Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Presentation (October 2021)
42 slides from Redwood Trust's investor presentation, Oct 27, 2021
Slide 1: Q3 2021 Investor Presentation
Q3 2021 Investor Presentation October 27, 2021 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements, including statements regarding our 2021 forward outlook, estimated after-tax operating return on capital on our mortgage banking businesses, estimated adjusted return on capital on our investment portfolio, estimated l
Slide 3: Our Mission
Our Mission Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households. 3
Slide 4: Redwood Trust provides significant liquidity to the housing finance industry through our diversified business model
Redwood Trust provides significant liquidity to the housing finance industry through our diversified business model RWT HORIZONS Through our market leading platforms we: Aggregate and originate mortgages made to homeowners and landlords not efficiently served by government programs Structure loans i
Slide 5: Our franchise sets us apart
Our franchise sets us apart Reputation and Brand Human Capital • Our brand equity was built from strong results • Employees are the foundation of our franchise – over our 27-year history, with unparalleled cumulative experience and track record of industry relationships success through many cycles •
Slide 6: Growth drivers for our business have potential to deliver attractive shareholder returns over the long-term
Growth drivers for our business have potential to deliver attractive shareholder returns over the long-term MACRO & REGULATORY ALPHA DELIVERING BACKDROP GENERATION SHAREHOLDER VALUE Sizeable & Growing Gaining Market Share Unique Total Return Non-agency Market Residential • Record volume growth drive
Slide 7: We have a unique and scalable platform built to capitalize on these growth drivers
We have a unique and scalable platform built to capitalize on these growth drivers YTD 2021 Metrics Mortgage Banking Operations Return on Capital (GAAP) (1) Consumer Mortgage 34% Acquisition 32% 30% Business 28% Purpose Lending 26% Mortgage Banking Redwood Investments % of Allocated Capital(2) Credi
Slide 8: We have had strong outperformance year-to-date and are well positioned to sustain our growth trajectory
We have had strong outperformance year-to-date and are well positioned to sustain our growth trajectory 50% increase in 27% book value ~65% of adjusted dividend since Q4 2020 to TSR year-to-date(1) with revenue for year-to- $0.21/share further upside potential from date(1) generated from retained ea
Slide 9: Alpha Generation
Alpha Generation Best-in-class operating platforms with disruptive technologies positioned to continue gaining share of growing market Investment portfolio continues to realize embedded value and deliver strong risk adjusted returns 9
Slide 10: Our diversified revenue streams can support durable earnings and valuation multiple expansion
Our diversified revenue streams can support durable earnings and valuation multiple expansion Durable earnings stream and book Diversified and Operating Businesses value growth high-quality earnings Stable to growing Attractive total Investment Portfolio dividends returns • Our unique earnings mix d
Slide 11: Growing contributions from our operating businesses can support book value expansion
Growing contributions from our operating businesses can support book value expansion Adjusted Revenue Mix(1) Mortgage Banking Investments 100% 80% 32% 34% 67% 60% 60% 40% 68% 66% 20% 33% 40% 0% 2018 2019 2H 20 YTD 21 • Mortgage banking has grown to represent more than 65% of our adjusted revenue mix
Slide 12: We have delivered strong financial results
We have delivered strong financial results Return on Equity (Annualized) 60% 57% 50% ROE rebounded sharply 40% 34% coming out of the pandemic 30% 29% 27% and continued strength should 20% 20% be driven by: 10% • Continued strong credit 0% Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 performance from our
Slide 13: Our residential business is well positioned to continue capturing market share and grow profitably
Our residential business is well positioned to continue capturing market share and grow profitably $20.0 $17.7 $17.1 $16.0 (1) 3yr CAGR: 27% (1) 5yr CAGR: 20% $12.0 $ in billions $9.7 $8.4 $8.7 $8.0 $7.1 $4.0 - (2) 2016 2017 2018 2019 LTM 2021 Run (3) Rate Locked Loans (unadjusted for fallout) 13 De
Slide 14: We have runway for significant growth as the leading lender to housing investors
We have runway for significant growth as the leading lender to housing investors $3.5 $3.1 $3.0 $2.9 $2.5 3yr CAGR: 29% (1) $2.5 5yr CAGR: 30% (1) $2.0 $ in billions $1.5 $1.4 $1.0 $0.8 $0.8 $0.5 $0.0 (3) (2) 2016 2017 2018 2019 LTM 2021 run rate Closed Loans (reflects gross commitment amount) Detai
Slide 15: Our platforms control substantial flow of non-agency loans
Our platforms control substantial flow of non-agency loans Securitizations $9.6bn in loan distributions • Broadly-marketed YTD(1) • Single investor • Private deals • Blockchain-based technology • Innovative with new product financings • Bridge loans $4.0bn Securitizations • Home equity investments $
Slide 16: Continued product development should drive further volume growth to our operating businesses
Continued product development should drive further volume growth to our operating businesses Residential Business Purpose Medium Term $500 - 700bn+ Annual $100bn+ TAM(1) Potential 2025 $40 - 50bn Redwood $5-7bn Opportunity(1) Product Suite • Super Prime (Select) • Expanded Prime Recently Re-Launched
Slide 17: Our combined portfolios continue to be positioned to generate strong risk-adjusted returns
Our combined portfolios continue to be positioned to generate strong risk-adjusted returns $2.5 Billion Housing Credit Investments(1) $1.4 Billion Secured Financing(1)(2) • Agency CRT • RPL securities Marginable • Multifamily Debt Business Third-Party securities Non-Marginable, 16% Investments Purpo
Slide 18: Call options in our securitizations and portfolio discount should provide further upside to current book value
Call options in our securitizations and portfolio discount should provide further upside to current book value $16.00 Book Value Build $2.36 $15.00 $14.00 $13.00 $ per share $0.68 $2.09 $12.00 $11.00 $10.00 $9.91 $9.00 A B C $8.00 Book Value 12/31/20 Book Value Appreciation Potential Premium of Pote
