First Read Redwood Trust Inc 2Q Earnings: Core Segments Beat, Legacy Drag Weighs on Consolidated EAD and Book Value

Research evidence excerpt

First Read Redwood Trust Inc 2Q Earnings: Core Segments Beat, Legacy Drag Weighs on Consolidated EAD and Book Value

tments ended the quarter with $804 mm of capital invested and recourse Q4E 0.26 0.24

leverage of 0.9x. Legacy Investments generated an EAD loss of approximately $11 12/26E 1.05 0.89

mm,vs our estimate of roughly ($9 mm). Adjusted for third quarter activity to date, 12/27E 1.12 1.05

Legacy is expected to represent less than 10% of total capital, versus 15% at March 31. 12/28E 1.21 1.07

Legacy bridge and term loans now represent roughly 6% of total capital.

Marissa Lobo

Analyst

Earnings Call Guidance marissa.lobo@ubs.com

Management indicated that initial loan transfers to the Castlelake JV occurred near +1-212-713 3922

quarter-end and expects the partnership to have a more meaningful impact on capital

velocity and fee economics during 2H26. Based on the current return differential

between Legacy and Core segments, management estimated that every $100 million of

capital redeployed from Legacy could improve consolidated EAD ROE by approximately

200-400bps. Management also noted that much of the $72 million deployed into

retained investments during the quarter occurred late in 2Q and should contribute more

meaningfully to earnings in 3Q26. Noting variability in quarterly expenses, Management

expects the expense ratio to continue declining, with the next 10-15bps of improvement

driven increasingly by technology initiatives rather than operating scale alone.

Highlights (US$m) 12/23 12/24 12/25 12/26E 12/27E 12/28E 12/29E 12/30E

Revenues 210 271 309 349 358 372 386 400

Pre-tax profit 58 99 157 167 171 183 195 208

Net earnings (reported) (13) 43 (91) 82 130 144 149 160

Net earnings (UBS) 50 73 123 132 135 145 156 166

Tier 1 ratio % - - - - - - - -