REDWOOD TRUST INC
For the period ended Mar 31, 2025. Filed May 9, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 9, 2025
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Item 2. RESULTS OF OPERATIONS
Within this Results of Operations section, in accordance with Item 303(c)(2)(ii) of Regulation S-K, we have elected to discuss any material changes in our results of operations by comparing our quarter ended March 31, 2025 to the immediate preceding quarter. We believe that providing a sequential discussion of our results of operations offers highly relevant information for investors and stakeholders to understand and analyze our business activities. Additionally, we generally continue to address material changes in our results of operations for the most recent fiscal year-to-date period, compared to the corresponding year-to-date period of the preceding fiscal year, pursuant to Item 303(c)(2)(i) of Regulation S-K. Unless otherwise specified, references in this section to increases or decreases during the "three-month periods" refer to the change in results for the first quarter of 2025, compared to the first quarter of 2024.
Consolidated Results of Operations
The following table presents the components of our net income (loss) for the three months ended March 31, 2025 to the immediate preceding quarter ended December 31, 2024 and year-to-date period ended March 31, 2024.
Table 1 – Net Income (Loss)
| Three Months Ended · Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| (In Thousands, except per Share Data) | March 31, 2025 | December 31, 2024 | Change | March 31, 2025 | March 31, 2024 | Change |
| Net Interest Income From: | ||||||
| Sequoia mortgage banking | $18,344 | $17,025 | $1,319 | $18,344 | $6,047 | $12,297 |
| CoreVest mortgage banking | 2,005 | 1,143 | 862 | 2,005 | 894 | $1,111 |
| Redwood Investments | 23,453 | 23,650 | (197) | 23,453 | 29,599 | (6,146) |
| Corporate/other | (15,860) | (14,211) | (1,649) | (15,860) | (12,330) | $(3,530) |
| Net Interest Income | $27,942 | $27,607 | $335 | $27,942 | $24,210 | $3,732 |
| Non-Interest Income | ||||||
| Sequoia mortgage banking activities, net | 22,151 | 16,792 | 5,359 | 22,151 | 7,827 | 14,324 |
| CoreVest mortgage banking activities, net | 10,902 | 9,557 | 1,345 | 10,902 | 6,729 | 4,173 |
| Investment fair value changes, net | (5,188) | (25,492) | 20,304 | (5,188) | 21,837 | (27,025) |
| HEI income, net | 10,166 | 6,389 | 3,777 | 10,166 | 9,086 | 1,080 |
| Servicing income | 3,407 | 6,390 | (2,983) | 3,407 | 4,225 | (818) |
| Fee income | 2,351 | 3,578 | (1,227) | 2,351 | 1,001 | 1,350 |
| Other income (loss), net | 1,550 | 687 | 863 | 1,550 | (775) | 2,325 |
| Realized gains (losses), net | 567 | (314) | 881 | 567 | 409 | 158 |
| Total non-interest income, net | 45,906 | 17,587 | 28,319 | 45,906 | 50,339 | (4,433) |
| General and administrative expenses | (37,471) | (32,532) | (4,939) | (37,471) | (34,569) | (2,902) |
| Portfolio management costs | (6,491) | (6,098) | (393) | (6,491) | (3,597) | (2,894) |
| Loan acquisition costs | (3,568) | (3,598) | 30 | (3,568) | (2,237) | (1,331) |
| Other expenses | (3,909) | (3,322) | (587) | (3,909) | (3,361) | (548) |
| Total Operating expenses | (51,439) | (45,550) | (5,889) | (51,439) | (43,764) | (7,675) |
| Net Income (Loss) Before Income Taxes | 22,409 | (356) | 22,765 | 22,409 | 30,785 | (8,376) |
| Provision for income taxes | (6,262) | (6,262) | — | (6,262) | (523) | (5,739) |
| Net Income (Loss) | 16,147 | (6,618) | 22,765 | 16,147 | 30,262 | (14,115) |
| Dividends on preferred stock | (1,750) | (1,758) | 8 | (1,750) | (1,750) | — |
| Net Income (Loss) Available (Related) to Common Stockholders | $14,397 | $(8,376) | $22,773 | $14,397 | $28,512 | $(14,115) |
Net Interest Income
Net interest income increased by $0.3 million during the first quarter of 2025, primarily driven by our mortgage banking operations. The increase of $1 million in net interest income from Sequoia Mortgage Banking operations was primarily as a result of lower variable-rate borrowing costs on our loan warehouse facilities.
