Redwood Trust(US:RWT)2025-08-08 20:34PART I — FINANCIAL INFORMATION Financial Statements 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, respectively25 Note 4. Segment Information 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 realignment3251 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 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, 2025118121 - 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 sales125 - 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 terms150 - 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 2024156157 Note 18. Debt Obligations, Net 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 2030271 Note 20. Equity 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, 2025297 Note 24. Subsequent Events 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 authorization315 Management's Discussion and Analysis of Financial Condition and Results of Operations 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" segment323329 - 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 2025331 - 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 uses331 - Core mortgage banking platforms, Sequoia and CoreVest, continued to deliver strong performance with combined GAAP returns exceeding 20% for the fourth consecutive quarter329333 Quantitative and Qualitative Disclosures About Market Risk 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 report526 Controls and Procedures 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 2025528 - No changes in internal control over financial reporting occurred during Q2 2025 that have materially affected, or are reasonably likely to materially affect, internal controls529 PART II — OTHER INFORMATION Legal Proceedings 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-K531 Risk Factors 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, 2024531 Unregistered Sales of Equity Securities and Use of Proceeds 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 2025533 Other Information 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, 2025537 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and interactive data files