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REDWOOD TRUST INC (RWT)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered positive GAAP earnings ($0.10) and higher non-GAAP EAD ($0.14), driven by strong Sequoia mortgage banking margins and increased distribution, while legacy bridge loan marks remained a headwind .
  • Revenue materially beat Wall Street consensus ($73.85M actual vs $30.25M estimate; +$43.6M), but normalized EPS under-ran consensus ($0.14 actual vs $0.17 estimate), reflecting mix and non-GAAP/GAAP differences; GAAP EPS was $0.10 *.
  • Management reiterated a YE’25 run-rate target of 9%–12% EAD ROE and highlighted accelerating capital rotation toward operating platforms; dividend maintained at $0.18 in Q2 2025 .
  • Near-term catalysts: active buyback authorization (~$100M), robust bank flow and bulk purchases, and policy developments (GSE footprint reform) that could expand private-capital housing finance; Q2-to-date distributions ~$520M underscore momentum .

Values marked with * retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Sequoia gain-on-sale margins of 123 bps (above 75–100 bps target), with $4.0B locks (+73% QoQ; +125% YoY) and $2.0B distributed across securitizations and whole loan sales, supporting a 28% GAAP ROE for the segment .
  • Third-Party Portfolio Investments net income rose as lower rates improved valuations; Redwood Investments segment net income increased to $22.9M (vs $2.8M in Q4) .
  • Management tone confident on strategic progress and market share gains: “Our Sequoia business produced its highest lock volumes in three years… CoreVest saw ongoing strength… we successfully launched our expanded Aspire loans…” (CEO Abate) .

What Went Wrong

  • Legacy multifamily bridge loans saw higher delinquencies, increasing negative fair value changes; segment net loss widened to $(33.9)M from $(26.6)M .
  • GAAP book value per share slipped to $8.39 (vs $8.46), tempering total economic return to +1.3% for the quarter .
  • CoreVest funded $482M, down 4% QoQ amid rate volatility (though +48% YoY), prompting tighter credit posture in certain geographies (e.g., Texas/Florida) and reduced leverage vs spread add-ons .

Financial Results

Income Statement and EPS vs Prior Periods and Estimates

MetricQ1 2024Q4 2024Q1 2025
Net Interest Income ($USD Millions)$24.2 $27.6 $27.9
Total Non-Interest Income ($USD Millions)$50.3 $17.6 $45.9
Revenue ($USD Millions)——$73.85*
GAAP Net Income ($USD Millions)$30.3 $(6.6) $16.1
GAAP EPS ($USD)$0.21 $(0.07) $0.10
EAD per Basic Share (non-GAAP) ($USD)$0.13 $0.13 $0.14
GAAP ROE (annualized)—(3.0)% 5.2%
EAD ROE (annualized, non-GAAP)—6.6% 7.1%

Values marked with * retrieved from S&P Global.

Estimate Comparison (Wall Street consensus vs actual, Q1 2025)

MetricConsensusActual
Revenue ($USD Millions)$30.25*$73.85*
Primary EPS (normalized) ($USD)$0.17*$0.14*
# of Estimates (EPS / Revenue)8 / 6*—

Values marked with * retrieved from S&P Global.

Segment Net Income (GAAP)

Segment ($USD Millions)Q4 2024Q1 2025
Sequoia Mortgage Banking$21.8 $25.8
CoreVest Mortgage Banking$1.5 $1.3
Retained Operating Investments$27.3 $23.0
Third-Party Portfolio Investments$2.0 $33.8
Legacy Bridge Investments$(26.6) $(33.9)
Corporate Expenses$(34.5) $(35.6)
GAAP Net Income (Loss)$(6.6) $16.1

KPIs

KPIQ4 2024Q1 2025
Sequoia Locks ($USD Billions)$2.3 $4.0
Sequoia Gain on Sale (bps)—123
Sequoia Distributed ($USD Billions)$2.5 $2.0
CoreVest Fundings ($USD Millions)$501 $482
Aspire Locks ($USD Millions)—$111
Recourse Leverage (x)2.4x 2.5x
Unrestricted Cash ($USD Millions)$245 $260
GAAP Book Value/Share ($)$8.46 $8.39
Q2-to-date Distributions ($USD Millions)—~$520