Corporate net interest expense increased by $1.6 million during the first quarter of 2025. The increase was related to the higher cost of corporate unsecured debt relative to repurchases and payoffs of older vintage, lower coupon convertible debt. In particular, the majority of this increase was associated with the issuance of $90 million of 9.125% senior notes issued in January 2025.
Additional detail on net interest income is provided in the“Net Interest Income” section that follows.
Mortgage Banking Activities, Net
Mortgage Banking activities, net increased by $7 million during the first quarter of 2025, primarily due to higher Sequoia Mortgage Banking revenues.
The increase in Sequoia Mortgage Banking activities of $5 million was primarily attributable to an increase in lock volumes of 73% from last quarter from banks and independent mortgage bankers ("IMBs") across bulk and flow transactions, including our purchase commitment to buy a $1 billion bulk pool of seasoned jumbo loans from a large bank.
The increase in CoreVest Mortgage Banking activities of $1 million was primarily attributable to improved economics from whole loan sales and sales to joint ventures, which partially offset slightly lower margins and a 4% decline in funding volumes quarter over quarter.
A more detailed analysis of the changes in this line item is included in the “Sequoia Mortgage Banking Segment” and “CoreVest Mortgage Banking Segment” sections that follows.
Investment Fair Value Changes, Net
Investment fair value changes, net improved by $20 million to a $5 million loss during the first quarter of 2025, driven in part by investment fair value gains, net on Third-Party Portfolio Investments as a decline in benchmark interest rates resulted in higher valuations. This was partially offset by higher residential bridge loan delinquencies resulting in incremental negative fair value changes on certain 2021 and 2022 vintage bridge loans in Legacy Bridge Loan Investments.
A more detailed analysis of the changes in this line item is included in the “Redwood Investments Segment” section that follows.
HEI Income, net
HEI income, net increased by $4 million during the first quarter of 2025, primarily due to home price appreciation and prepayment speeds steadily improving relative to modeled assumptions. HEI income, net is primarily comprised of increases in the underlying value of the investments as driven by home price appreciation and other factors, such as periodic fluctuations in value influenced by changing housing markets, prepayment rates and other market conditions.
Additional detail on our HEI income is presented in Table 10.3 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Operating Expenses
Operating expenses increased by $6 million during the first quarter of 2025, primarily related to an increase in equity compensation expense associated with awards granted in the first quarter of 2025 and the fourth quarter of 2024.
Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Provision for Income Taxes
Our provision for income taxes is almost entirely related to activity at our Taxable REIT Subsidiaries ("TRS"), which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. The tax provision for the three-month periods remained flat which was primarily the result of increased GAAP income earned at our TRS from mortgage banking activities in the first quarter of 2025 relative to the higher effective tax rate in the fourth quarter of 2024.
Net Interest Income
Net interest income increased by $4 million in the three months ended March 31, 2025 compared to the same period ended March 31, 2024, primarily driven by our Sequoia mortgage banking operations. This increase was primarily driven by higher average residential consumer loan balances along with an increase in trading securities used as hedges to manage the mark-to-market risks primarily associated with our mortgage banking operations that were accretive to net interest income. This was partially offset by higher interest expense incurred within the Redwood Investments and Corporate segments from a secured revolving financing facility that was entered into in March 2024 and corporate unsecured debt issued in the first quarter of 2025, respectively.
Additional detail on net interest income is provided in the“Net Interest Income” section that follows.
Mortgage Banking Activities, Net
Mortgage Banking activities, net increased by $18 million in the three months ended March 31, 2025 compared to the same period ended March 31, 2024, due to higher Sequoia Mortgage Banking and CoreVest Mortgage Banking revenues.
The increase in Sequoia Mortgage Banking activities, net of $14 million was primarily attributable to an increase in lock volumes of 125% during the three month periods, driven by increases in both flow and bulk lock volumes and the $1 billion purchase commitment from a large money-center bank to acquire a pool of primarily jumbo loans.
The increase in CoreVest Mortgage Banking activities, net of $4 million was primarily attributable to an increase in funding volume of 48% as well as higher margins and improved economics from whole loan sales and sales to joint ventures during the three month periods.
A more detailed analysis of the changes in this line item is included in the “Sequoia Mortgage Banking Segment” and “CoreVest Mortgage Banking Segment” sections that follows.
