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RT

REDWOOD TRUST INC (RWT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was a transition quarter: Redwood accelerated the wind-down of non-core “Legacy Investments,” driving a GAAP net loss of $(100.2) million and GAAP EPS of $(0.76), while core mortgage banking remained profitable with Core Segments EAD of $25.0 million ($0.18 per share) .
  • Significant estimate misses: vs S&P Global consensus, “Primary EPS” missed (0.18 est. vs -0.15 actual*) and revenue missed ($31.0mm est. vs -$38.1mm actual*) due to negative non-interest income tied to fair value adjustments and HEI impacts; mortgage banking fee streams and gains remained strong .
    Values retrieved from S&P Global.
  • Guidance and capital actions: management reaffirmed its plan to harvest $200–$250mm from legacy assets by YE25 and target consolidated EAD ROE of 9–12% by YE25/into 2026; buyback authorization was increased to $150mm and 0.8mm shares were repurchased in Q3-to-date .
  • Operating momentum: Sequoia gain‑on‑sale margins of 131 bps (above historical 75–100 bps range), $3.6bn locks, and the most active quarter of loan distributions since 2021 ($2.9bn); CoreVest funded $509mm (+6% q/q, +11% y/y) and completed its inaugural rated securitization of $284mm bridge loans .
  • Stock reaction catalysts: expanded buyback authorization and clarity on accelerated legacy asset resolutions vs. strong mortgage banking execution and above‑target margins .

What Went Well and What Went Wrong

What Went Well

  • Sustained mortgage banking profitability and scale: Combined mortgage banking GAAP returns above 20% for the fourth consecutive quarter; Sequoia gain‑on‑sale margin 131 bps and $2.9bn distributed (most active since 2021) .
  • CoreVest execution record: $509mm funded (+6% q/q, +11% y/y) and $583mm distributed—the most active quarter in CoreVest’s history; completed inaugural rated bridge securitization ($284mm) .
  • Management conviction and capital return: board upsized buyback authorization to $150mm; 0.8mm shares repurchased Q3‑to‑date; CEO emphasized “pivotal moment” toward scalable, fee‑driven model .

Quote: “This quarter marks a pivotal moment for Redwood as we further evolve toward a more scalable business underpinned by growing and durable fee streams.” — CEO Christopher Abate .

What Went Wrong

  • Legacy Investments drag: segment GAAP net loss $(104.0)mm; cumulative fair value charges and repositioning reduced GAAP book value per share to $7.49 (from $8.39) and drove economic return to (8.6%) .
  • Consolidated revenue and earnings miss: total non‑interest income of $(51.9)mm and net interest income $13.8mm produced negative revenue and GAAP EPS; EPS miss vs S&P Global consensus was large* .
    Values retrieved from S&P Global.
  • HEI and valuation headwinds: “HEI income, net” swung to $(12.9)mm from $10.2mm in Q1; muted asset valuation gains in Redwood Investments vs Q1 .

Financial Results

Consolidated summary vs prior periods

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$67.45*$73.85*$(38.10)*
GAAP EPS ($)$0.10 $0.10 $(0.76)
GAAP ROE (%)4.8% 5.2% (36.6%)
Book Value per Common Share ($)$8.73 $8.39 $7.49
Dividend per Common Share ($)$0.16 $0.18 $0.18

Values retrieved from S&P Global.

Segment net (loss) income

Segment ($mm)Q1 2025Q2 2025
Sequoia Mortgage Banking$25.8 $22.2
CoreVest Mortgage Banking$3.0 $6.1
Redwood Investments$25.0 $11.9
Legacy Investments$(2.1) $(104.0)
Corporate/Other$(37.4) $(36.4)
Total GAAP Net (Loss) Income$16.1 $(98.5)

Core segments EAD (non‑GAAP)

MetricQ1 2025Q2 2025
Core Segments EAD ($mm)$28.0 $25.0
Core Segments EAD per Basic Share ($)$0.20 $0.18
Core Segments EAD ROE (annualized, %)16.7% 14.5%

KPIs and operating metrics

KPIQ2 2024Q1 2025Q2 2025
Sequoia locks ($bn)$2.66 $4.00 $3.60
Sequoia gain‑on‑sale margin (bps)72 123 131
Sequoia loans distributed ($bn)$1.42 $2.00 $2.90
CoreVest fundings ($mm)$459 $482 $509
CoreVest distributions ($mm)$415 $421 $583
Unrestricted cash ($mm)$276 $260 $302
Recourse debt ($bn)$3.41 $3.76 $3.30
Recourse leverage ratio (x)2.1x 2.5x 3.2x

Estimates vs actuals (S&P Global)

Metric (Q2 2025)ConsensusActualSurprise
Primary EPS ($)0.1756*(0.1459)*Miss
Revenue ($mm)30.99*(38.10)*Miss

Values retrieved from S&P Global.

