Redwood Trust(RWT) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net interest income (NII) was essentially flat this quarter, with a modest improvement in bridge NII offset by lower portfolio NII from securities sold and higher interest expense on new financing activities [10] - Earnings available for distribution (EAD) decreased to $7.1 million or$0.05 per basic common share for the fourth quarter, down from $12.6 million or$0.10 per share in the third quarter, primarily due to lower income from mortgage banking activities [11][12] - GAAP net income for the fourth quarter was $19.3 million or$0.15 per common share, compared to negative $32.6 million or negative$0.29 in the third quarter, resulting in a fourth quarter GAAP return on equity of 7.3% [142] Business Line Data and Key Metrics Changes - Residential Mortgage Banking experienced a modest quarter-over-quarter reduction in volume driven largely by seasonality, but maintained strategic momentum [3] - The investor loan products attracted retention from Capital Partners, with $111 million of loans distributed through whole loan sales and sales to a joint venture [6] - The multifamily bridge portfolio remains a key focus area, with borrowers managing to stabilize projects and inject fresh equity [140] Market Data and Key Metrics Changes - Over 55$2.8 billion of locks in the second half of 2023 represent approximately 5% of total jumbo market share, compared to a historical range of 2% to 3% [89] - The multifamily bridge portfolio is under pressure due to higher rates, but there is optimism for recovery as sponsors work towards stabilization [140][141] Company Strategy and Development Direction - The company aims to continue opportunistic deployment of capital into products with attractive return profiles that complement its mortgage banking businesses [15] - A strategic shift towards joint ventures with leading private credit institutions is underway, enhancing liquidity and pricing power [98][99] - The company is focused on home equity investments, launching a traditional second lien mortgage product to address the largest untapped market in housing finance [103][132] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategic positioning given excess capital and the potential for market recovery as rates stabilize [19][54] - The company is optimistic about the demand for real estate and the potential for fresh capital to support recovery in its loan portfolio [38][39] - Management acknowledged the challenges in the current market but emphasized the importance of being selective and strategic in capital deployment [31][56] Other Important Information - The company achieved a 5% to 10% expense reduction in 2023 and aims for further efficiency improvements in 2024 [80][117] - The company has approximately 318 million of unencumbered assets that can serve as a potential source of capital for growth or debt repurchase [116][66] - The company completed five securitizations in the fourth quarter, enhancing its capital structure and liquidity [32][139] Q&A Session Summary Question: What is the outlook for multifamily delinquency trends? - Management acknowledged the uptick in multifamily delinquencies but expressed optimism about the underlying demand for real estate and the potential for recovery as projects stabilize [23][39] Question: Can you discuss the dynamics of the origination side and the residential consumer mortgage banking business? - Management noted that while the origination market is challenging, they feel good about their trajectory and are taking market share, supported by strong demand for their products [150][121] Question: How does the company view its capital position and deployment strategy? - Management highlighted that they have 285 million of excess capital and are well-positioned to be aggressive in capital deployment as market conditions improve [19][57]