Investment Fair Value Changes, Net
Investment fair value changes, net declined by $27 million from $22 million of net gains during the first quarter of 2024 to a $5 million net loss in the three months ended March 31, 2025, primarily related to impairments and the impact of interest rate modifications on the values of our unsecuritized residential investor bridge and term loan portfolios at fair value. This was offset by investment fair value gains, net of associated interest rate hedges, on our securities portfolio during the three months ended March 31, 2025.
A more detailed analysis of the changes in this line item is included in the “Redwood Investments Segment” section that follows.
HEI Income, net
HEI income, net increased by $1 million in the three months ended March 31, 2025 compared to the same period ended March 31, 2024, driven by the similar quarter over quarter trends discussed in the preceding section related to home price appreciation and prepayment speeds steadily improving relative to modeled assumptions.
Additional detail on our HEI income is presented in Table 10.3 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Operating Expenses
Operating expenses increased by $8 million in the three months ended March 31, 2025 compared to the same period ended March 31, 2024, primarily driven by an increase in variable and equity compensation expense as well as higher portfolio management and loan acquisition costs related to specially serviced residential investor bridge loans.
Additional detail on our General and administrative expenses is presented in Table 22.1 of our Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Provision for Income Taxes
Our provision for income taxes is almost entirely related to activity at our taxable REIT subsidiaries ("TRS"), which primarily includes our mortgage banking activities and MSR investments, as well as certain other investment and hedging activities. The increase in the tax provision in the three months ended March 31, 2025 was primarily the result of a higher effective rate compared to the first quarter of 2024.
Consolidated Net Interest Income
The following tables present the components of net interest income recorded in each line item of our consolidated statements of income for the three months ended March 31, 2025 to the immediate preceding quarter ended December 31, 2024 and year-to-date period ended March 31, 2024.
Table 2 – Consolidated Net Interest Income
| Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|
| March 31, 2025 · December 31, 2024 | |||||||
| (Dollars in Thousands) · Interest Income/ (Expense) · Average Balance (1) · Yield · Interest Income/ (Expense) · Average Balance (1) · Yield | |||||||
| Interest Income | |||||||
| Residential consumer loans | |||||||
| Unsecuritized | $15,726 | $966,777 | 6.5% | $20,457 | $1,239,483 | 6.6% | |
| Securitized - Sequoia (2) | 132,882 | 9,540,373 | 5.6% | 121,387 | 8,762,162 | 5.5% | |
| Securitized - SLST (re-performing loans) (2) | 13,735 | 1,237,704 | 4.4% | 13,818 | 1,298,793 | 4.3% | |
| Total residential consumer loans | $162,343 | $11,744,854 | 5.5% | $155,662 | $11,300,438 | 5.5% | |
| Residential investor loans | |||||||
| Unsecuritized - Term | 2,625 | 160,895 | 6.5% | 2,429 | 193,785 | 5.0% | |
| Unsecuritized - Bridge | 22,064 | 1,124,335 | 7.8% | 23,938 | 1,145,980 | 8.4% | |
| Securitized - Term | 34,506 | 2,463,520 | 5.6% | 36,283 | 2,567,671 | 5.7% | |
| Securitized - Bridge | 18,960 | 798,273 | 9.5% | 15,953 | 718,193 | 8.9% | |
| Total residential investor loans | $78,155 | $4,547,023 | 6.9% | $78,603 | $4,625,629 | 6.8% | |
| Real estate securities (3) | 18,537 | 406,215 | 18.3% | 19,080 | 350,001 | 21.8% | |
| Other interest income | 13,059 | 959,546 | 5.4% | 13,019 | 1,317,128 | 4.0% | |
