,471) | $(34,569) | | Net Income | $16,147 | $30,262 | | Diluted EPS | $0.10 | $0.21 | Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $1.95 billion in Q1 2025, primarily due to higher held-for-sale loan purchases Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,952,505) | $(954,171) | | Net cash provided by investing activities | $658,757 | $350,287 | | Net cash provided by financing activities | $1,327,296 | $575,483 | | Net increase (decrease) in cash | $33,548 | $(28,401) | Notes to Consolidated Financial Statements The notes detail the company's three operating segments, fair value measurements, and management of residential loan portfolios and debt facilities Note 4. Segment Information Sequoia Mortgage Banking and Redwood Investments were key contributors to Q1 2025 net income, offset by a corporate-level net loss Segment Contribution (Net Income/Loss, in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Sequoia Mortgage Banking | $25,817 | $7,019 | | CoreVest Mortgage Banking | $1,338 | $(5,509) | | Redwood Investments | $22,868 | $57,492 | | Corporate/Other | $(33,876) | $(28,740) | | Total Net Income | $16,147 | $30,262 | Note 7. Residential Consumer Loans Residential consumer loans increased to $12.8 billion in Q1 2025, driven by $2.3 billion in loan acquisitions Activity of Residential Consumer Loans Held-for-Sale (in thousands) | Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Principal balance of loans acquired | $2,337,185 | | Principal balance of loans sold | $420,513 | | Principal balance of loans transferred from HFS to HFI | $1,623,900 | - The company had $2.3 billion in commitments to fund residential consumer loans as of March 31, 2025, including a $1 billion commitment to acquire a pool of seasoned jumbo loans[91] Note 8. Residential Investor Loans The $4.4 billion residential investor loan portfolio is actively managed for credit risk, with $206 million in modifications and $342 million on non-accrual status - In Q1 2025, the company modified or placed into forbearance residential investor loans with a total unpaid principal balance of $206 million[128] - As of March 31, 2025, residential investor loans with an aggregate unpaid principal balance of $342 million were on non-accrual status[134] - The fair value of residential investor bridge loans declined from $1.94 billion to $1.88 billion, reflecting payoffs and negative fair value changes from higher delinquencies on 2021 and 2022 vintage loans[128] Note 18. Debt Obligations, Net Total debt obligations increased to $3.76 billion, supported by $5.2 billion in warehouse facilities, with $90 million in new senior notes issued Debt Obligations Summary (in thousands) | Debt Type | Carrying Value (Mar 31, 2025) | Facility Capacity (Mar 31, 2025) | | :--- | :--- | :--- | | Residential consumer loan warehouse facilities | $1,210,265 | $2,875,000 | | Residential investor loan warehouse facilities | $786,891 | $2,330,000 | | Corporate Debt (Convertible, Senior, etc.) | $733,003 | N/A | | Total Debt Obligations | $3,760,685 | | - In January 2025, Redwood issued $90 million of 9.125% Senior Notes due in 2030[230] Note 19. Commitments and Contingencies Significant funding commitments include $350 million for bridge loan advances and equity capital commitments to joint ventures - Commitment to fund up to $350 million of additional advances on existing residential investor bridge loans[234] - Committed approximately $100 million of equity capital to a joint venture established in Q1 2024, with $25 million contributed to date[235] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Sequoia segment performance, a capital-light strategy for CoreVest, and efforts to reduce legacy bridge loans, targeting 9-12% ROE in H2 2025 - Sequoia jumbo lock volumes rose 73% from the prior quarter to $4 billion, the highest quarterly volume since Q3 2021[278] - CoreVest funded $482 million in loans in Q1 2025, a 48% increase year-over-year, with a strategy to reduce on-balance sheet holdings and distribute through private credit partnerships[280] - The company is taking steps to accelerate the reduction of its legacy bridge loan portfolio to focus capital on strategic go-forward activities[282] - Management expects to achieve annualized returns on equity in the 9% to 12% range in the second half of 2025[275] Results of Operations by Segment Q1 2025 segment performance was led by Sequoia's rebound and CoreVest's profitability, while Redwood Investments' contribution declined due to legacy bridge loan losses Segment Contribution Summary (in thousands) | Segment | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Sequoia Mortgage Banking | $25,817 | $21,799 | $7,019 | | CoreVest Mortgage Banking | $1,338 | $1,526 | $(5,509) | | Redwood Investments | $22,868 | $2,761 | $57,492 | Sequoia Mortgage Banking Segment Sequoia's contribution surged to $25.8 million in Q1 2025, driven by a 73% sequential increase in loan lock volumes to $4.0 billion - Loan purchase commitments (locks) increased to $3.3 billion in Q1 2025, up from $1.9 billion in Q4 2024 and $1.3 billion in Q1 2024[326] - Locked a $1 billion bulk transaction of seasoned loans from a large bank in Q1 2025[329] - Gain on sale margin was 123 basis points in Q1 2025, remaining above the historical target range of 75-100 basis points[332] CoreVest Mortgage Banking Segment CoreVest returned to profitability with a $1.3 million contribution, driven by $481 million in funding volume and a capital-light distribution strategy CoreVest Funding Activity (in thousands) | Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Fundings (Term & Bridge) | $481,449 | | Sales | $(370,316) | | Transfers between segments | $(105,799) | - Distribution activity was strong in Q1 2025, with $421 million distributed through whole loan sales and sales to joint ventures[353] Redwood Investments Segment Redwood Investments' contribution declined to $22.9 million due to a $34.0 million loss from legacy bridge loans, despite gains from other investment strategies Redwood Investments Earnings by Strategy (in thousands) | Strategy | Q1 2025 Contribution | | :--- | :--- | | Retained Operating Investments | $23,031 | | Third-Party Portfolio Investments | $33,788 | | Legacy Bridge Investments | $(33,951) | | Total Segment Contribution | $22,868 | - 90 day+ delinquencies on residential investor bridge loans were higher in Q1 2025, primarily driven by two sponsor relationships and concentrated in 2021 and 2022 vintages[371] - The company is actively working to reduce exposure in the legacy bridge loan portfolio, with a 10% payoff rate (by UPB) during Q1 2025[371] Liquidity and Capital Resources The company maintains strong liquidity with $1.94 billion in total capital and $5.2 billion in warehouse facilities, expecting to repay $124 million in maturing notes Capital and Liquidity Summary (as of March 31, 2025) | Metric | Amount | | :--- | :--- | | Total Capital | $1.94 billion | | Total Equity Capital | $1.18 billion | | Unrestricted Cash & Equivalents | $260 million | | Unencumbered Assets | $291 million | - The company's 5.75% exchangeable senior notes with an outstanding principal of $124 million mature in October 2025 and are expected to be repaid with cash on hand[431] - At March 31, 2025, $101 million remained available under the common stock repurchase authorization[422] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposure were reported since December 31, 2024, beyond those discussed in MD&A - No material changes in market risk exposure were reported since the fiscal year ended December 31, 2024[450] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[452] - No changes in internal control over financial reporting occurred during Q1 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[453] PART II — OTHER INFORMATION Legal Proceedings No significant updates to legal proceedings were reported since the Annual Report on Form 10-K - There are no significant updates regarding litigation matters since the last Annual Report[241][455] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold or shares repurchased in Q1 2025, with $101 million remaining for common stock repurchases - No shares of common or preferred stock were repurchased during Q1 2025[457] - As of March 31, 2025, the remaining repurchase authorization was $101 million for common stock and $70 million for preferred stock[457]