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EAD ROE (annualized run-rate)YE 2025 (2H run-rate)Target 9%–12% (provided prior and reiterated) 9%–12% run-rate reiterated and framed as 2H run-rate Maintained
Capital Allocation to Operating PlatformsYE 2025 targetOperating+Retained: 49% (today) / Target 67% YE’25 Continued rotation ~$200–$225M toward operating/retained investments in 2025 Raising operating mix
Common DividendQ2 2025$0.18 (Q1 2025) $0.18 (Q2 2025) Maintained
Share Repurchase AuthorizationOngoing~$100M authorization in place Actively evaluating use given discount to book Potential deployment
Near-term Liquidity/Credit Lines2025CPP JV capacity pre-existingAccessed additional $50M capacity post quarter Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2025)Trend
Macro volatility, hedgingQ3’24: Hedging outperformance; leverage managed 2.1–2.5x April volatility navigated; book value est. up 1%–1.5% in April; active pipeline turn and risk management Robust hedging discipline; BV resilience
Private credit bidQ3’24: JV ramp with CPP; whole loan sales building Private credit supports spreads; continued orderly PLS markets despite volatility Structural tailwind, deeper distribution
GSE/policy reformQ3’24: Anticipated policy shifts aiding non-Agency Advocating for Reg AB II updates; GSE footprint recalibration; bank balance sheet solutions Increasing policy engagement; potential TAM expansion
Sequoia product/performanceQ3’24: Monthly securitization cadence; elevated margins 3-year-high locks; 123 bps margin; 28% ROE; bulk/flow balanced; banks as buyers/sellers Strengthening share, execution
CoreVest credit postureQ3’24: Smaller balance focus (RTL/DSCR), efficient capital $482M fundings (-4% QoQ); tighten leverage in certain geographies vs spread add-ons Prudent underwriting amid volatility
Legacy bridge resolutionQ3’24: Expect resolving ~half delinquent bridge loans by early Q1’25 Delinquencies up tied to targeted resolutions; ~10% resolved; net capital exposure ~$1.60/share Active de-risking; still a headwind
Technology/AI initiativesQ3’24: Platform scaling; seller tech overlay referenced Two new AI-driven investments; Aspire tech overlay for underwriting efficiency Increasing tech integration in sourcing/underwriting

Management Commentary

  • “We are pleased to report first quarter results that… highlight substantial strategic progress and market share gains across our platforms.” — CEO Christopher Abate .
  • “The latest new normal is now sweeping the markets… our GAAP book value per share was estimated at April 21 to be up 1% to 1.5% from quarter end.” — CEO Christopher Abate .
  • “Efficient distribution drove another quarter of Sequoia gain on sale margins… we’ve probably never felt better about our depth and distribution.” — President Dash Robinson .
  • “We do have a current [buyback] authorization… just over $100 million… levels today are certainly attractive.” — CFO Brooke Carillo .

Q&A Highlights

  • Hedging through April volatility: Management avoided specifics but emphasized rapid capital turnover, diversified distribution (bulk and securitizations), and non-marginable facilities to protect book value .
  • Spreads/margins: Prime jumbo spreads normalized after April; confidence in maintaining margins at or above the 75–100 bps range .
  • Liquidity and execution risk on $4B locks: Half of the quarter-end pipeline was sold/securitized shortly after, aided by bank buyer demand and “shock absorbers” across channels .
  • Legacy bridge loans: Delinquencies rose due to chosen resolution paths; ~10% of 90+ DPD resolved; net capital exposure to older vintage multifamily bridge ~$1.60/share .
  • Buybacks: ~$100M authorization active; potential deployment given discount to book and light maturity ladder (convertible ~$109M) .

Guidance Changes

(See table above; key points: EAD ROE run-rate 9–12% reiterated for 2H’25, continued capital rotation toward operating platforms, dividend maintained at $0.18, incremental CPP capacity, evaluating buybacks) .

Estimates Context

  • Q1 2025 Revenue beat: $73.85M actual vs $30.25M consensus; material outperformance (likely reflecting strong non-interest income and Sequoia margins) *.
  • Normalized EPS miss vs consensus: $0.14 actual vs $0.17 consensus; GAAP EPS reported at $0.10; differences reflect non-GAAP vs GAAP bases and segment mix *.
  • Estimate depth: 8 EPS and 6 revenue estimates inform consensus [GetEstimates Q1 2025]*.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Sequoia’s margin durability and 3-year-high lock volumes position RWT for continued market-share gains even with elevated mortgage spreads; expect margins at or above historical targets with disciplined hedging .
  • Revenue upside vs consensus underscores monetization of distribution and non-interest income, but normalized EPS underperformance vs consensus highlights ongoing GAAP/EAD dynamics; watch mix and bridge portfolio impacts *.
  • Legacy multifamily bridge remains the principal risk; management is proactively resolving assets and reducing exposure, but negative fair value changes may persist near-term .
  • Capital rotation toward operating and retained investments (target YE’25 run-rate 9%–12% EAD ROE) can lift earnings power as the legacy bridge tail risk shrinks .
  • Policy and GSE developments could expand private-label mortgage finance opportunity; Redwood is advocating for reforms (e.g., Reg AB II) and is well-placed to channel private credit into housing .
  • Potential buybacks (~$100M authorization) at a discount to book value offer accretive capital deployment alongside dividends ($0.18 maintained for Q2) .
  • Near-term momentum: Q2-to-date ~$520M loan distributions, continued securitization cadence, and incremental JV capacity support liquidity and execution through volatility .

Values marked with * retrieved from S&P Global.