Slide 19: Fundamental credit performance supports further potential book value upside
Fundamental credit performance supports further potential book value upside $2.36 per share of Net Discount by RPL (SLST) Collateral Performance Investment Type Prepay Speed (LHS) 60+ Delinquencies (RHS) Redwood % 60+ Delinquencies 16 25 controls call 14 % Prepay speed 12 20 rights associated 10 15
Slide 20: We are disrupting the non-agency mortgage industry with innovative technology and distribution channels
We are disrupting the non-agency mortgage industry with innovative technology and distribution channels Sourcing ~145 discrete jumbo sellers >5,300 BPL borrower relationships Multichannel Processing Distribution Model Organic Technology 27% 3yr CAGR in volume of Distribute loans 33% faster + jumbo l
Slide 21: We continue to be a first mover in innovative securitizations
We continue to be a first mover in innovative securitizations • Leveraging partnerships to disrupt the market through new products and technologies • Completed three novel securitizations in Q3’21 which improved our financing terms and provide greater benefit to the market Deal Size(1) Highlights In
Slide 22: Our RWT Horizons investments will further our leadership in innovation
Our RWT Horizons investments will further our leadership in innovation • Completed eleven investments since inception Current Investment Focus Areas: • Current pipeline of 15-20 actionable investment ⎻ Alternative real estate financing opportunities ⎻ Home equity sharing/monetization • Sourcing via
Slide 23: Roadmap to Profitable Growth
Redwood’s outlook Increase Wallet Share Our share is growing with our scalable platform Technology & Efficiencies Technology and process improvements to reduce industry- wide friction points and further productivity Roadmap to Higher Capital Allocation to Higher Margin Profitable Businesses Growth A
Slide 24: Corporate Responsibility Drives Sustainable Growth
Corporate Responsibility Drives Sustainable Growth Our ESG strategy is aligned with our mission and is focused on enhancing the sustainability of our business and long-term value creation 24
Slide 25: 2021 ESG Initiatives
2021 ESG Initiatives Partnered with a data and Enhanced the diversity of analytics software company that the leadership team and quantifies social and climate risk the Board of Directors Introduced a new suite of Enhanced our employee housing-related employee benefits, including a paid benefits, inc
Slide 26: ESG Highlights | Redwood by the numbers
ESG Highlights | Redwood by the numbers Community Grants through 81% Independent Board Members 180+ Employee Foundation Diverse Independent Board Employee Satisfaction Score in 55% Members(1) 85% Last Engagement Survey Employees Agree that Redwood is Women Representation on 33% Management Team 87% C
Slide 27: ESG priorities and commitments
ESG priorities and commitments Community Impact • Explore partnerships to provide liquidity for accessible housing • Continue to seek initiatives to give back to our communities Human Capital • We have outlined our top 10 priorities • Further enhance disclosures on our programs and relevant metrics
Slide 28: Appendix | Endnotes
RWT Appendix | Endnotes
Slide 29: Further discussion in the Redwood Review
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 30: Further discussion in the Redwood Review
(1) Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relati
Slide 31: Mortgage Banking Key Operating Metrics
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 32: Further discussion in the Redwood Review
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 33: Investment Portfolio Key Financial Results
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 34: Capital Allocation Detail by Segment
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 35: Residential Investments Credit Characteristics
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 36: Business Purpose and Multifamily Investments Credit Characteristics
Detailed Endnotes are included at the end of this presentation A further discussion of Redwood's business, financial results and taxable income is included in the third quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s investor relations
Slide 37: Non-GAAP Measures
Non-GAAP Measures Adjusted Revenue Adjusted Return Adjusted Revenue is a non-GAAP measure derived from GAAP revenue, Adjusted Return for our operating businesses represents non-GAAP After-tax exclusive of non-cash amortization for amounts related to historical business operating return on capital as
Slide 38: Endnotes
Endnotes Slide 6 (Growth drivers for our business have potential Slide 8 (We have had strong outperformance year-to-date and are well to deliver attractive shareholder returns over the long-term) positioned to sustain our growth trajectory) 1. US weighted average source: Sources: US Census Bureau, C
Slide 39: Endnotes
Endnotes Slide 11 (Growing contributions from our operating businesses can Slide 17 (Our combined portfolios continue to be positioned to generate support book value expansion) strong risk-adjusted returns) 1. Adjusted Revenue is a non-GAAP measure. See the Non-GAAP 1. All data presented as of Septe
Slide 40: Endnotes
Endnotes Slide 21 (We continue to be a first mover in innovative securitizations) Slide 31 (Mortgage Banking Key Operating Metrics) 1. Transactions include Redwood Residential securitization, SEMT 2021-6, 1. "Mortgage banking income" presented in this table represents the sum of backed by $449 milli
Slide 41: Endnotes
Endnotes Slide 32 (Investment Portfolio Key Financial Results) Slide 34 (Capital Allocation Detail by Segment) 1. Amounts in the "Total" column within this table may not agree to amounts on our consolidated income statement, as certain investments in 1. Sequoia securities, SFR securities and third-p
Slide 42: Endnotes
Endnotes Slide 36 (Residential Investments Credit Characteristics) Slide 36 (Business Purpose and Multifamily Investments Credit 1. Underlying loan performance information provided in this table is generally Characteristics) reported on a one-month lag. As such, the data reported in this table is 1.