Redwood Trust(RWT) - 2025 Q2 - Quarterly Results

Redwood Trust Q2 2025 Earnings Release Executive Summary & Strategic Update The company is accelerating its transition to a scalable, fee-driven operating model by reallocating capital from legacy investments to core platforms - The company is accelerating its shift to a scalable business model focused on growing and durable fee streams by reallocating capital from legacy investments to high-performing platforms[3] - Dispositions will focus on unsecuritized bridge loans and other non-core assets, now categorized under a new 'Legacy Investments' reporting segment[4] - The strategic shift is expected to generate up to $200-$250 million of incremental capital by the end of 2025 for redeployment into core operations[4] - The common stock repurchase authorization has been increased to $150 million, with plans to expand repurchase activity in Q3 2025[3][4] Q2 2025 Financial Highlights The company reported a GAAP net loss of $(0.76) per share and a book value decrease to $7.49, though core segment earnings remained positive Q2 2025 Key Financial Metrics | ($ in millions, except per share data) | 6/30/2025 | 3/31/2025 | | :--- | :--- | :--- | | Book Value per Common Share | $7.49 | $8.39 | | Economic Return on Book Value | (8.6)% | 1.3% | | Net (Loss) Income per Basic Common Share | $(0.76) | $0.10 | | Non-GAAP Core Segments EAD per Basic Common Share | $0.18 | $0.20 | | Dividends per Common Share | $0.18 | $0.18 | - The GAAP net loss of $(100.2) million was primarily driven by fair value adjustments and resolutions within the newly formed Legacy Investments segment[8][17] - The company reported Non-GAAP Core Segments Earnings Available for Distribution ("Core Segments EAD") of $25.0 million, or $0.18 per share, showcasing the performance of its ongoing business operations[8] - Unrestricted cash and cash equivalents stood at $302 million at the end of the quarter[8] Segment Performance Core Segments generated strong net income, which was offset by a significant loss in the new Legacy Investments segment due to asset dispositions GAAP Segment Net (Loss) Income Summary ($ in millions) | Segment | Q2 2025 (6/30/2025) | Q1 2025 (3/31/2025) | | :--- | :--- | :--- | | Total Core Segments | $40.2 | $53.8 | | Sequoia Mortgage Banking | $22.2 | $25.8 | | CoreVest Mortgage Banking | $6.1 | $3.0 | | Redwood Investments | $11.9 | $25.0 | | Total Legacy Investments Segment | $(104.0) | $(2.1) | | Total Corporate/Other | $(36.4) | $(37.4) | | GAAP Net (Loss) Income | $(100.2) | $14.3 | Core Segments Performance Core mortgage banking and investment segments delivered strong results with high returns on equity and increased business volume - Sequoia Mortgage Banking: Reported $22.2 million in net income, with a 19% annualized GAAP ROE. On-the-run jumbo lock volume increased 15% from Q1 2025 to its highest level since 2021[13] - CoreVest Mortgage Banking: Reported $6.1 million in net income, with a 27% annualized GAAP ROE. Funded $509 million in loans and distributed a record $583 million[13] - Redwood Investments: Reported $11.9 million in net income and deployed ~$100 million of capital into retained operating investments with mid-teens target returns. Recourse leverage remained low at 1.1x[13] Legacy Investments Performance The new Legacy Investments segment reported a substantial net loss driven by fair value adjustments on assets slated for disposition - This new segment was created in Q2 2025 to house assets in the process of active sale, run-off, or other disposition[17] - The segment's GAAP net loss of $(104.0) million was mainly due to fair value adjustments on legacy bridge loans and other non-core assets[17] - Capital allocated to Legacy Investments declined by $107 million (17%) from Q1 2025, reflecting progress in the wind-down[17] Capital and Financing Recourse leverage increased to 3.2x due to higher warehouse utilization for mortgage banking growth, while marginable securities repo financing was