Redwood Trust ((RWT)) has held its Q3 earnings call. Read on for the main highlights of the call.
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In the latest earnings call, Redwood Trust presented a balanced outlook, highlighting significant achievements in loan origination and strategic partnerships, while also addressing challenges related to legacy assets. The company reported a GAAP net loss, reflecting a nuanced sentiment that balances positive operational growth with the need to address existing issues.
Record Loan Origination
Redwood Trust set a new quarterly record by originating nearly $7 billion in loans during Q3, despite a subdued housing market. This achievement was driven by Sequoia, Aspire, and CoreVest, which contributed $5.1 billion, $1.2 billion, and $521 million, respectively.
Sequoia Growth
Sequoia experienced a remarkable 53% increase in loan origination from Q2, reaching $5.1 billion in Q3. This growth not only set a new record for the platform but also significantly expanded its market share.
Aspire Platform Expansion
Aspire locked in $1.2 billion in Q3, nearly quadrupling its volume from Q2. This growth underscores the platform’s strong potential, focusing on well-underwritten loans with high credit scores and loan-to-value ratios.
Strong Core Segment Performance
Redwood’s mortgage banking segments maintained a return on equity above 20% for five consecutive quarters, with a core segment’s earnings available for distribution of $0.20 per share in Q3, showcasing robust performance.
Expanded CPP Investments Partnership
The company expanded its partnership with CPP Investments, increasing its borrowing facility from $250 million to $400 million, reflecting confidence in Redwood’s operational and financial momentum.
GAAP Net Loss
Redwood reported a GAAP net loss of $9.5 million or $0.08 per share, primarily due to transaction-related expenses and net interest income drag from legacy investments.
Book Value Decline
The book value per share declined from $7.49 to $7.35, influenced by legacy transition noise and dividends paid, indicating a need for strategic adjustments.
Legacy Asset Challenges
The company continues to reduce its legacy exposure, which still accounts for 25% of capital, contributing to negative returns in the consolidated results.
Lower Investment ROE
Redwood Investments experienced a decline in earnings available for distribution return on equity from 16% to 10% quarter-over-quarter, attributed to lower net interest income and asset sales.
Forward-Looking Guidance
Redwood Trust remains optimistic about the housing finance sector’s growth, aiming to reduce its legacy exposure to 20% of capital by year-end. The company has already reduced it to 25% and continues to focus on scaling its core platforms, with strategic redeployment of $150 million into higher-return opportunities. Despite a slight decline in GAAP book value per share to $7.34, Redwood is committed to achieving its strategic goals.
In summary, Redwood Trust’s earnings call highlighted a balanced sentiment, with significant achievements in loan origination and strategic partnerships, alongside challenges from legacy assets. The company remains focused on reducing legacy exposure and scaling core platforms, maintaining a positive outlook for the housing finance sector’s growth.