Sign in

You're signed outSign in or to get full access.

RT

REDWOOD TRUST INC (RWT)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 GAAP diluted EPS was -$0.07 and EAD was $0.13 per share, driven by negative investment fair value changes on bridge loans and higher benchmark rates; book value per share fell to $8.46 from $8.74 in Q3 .
  • Operating momentum remained solid: Net Interest Income rose 8% sequentially to $27.6M; Sequoia locks grew 4% QoQ to $2.32B with 57% QoQ increase in flow volume; CoreVest fundings increased 9% QoQ to $501M .
  • Liquidity and capacity strengthened: unrestricted cash was $245M, excess warehouse capacity reached $4.7B at 12/31/24; Q1’25 to-date, RWT distributed ~$1.4B of Sequoia loans and ~$400M of CoreVest loans and priced $90M senior notes due 2030 .
  • Dividend raised to $0.18 (+5.9% QoQ); management expects EAD and dividend to converge over “the next few quarters,” supported by NII growth and volume scaling; estimates were unavailable via S&P Global at time of writing .

What Went Well and What Went Wrong

What Went Well

  • Sequoia execution and distribution: $2.5B distributed (three securitizations totaling $1.1B and $1.4B whole loan sales); gross margins remained well above the 75–100 bps target range, aided by tighter spreads and hedge outperformance .
  • CoreVest momentum and efficiency: $501M funded (+9% QoQ), with term volumes up 43% QoQ to $227M and record single-asset bridge (SAB) production; segment EAD ROC of 25% in Q4 .
  • Strategic positioning with banks and product expansion: management highlighted growing bank portfolio opportunities and broadened Aspire to expanded-credit products, citing AI-enabled process efficiencies and large TAM .

Management quotes:

  • “We expect further progress towards our core operating goals... Our focus on strategic bank relationships and innovative new loan products positions Redwood to continue growing market share and enhance earnings power.” — CEO Christopher Abate .
  • “January locks totaled just over $1 billion, 35% ahead of Q4’s pace... distribution strength is... tailwinds... stepping stone for further growth.” — President Dash Robinson .

What Went Wrong

  • GAAP swing to loss: Total non-interest income fell sharply to $17.6M from $44.2M in Q3, with -$25.5M investment fair value changes and lower HEI income as HPA slowed; GAAP net income to common was -$8.4M .
  • CoreVest net income dipped despite higher volume due to non-recurring fee revenue in Q3; Q4 GAAP net contribution fell to $1.5M from $5.7M in Q3 .
  • Book value decline and EAD normalization: BV/share decreased to $8.46; EAD per share fell to $0.13 from $0.18 due to absence of one-timers and HEI normalization; management cited seasonality and rate dynamics as drivers .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
GAAP diluted EPS ($)$0.10 $0.09 $(0.07)
EAD per basic common share ($)$0.13 $0.18 $0.13
Net Interest Income ($MM)$25.3 $25.5 $27.6
Total Non-interest Income ($MM)$42.2 $44.2 $17.6
Net income (loss) to common ($MM)$13.8 $13.1 $(8.4)
Book Value per Common Share ($)$8.73 $8.74 $8.46
Dividend per Common Share ($)$0.16 $0.17 $0.18
ROE (annualized, %)4.8% 4.5% (3.0)%
EAD ROE (annualized, %)6.5% 8.7% 6.6%
Recourse Leverage (x)2.1x 2.5x 2.4x

Supplemental drivers:

MetricQ2 2024Q3 2024Q4 2024
Investment Fair Value Changes, net ($MM)$1.1 $(12.2) $(25.5)
HEI Income, net ($MM)$15.8 $10.7 $6.3

Segment operations and distribution:

MetricQ2 2024Q3 2024Q4 2024
Sequoia Locks ($MM)$2,662 $2,226 $2,322
Sequoia Securitized ($MM)$1,424 $1,528 $1,069
Sequoia Sold ($MM)$6 $39 $1,404
CoreVest Term Fundings ($MM)$218 $159 $227
CoreVest Bridge Fundings ($MM)$241 $299 $274
CoreVest Term Sold ($MM)$253 $207 $248
CoreVest Bridge Sold ($MM)$162 $81 $259

Segment profitability:

MetricQ2 2024Q3 2024Q4 2024
Sequoia GAAP Net Contribution ($MM)$9.9 $22.8 $21.8
Sequoia EAD Net Contribution ($MM)$9.9 $22.8 $21.8
Sequoia ROC (GAAP, %)16% 30% 23%
Sequoia EAD ROC (%)16% 30% 23%
CoreVest GAAP Net Contribution ($MM)$0.6 $5.7 $1.5
CoreVest EAD Net Contribution ($MM)$2.2 $7.3 $3.1
CoreVest ROC (GAAP, %)4% 45% 12%
CoreVest EAD ROC (%)13% 58% 25%

Liquidity and financing:

MetricQ2 2024Q3 2024Q4 2024
Unrestricted Cash ($MM)$276 $254 $245
Excess Warehouse Capacity ($BN)$3.8 $4.8 $4.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sequoia Mortgage Banking ROC (target)FY 2025n/a~20% target ROC New
CoreVest Mortgage Banking ReturnFY 2025n/a25%–30% in 2025 New
Aspire Expanded Products VolumeFY 2025n/aPotential >$2B volume; returns in line with Sequoia ROC New
Common Dividend per ShareQ4 2024$0.17 (Q3) $0.18 (+5.9% QoQ) Raised
Senior Notes IssuanceQ1 2025n/a$90M due 2030 issued New

Notes: Management expects EAD to converge with the dividend “over the next few quarters,” supported by NII growth and volumes .