| Total interest income | $272,094 | $17,657,638 | 6.2% | $266,364 | $17,593,196 | 6.1% | |
| Interest Expense | |||||||
| ABS Issued | |||||||
| Sequoia (2) | (122,624) | 9,044,576 | (5.4)% | (110,816) | 8,584,487 | (5.2)% | |
| SLST (re-performing loans) (2) | (12,699) | 1,144,190 | (4.4)% | (12,896) | 1,190,907 | (4.3)% | |
| CAFL Term (2) | (28,475) | 2,144,641 | (5.3)% | (29,693) | 2,232,701 | (5.3)% | |
| CAFL Bridge (2) | (11,506) | 739,978 | (6.2)% | (8,898) | 653,872 | (5.4)% | |
| ABS issued | $(175,304) | $13,073,385 | (5.4)% | $(162,303) | $12,661,967 | (5.1)% | |
| Debt Facilities | (48,627) | 2,663,802 | (7.3)% | (57,755) | 2,973,529 | (7.8)% | |
| Corporate Debt | (16,155) | 728,381 | (8.9)% | (14,568) | 656,950 | (8.9)% | |
| Other ABS | (4,066) | 388,711 | (4.2)% | (4,131) | 389,755 | (4.2)% | |
| Total interest expense | $(244,152) | $16,854,279 | (5.8)% | $(238,757) | $16,682,201 | (5.7)% | |
| Net Interest Income | $27,942 | $27,607 | |||||
| Three Months Ended March 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2025 · 2024 | |||||||
| (Dollars in Thousands) · Interest Income/ (Expense) · Average Balance (1) · Yield · Interest Income/ (Expense) · Average Balance (1) · Yield | |||||||
| Interest Income | |||||||
| Residential consumer loans | |||||||
| Unsecuritized | $15,726 | $966,777 | 6.5% | $9,343 | $574,683 | 6.5% | |
| Securitized - Sequoia (2) | 132,882 | 9,540,373 | 5.6% | 62,976 | 5,271,733 | 4.8% | |
| Securitized - SLST (re-performing loans) (2) | 13,735 | 1,237,704 | 4.4% | 14,616 | 1,341,498 | 4.4% | |
| Total residential consumer loans | $162,343 | $11,744,854 | 5.5% | $86,935 | $7,187,914 | 4.8% | |
| Residential investor loans | |||||||
| Unsecuritized - Term | 2,625 | 160,895 | 6.5% | 3,573 | 219,297 | 6.5% | |
| Unsecuritized - Bridge | 22,064 | 1,124,335 | 7.8% | 30,468 | 1,301,042 | 9.4% | |
| Securitized - Term | 34,506 | 2,463,520 | 5.6% | 40,753 | 2,905,126 | 5.6% | |
| Securitized - Bridge | 18,960 | 798,273 | 9.5% | 20,241 | 771,294 | 10.5% | |
| Total residential investor loans | $78,155 | $4,547,023 | 6.9% | $95,035 | $5,196,759 | 7.3% | |
| Real estate securities (3) | 18,537 | 406,215 | 18.3% | 6,280 | 154,043 | 16.3% | |
| Other interest income | 13,059 | 959,546 | 5.4% | 16,490 | 1,325,149 | 5.0% | |
| Total interest income | $272,094 | $17,657,638 | 6.2% | $204,740 | $13,863,865 | 5.9% | |
| Interest Expense | |||||||
| ABS issued | |||||||
| Sequoia (2) | (122,624) | 9,044,576 | (5.4)% | (58,821) | 5,058,161 | (4.7)% | |
| SLST (re-performing loans) (2) | (12,699) | 1,144,190 | (4.4)% | (13,979) | 1,250,286 | (4.5)% | |
| CAFL Term (2) | (28,475) | 2,144,641 | (5.3)% | (33,458) | 2,559,795 | (5.2)% | |
| CAFL Bridge (2) | (11,506) | 739,978 | (6.2)% | (9,802) | 714,295 | (5.5)% | |
| ABS issued | $(175,304) | $13,073,385 | (5.4)% | $(116,060) | $9,582,537 | (4.8)% | |
| Debt Facilities | (48,627) | 2,663,802 | (7.3)% | (46,235) | 2,232,703 | (8.3)% | |
| Corporate Debt | (16,155) | 728,381 | (8.9)% | (14,036) | 687,528 | (8.2)% | |
| Other ABS | (4,066) | 388,711 | (4.2)% | (4,199) | 390,618 | (4.3)% | |
| Total interest expense | $(244,152) | $16,854,279 | (5.8)% | $(180,530) | $12,893,386 | (5.6)% | |
| Net Interest Income | $27,942 | $24,210 | |||||
(1)Average balances for residential consumer loans held-for-sale and held-for-investment, residential investor loans held-for-sale and held-for-investment, multifamily loans held-for-investment, and trading securities are calculated based upon carrying values, which represent fair values. Average balances for AFS securities, debt facilities, corporate debt and certain ABS issued are calculated based upon amortized historical cost. Average balances for ABS carried at fair value are calculated based upon fair value.
