Rithm Capital (RITM) delivered a largely in-line Q1 2025, with both book value (BV) and adjusted core earnings per share landing well within our projected range.
BV declined slightly, as expected, driven by a drop in MSR valuations. That weakness was partially offset by modest gains in fixed-rate agency MBS and other mortgage-related investments. Despite ongoing volatility in spreads and rates, RITM’s diversified sub-portfolios held up relatively well - a small win in a choppy quarter.
Adjusted core earnings declined $0.04 per share, driven primarily by a sharp drop in asset management revenue, largely tied to Sculptor’s year-end performance fees not repeating. However, that was mostly offset by a sizable decline in operational expenses, which also stemmed from Sculptor.
On the mortgage side, origination volumes were down quarter-over-quarter, but gain-on-sale margins ticked up slightly. MSR metrics also came in close to expectations, with slower prepayment speeds helping ease amortization.
One thing missing: an update on RITM’s long-rumored spin-off of its mortgage origination and servicing businesses. Management once again referenced a potential 2025 timeline but provided no definitive progress.
Overall, a solid but unremarkable quarter. RITM remains undervalued in our view, though investors hoping for near-term catalysts may need to remain patient.
Peers worth watching: (DX) , (AGNC) , (NLY) , and (EFC) .
Disclosure: Long RITM & RITM-D
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