Earnings Call Themes & Trends

TopicQ2 2024 (Prev-2)Q3 2024 (Prev-1)Q4 2024 (Current)Trend
Bank balance-sheet opportunityDeclared $1.3T jumbo on bank balance sheets as addressable; acquired seasoned hybrid ARM pool Broadening bank relationships; distribution cadence; leverage back to ~2.2x post distributions “Three large regional banks spurred ~$10B pools”; bank locks 40% of 2024; expect more bulk trades Strengthening pipeline with banks
Aspire & expanded creditHEI platform scaling; wholesale sourcing via seller network New tech leadership; mission-expanding strategies Aspire mandate broadened; AI to reduce cycle times; margins targeted 75–100 bps Expansion underway
Securitization spreads & hedgingGross margins 72 bps (below historic range) amid TBA/issuance dynamics Margins above 75–100 bps; hedge outperformance; monthly issuance Margins “well in excess” of target; Q1’25 two Sequoia deals priced tightest Strong execution despite rates
Bridge portfolio creditMultifamily drove modest DQ uptick; active workouts 90+ DQ improved in bridge; term DQ up marginally on smaller pool; resolutions ongoing Negative FV changes on bridge loans pressured GAAP; repayment velocity +20% QoQ; SAB record Gradual resolution; GAAP volatility
Jumbo pricing & rate psychologyExpect rate cuts to aid book value and NIM Jumbo ~high 6s/low 7s; refi picked up at low-6 handles Jumbo “high 6s” possibly 7-handle; demand resilient; bank ARM securitization executed quickly Demand steady; execution versatile
Policy/regulatoryBasel III re-proposal and FDIC leadership watched Housing accessibility focus; non-agency solutions Expect housing policy shifts; potential GSE footprint rationalization to benefit Sequoia Supportive backdrop likely

Management Commentary

  • “Our top strategic priority remains capitalizing on the downsizing of mortgage activity within the banking sector... banks represented 40% of our lock volume in 2024” — CEO Christopher Abate .
  • “We estimate our current seller base originated over 30% of the $80+ billion of [expanded] loans in 2024... key competitive advantage for growth into the space.” — President Dash Robinson .
  • “EAD for the fourth quarter was $18.4M or $0.13 per share... decline primarily reflects absence of nonrecurring fee income and normalization of HEI contributions.” — CFO Brooke Carillo .
  • “Unrestricted cash... $245M; excess warehouse capacity $4.7B... recourse leverage 2.4x; investments recourse leverage 0.8x.” — CFO Brooke Carillo .

Q&A Highlights

  • Dividend/EAD path: Board prioritizes attractive dividend; management sees EAD converging with dividend over “the next few quarters,” citing NII growth, volumes, and capital optimization .
  • Competitive BPL landscape: Tailwind for Redwood given breadth of SAB/DSCR, distribution, and capital partners; adding talent as competitors retrench .
  • Leverage & liquidity: Expect leverage in 2.0–2.5x band, potentially higher around large trades; strong liquidity with $245M cash, $325M unencumbered assets, ~$100M new unsecured bonds .
  • Jumbo pricing: 30-year prime jumbo roughly high-6s, may touch 7-handle depending on overlays; refi/purchase activity sensitive to psychology around 6%–7% rates .
  • Aspire economics: Target gross margins broadly in 75–100 bps range; initial focus on whole loan sales, vibrant securitization market and potential JV capital .

Estimates Context

  • Wall Street consensus estimates (EPS, Revenue) via S&P Global were unavailable at the time of drafting due to data-access limits; therefore, beat/miss vs. consensus cannot be determined here. Values were intended to be retrieved from S&P Global; consensus was unavailable at time of writing.
  • Implication: Given GAAP EPS of -$0.07 and EAD of $0.13 in Q4, estimate models may need to reflect (1) non-GAAP normalization of HEI contributions, (2) negative FV marks on bridge loans, and (3) positive NII momentum and operating volumes that support EAD stability .

Key Takeaways for Investors

  • Operating engines are scaling despite rate headwinds: Sequoia locks/distribution and CoreVest fundings rose QoQ; NII expanded sequentially—supportive for EAD stability near term .
  • GAAP volatility likely persists as bridge FV marks and rate moves impact reported earnings; EAD better reflects current operating capacity and dividend coverage trajectory .
  • 2025 setup: Management targets Sequoia ~20% ROC and CoreVest 25%–30% returns, with Aspire >$2B potential—volume mix and capital-light distribution are key levers .
  • Bank channel is the incremental growth catalyst: Accelerating pullbacks/portfolio trades create sizable sourcing/distribution opportunities; Redwood’s speed-to-execution and shelf pricing are differentiators .
  • Liquidity and capacity underpin offense: $245M cash and $4.7B excess capacity at YE; $90M unsecured notes add flexibility to fund pipeline and absorb portfolios .
  • Near-term trading lens: Watch spreads and jumbo execution levels (Sequoia deals priced tight), bank bulk sale headlines, and CoreVest resolution/runoff trends as swing factors for GAAP and sentiment .
  • Medium-term thesis: Policy/regulatory normalization and GSE footprint rationalization could favor private credit provisioning—Redwood’s non-agency platforms, JV capital, and Aspire expansion are positioned to benefit .