(2)Interest income and interest expense at "Sequoia", "SLST", "CAFL Term", and "CAFL Bridge" reflect activity from consolidated VIEs. While we consolidate these entities for GAAP reporting purposes, economically, we earn interest income from the securities we own in these entities, which is represented by the net interest income (interest income less interest expense) from these consolidated entities presented in the table above.
(3)Real estate securities include trading securities consisting primarily of interest-only securities, which generate a higher cash interest yield. This interest income may be offset by a decline in fair value (recognized through investment fair value changes, net on our consolidated statements of income) related to the receipt of cash flows each period, resulting in a lower overall economic yield for these investments.
Consolidated Market Valuation Gains and Losses, Net
The following table presents the net market valuation gains and losses recorded in each line item of our consolidated statements of income for the three months ended March 31, 2025 to the immediate preceding quarter ended December 31, 2024 and year-to-date period ended March 31, 2024.
Table 3 – Consolidated Market Valuation Gains and Losses, Net
| Three Months Ended · Three Months Ended | ||||
|---|---|---|---|---|
| (In Thousands) | March 31, 2025 | December 31, 2024 | March 31, 2025 | March 31, 2024 |
| Mortgage Banking Activities, Net | ||||
| Residential consumer loans held-for-sale | $460 | $9,369 | $460 | $2,497 |
| Residential consumer LPCs | 30,139 | (1,760) | 30,139 | (6,351) |
| Residential investor term loans held-for-sale | 5,815 | (141) | 5,815 | (296) |
| Residential investor term loan IRLCs | 1,115 | — | 1,115 | — |
| Residential investor bridge loans | 1,032 | 1,019 | 1,032 | 946 |
| Trading securities (1) | (29,327) | 58,681 | (29,327) | 8,511 |
| Risk management derivatives, net | 17,842 | (47,319) | 17,842 | 5,598 |
| Total mortgage banking activities, net (2) | 27,076 | 19,849 | 27,076 | 10,905 |
| Investment Fair Value Changes, Net | ||||
| Residential investor term loans held-for-sale | (42) | (5,940) | (42) | (1,000) |
| Residential investor bridge loans held-for-investment | (22,839) | (12,927) | (22,839) | (3,218) |
| Real estate securities | (4,107) | 4,711 | (4,107) | 4,810 |
| Servicer advance investments | (1,353) | 580 | (1,353) | (634) |
| Excess MSRs | (1,190) | (1,217) | (1,190) | (1,245) |
| Net investments in Sequoia entities (3) | (12,569) | 22,956 | (12,569) | 6,910 |
| Net investments in SLST (re-performing loans) entities (3) | 29,121 | (18,651) | 29,121 | 3,730 |
| Net investments in CAFL entities (3) | 439 | 1,624 | 439 | 10,251 |
| Other investments (4) | (13,279) | (6,697) | (13,279) | (2,148) |
| Risk management derivatives, net | 20,631 | (9,931) | 20,631 | 4,381 |
| Total investment fair value changes, net | (5,188) | (25,492) | (5,188) | 21,837 |
| HEI income, Net | ||||
| Unsecuritized HEI | 7,136 | 5,121 | 7,136 | 6,143 |
| Net investments in HEI securitization entities (3) | 2,935 | 1,189 | 2,935 | 2,888 |
| Total HEI income, net | 10,071 | 6,310 | 10,071 | 9,031 |
| Servicing income, net | ||||
| MSRs | 1,194 | 3,819 | 1,194 | 2,464 |
| Total Servicing income, net (5) | 1,194 | 3,819 | 1,194 | 2,464 |
| Fee income, net | ||||
| Other | — | — | — | (217) |
| Total Fee Income, net | — | — | — | (217) |
| Total Market Valuation Gains, Net | $33,153 | $4,486 | $33,153 | $44,020 |
(1)Represents fair value changes on trading securities that are being used along with risk management derivatives to manage the market risks associated with our Sequoia Mortgage Banking operations.
(2)Mortgage banking activities, net presented above does not include fee income from loan originations or acquisitions, provisions for repurchases, or other expenses that are components of Mortgage banking activities, net presented on our consolidated statements of income, as these amounts do not represent market valuation changes.
(3)Includes changes in fair value of the securitized loans held-for-investment, securitized HEI, REO and the ABS issued at the entities, which, netted together, represent the change in value of our investments at the consolidated VIEs accounted for under the CFE election.
(4)Other investments includes changes in fair value of REO assets.
(5)Other income excludes net MSR fee income or provision for repurchases, as these amounts do not represent market valuation adjustments.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.