reduced Recourse Debt and Leverage | Metric | 6/30/2025 | 3/31/2025 | | :--- | :--- | :--- | | Recourse Debt | $3.3 billion | $2.9 billion | | Recourse Leverage Ratio | 3.2x | 2.5x | - The quarter-over-quarter increase in recourse debt and leverage was partially driven by higher warehouse utilization, reflecting continued growth in mortgage banking pipelines[17] - Marginable securities repo was reduced to $93 million from $236 million in the prior quarter, following the sale of third-party assets[17] Q3 2025 Highlights to Date Quarter-to-date, the company has locked or funded $1.6 billion in loans and repurchased 0.8 million shares of common stock - Locked or funded a combined $1.6 billion of loans across mortgage banking platforms[17] - Distributed approximately $0.7 billion of loans through various channels[17] - Repurchased 0.8 million shares of common stock and increased the total repurchase authorization to $150 million[17] Financial Statements Consolidated statements show a quarterly net loss of $100.2 million, an increase in total assets to $21.3 billion, and a decrease in stockholders' equity Consolidated Income Statement The income statement reflects a net loss of $98.5 million for Q2, driven by lower net interest income and significant investment fair value losses Consolidated Income Statement Highlights ($ in millions) | Line Item | Q2 2025 (6/30/25) | Q1 2025 (3/31/25) | | :--- | :--- | :--- | | Net Interest Income | $13.8 | $27.9 | | Total non-interest income, net | $(51.9) | $45.9 | | Investment fair value changes, net | $(84.7) | $(5.2) | | Net (loss) income | $(98.5) | $16.1 | | Net (loss) income available to common stockholders | $(100.2) | $14.4 | | (Loss) earnings per basic common share | $(0.76) | $0.10 | Consolidated Balance Sheet The balance sheet shows asset growth to $21.3 billion, but a larger increase in liabilities led to a reduced book value per share of $7.49 Consolidated Balance Sheet Highlights ($ in millions) | Line Item | 6/30/25 | 3/31/25 | | :--- | :--- | :--- | | Total assets | $21,333 | $19,872 | | Total liabilities | $20,280 | $18,688 | | Stockholders' equity | $1,053 | $1,183 | | GAAP book value per common share | $7.49 | $8.39 | Non-GAAP Disclosures The company introduced a new 'Core Segments EAD' non-GAAP measure to isolate the profitability of its ongoing operations from legacy asset dispositions - The company introduced a new non-GAAP measure, Core Segments EAD, to analyze the combined performance of its mortgage banking platforms and related investments (Sequoia, CoreVest, and Redwood Investments), excluding the Legacy Investments segment[30][32] - Management believes Core Segments EAD helps investors analyze the company's transition to a capital-efficient business model by isolating the performance of core operations from the wind-down of legacy holdings[30] Reconciliation of GAAP to non-GAAP Core Segments EAD Reconciliation adjusts the GAAP net loss of $(100.2) million to a positive Core Segments EAD of $25.0 million by excluding the Legacy segment's results Core Segments EAD Reconciliation ($ in millions) | Description | Q2 2025 (6/30/2025) | | :--- | :--- | | GAAP Net (loss) income available to common stockholders | $(100.2) | | Adjustment to exclude Legacy Investments Segment | $117.4 | | EAD adjustments relating to Core Segments | $7.8 | | Non-GAAP Core Segments EAD | $25.0 | | Non-GAAP Core Segments EAD per Basic Common Share | $0.18 | Reconciliation of GAAP to non-GAAP EAD The traditional EAD reconciliation shows a combined positive EAD of $48.0 million from Core Segments, offset by losses from Legacy and Corporate segments Non-GAAP EAD by Segment - Q2 2025 ($ in millions) | Segment | GAAP Net Income (Loss) | Non-GAAP EAD | | :--- | :--- | :--- | | Sequoia Mortgage Banking | $22.2 | $22.2 | | CoreVest Mortgage Banking | $6.1 | $7.7 | | Redwood Investments | $11.9 | $18.1 | | Legacy Investments | $(104.0) | $(31.1) | | Corporate/Other | $(36.4) | $(36.3) | | Total | $(100.2) | $(19.4) |