Forward estimates (S&P Global)

MetricQ3 2025Q4 2025
Primary EPS Consensus Mean ($)0.1738*0.2018*
Revenue Consensus Mean ($mm)30.30*24.68*
Primary EPS – # of Estimates8*7*
Revenue – # of Estimates6*5*

Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital harvest from Legacy InvestmentsYE 2025N/A (Q1 discussed reallocation)$200–$250mm by YE25 New/Specified
Consolidated EAD ROE targetYE 2025 into 20269–12% target heading into 2026 Reaffirmed 9–12% by YE25; ability to cover dividend entering 2026 Maintained
Share repurchase authorizationOngoingPrior common buyback ongoingUpsized to $150mm authorization Raised
Dividend per common shareQuarterly$0.18 (Q1 2025) $0.18 (Q2 2025) Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Bank retrenchment & seasoned jumbo poolsBanks reducing mortgage exposure; elevated flow & bulk activity Highest Sequoia locks in 3 years; bank relationships expanding Reviewing >$55bn seasoned jumbo pools; bank M&A as catalyst Increasing opportunity
Housing policy & GSE reformPotential narrowing of GSE mandates; private sector role Strategic positioning for policy changes “Generational opportunities” from GSE reform narrative; engagement with regulators Intensifying focus
Aspire non‑QM expansionLaunch context; macro tailwinds Expanded loans launched; $111mm locks $330mm locks (+197% q/q); seller network grew ~60% QoQ Scaling rapidly
Margin outlook (Sequoia)Margins above target range 123 bps GoS margin 131 bps; best pricing in some time; cautious on forecasting above range Elevated, sustained
Legacy bridge portfolio dispositionWorkouts ongoing; run‑off expected next 2–3 quarters Drag concentrated in 2021–22 vintages; plan reductions Accelerated marks & dispositions; $(104)mm segment loss; unlock $200–$250mm Accelerating exit
Share repurchasesDividend raises late 2024 Capital allocation to platforms Buyback authorization to $150mm; “most aggressive buyback posture” expected Increasing

Management Commentary

  • Strategic transition: “By proactively reallocating capital from legacy investments into our high‑performing platforms, we’re enhancing our capacity to capitalize on growth opportunities…unlocking greater long‑term earnings potential while eliminating legacy overhangs” — CEO Christopher Abate .
  • Buyback intent: “We plan to become more aggressive buyers of our common shares” with expanded authorization .
  • Mortgage banking momentum: “Our mortgage banking platforms continued to deliver combined GAAP returns above 20%…Gain-on-Sale Margins above target levels for the fourth consecutive quarter” — CFO Brooke Carrillo .
  • Legacy marks rationale: “We really leaned in on the marks…reflect actionable levels…recovering that capital, $200–$250 million, and redeploying it is something we think we can do very quickly” — CEO Christopher Abate .

Q&A Highlights

  • EPS/ROE framework: EAD 9–12% is blended including legacy; calculated on full book value — CFO .
  • HEI move to legacy: expedite capital‑light model; HEI had appreciated but HPA slowing; redeploy into operating platforms — CEO .
  • Disposition pricing & buyers: mix of note/REO sales and refinances; liquidity varied; aggressive but intelligent execution; macro multifamily challenges acknowledged — President .
  • Sequoia margins: optimistic but cautious on forecasting above historical range; tight securitization pricing and disciplined issuance supporting margins — CEO .
  • Payback period: buybacks instantly accretive; mortgage banking working capital deploys quickly; some resolutions inside one quarter — CEO/CFO .
  • Rate sensitivity: modest NII pickup from Fed cuts; growing ARM mix helps distribution efficiency — CFO .
  • Jumbo refi capture: focus on wallet share now; refi opportunity expands as more mortgages approach current rates with easing — CEO .

Estimates Context

  • Q2 2025 vs S&P Global consensus: Primary EPS 0.1756 est. vs (0.1459) actual*; Revenue $31.0mm est. vs $(38.1)mm actual*; both significant misses driven by Legacy Investments fair value and “HEI income, net” decline .
  • Forward (S&P Global): Q3 2025 Primary EPS 0.1738*; Revenue $30.3mm*; Q4 2025 Primary EPS 0.2018*; Revenue $24.68mm*. Values retrieved from S&P Global.
  • Implications: Consensus may need to further reflect the separation between core operating EAD and GAAP noise from legacy asset dispositions and HEI valuation changes, especially as capital redeployment progresses .

Key Takeaways for Investors

  • Core engine intact: Mortgage banking platforms (Sequoia/CoreVest) continue to deliver above‑target returns with expanding volumes and strong distributions; watch for sustained gain‑on‑sale margins and monthly issuance cadence .
  • Capital unlock underway: Management targets $200–$250mm harvested from legacy assets by YE25; monitor disposition pace and impact on GAAP/Book Value .
  • Buyback as near‑term catalyst: Authorization raised to $150mm; company intends aggressive repurchases as legacy overhang recedes and core earnings visibility improves .
  • EAD ROE trajectory: Reaffirmed 9–12% consolidated EAD ROE by YE25/into 2026, supporting dividend coverage; track Core Segments EAD progression quarterly .
  • Aspire growth lever: Non‑QM locks up 197% q/q to $330mm with seller network expansion; a growing fee stream complements jumbo .
  • Risk watch: Legacy bridge and HEI fair value sensitivity; repo reduction and warehouse utilization changes indicate conservative balance sheet management amid transition .
  • Tactical focus: Bulk seasoned pool acquisitions from banks and robust securitization demand can further scale Sequoia and support margin resilience .

Notes:

  • Estimates and “actuals” shown in estimates tables are values retrieved from S&P Global.
  • Non‑GAAP metrics (EAD, Core Segments EAD) are defined and reconciled in company disclosures .