Redwood Trust(RWT) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Results Key Q1 2024 Financial Results and Metrics Redwood Trust reported strong Q1 2024 financial results, with GAAP book value per share increasing to $8.78, GAAP net income reaching $29 million, and a 3.5% economic return on book value Q1 2024 Key Financial Metrics vs. Q4 2023 | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | GAAP book value per common share | $8.78 | $8.64 | | GAAP net income available to common stockholders | $29 million | $19 million | | GAAP EPS (diluted) | $0.21 | $0.15 | | Non-GAAP EAD | $11 million | $7 million | | Non-GAAP EAD per basic common share | $0.08 | $0.05 | | Economic return on book value | 3.5% | 0.3% | | Recourse leverage ratio | 1.9x | 2.2x | | Dividend per common share | $0.16 | $0.16 | Operational Business Highlights Operational segments showed significant momentum, with Residential Consumer Mortgage Banking's jumbo loan lock volume increasing 53% and Residential Investor Mortgage Banking maintaining stable funding Residential Consumer Mortgage Banking This segment experienced substantial growth, with jumbo loan lock volumes increasing 53% to $1.8 billion and gross margins reaching 107 basis points - Locked $1.8 billion of jumbo loans, a 53% increase from $1.2 billion in Q4 2023[5] - Achieved gross margins of 107bps, which is above the historical target range of 75bps to 100bps[5] - Launched a closed-end second (CES) lien product and expanded its network of depository institutions to 74 from 68 in the prior quarter[5] Residential Investor Mortgage Banking This segment funded $326 million in loans, with February and March volumes increasing 20% compared to January, signaling a strengthening pipeline - Funded $326 million of residential investor loans, comprised of 64% bridge loans and 36% term loans[5] - Average funding volumes for February and March 2024 were 20% higher than January 2024 levels[5] Investment Portfolio The company deployed $115 million into new investments, the largest since Q3 2022, while delinquency rates remained stable for RPL and jumbo securities - Deployed approximately $115 million of capital into internally sourced and third-party investments, the largest single quarter deployment since Q3 2022[7] 90 Day+ Delinquency Rates | Portfolio | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | RPL Securities | 8.1% | Stable | | Jumbo Securities | 0.2% | Stable | | CAFL Securities & Bridge Loans | 5.0% | 4.7% | Financing Highlights Redwood enhanced liquidity by increasing excess warehouse financing capacity to $2.7 billion, repurchasing convertible debt, and issuing new senior unsecured notes - Unrestricted cash and cash equivalents stood at $275 million, with unencumbered assets of approximately $370 million[7] - Grew excess warehouse financing capacity to $2.7 billion and successfully renewed or established three loan financing facilities totaling $750 million[7] - Repurchased $31 million of convertible debt at a discount and issued $60 million of senior unsecured notes due 2029[7] Corporate Highlights The company finalized a strategic capital partnership with CPP Investments for up to $4 billion in loan capacity and completed cost reduction efforts for $8 million in annual savings - Completed a strategic capital partnership with CPP Investments, including a joint venture with up to $4 billion of loan capacity and a financing line of up to $250 million[7] - Completed cost reduction efforts expected to result in run-rate annual savings of approximately $8 million[7] Q2 2024 Highlights to Date Subsequent to Q1, Redwood closed a $402 million jumbo securitization and made an initial $100 million draw on its new CPP Investments financing facility - Closed a SEMT jumbo securitization in mid-April 2024, backed by approximately $402 million of jumbo loans[7] - Completed an initial draw of $100 million under the recently established $250 million CPP Investments financing facility[7] Financial Statements Consolidated Income Statements For Q1 2024, Redwood reported net income of $30 million, driven by higher net interest income and positive net investment fair value changes, resulting in $29 million available to common stockholders Selected Income Statement Data (Q1 2024 vs. Q4 2023) | ($ in millions) | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Net interest income | $24 | $20 | | Total non-interest income, net | $50 | $44 | | General and administrative expenses | ($35) | ($32) | | Net income | $30 | $21 | | Net income available to common stockholders | $29 | $19 | - The increase in net interest income was attributed to accretive capital deployment and recovery of delinquent interest on bridge loans[21] - General and administrative expenses rose primarily due to organizational restructuring costs from a reduction in force during the quarter[21] Consolidated Balance Sheets As of March 31, 2024, total assets grew to $15,058 million, with stockholders' equity increasing to $1,224 million and GAAP book value per common share rising to $8.78 Balance Sheet Summary (as of March 31, 2024 vs. Dec 31, 2023) | ($ in millions, except per share data) | 3/31/2024 | 12/31/2023 | | :--- | :--- | :--- | | Total assets | $15,058 | $14,504 | | Total liabilities | $13,834 | $13,302 | | Stockholders' equity | $1,224 | $1,203 | | GAAP book value per common share | $8.78 | $8.64 | Non-GAAP Disclosures Reconciliation to Earnings Available for Distribution (EAD) The company's non-GAAP Earnings Available for Distribution (EAD) for Q1 2024 increased to $11 million, or $0.08 per basic share, reflecting adjustments to GAAP net income for non-cash items Reconciliation of GAAP Net Income to EAD (Q1 2024 vs. Q4 2023) | ($ in millions, except per share data) | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | GAAP Net income available to common stockholders | $29 | $19 | | Adjustments (Investment fair value changes, etc.) | ($18) | ($12) | | Earnings Available for Distribution (non-GAAP) | $11 | $7 | | EAD per basic common share (non-GAAP) | $0.08 | $0.05 | - EAD is a non-GAAP measure that management believes helps analyze results and the ability to pay dividends by excluding items like unrealized fair value changes, realized gains/losses, and restructuring charges[26] - In Q4 2023, the company modified its EAD calculation, notably by no longer including fair value changes from Home Equity Investments (HEI) in the primary adjustment, as HEI income is now reported separately[25]