Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q4 2022 Earnings Presentation
41 slides from Redwood Trust's earnings presentation, Feb 9, 2023
Slide 1: Q4 2022 Redwood Review
1 Q4 2022 Redwood Review February 9, 2023 Exhibit 99.3
Slide 2: Cautionary Statement; Forward-Looking Statements
2 Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2023 forward outlook, statements related to available and potential sources of liquidity, estimates of upside and potential earnings in our investment portfoli
Slide 3: Redwood's mission and differentiators
3 Redwood’s mission is to make quality housing, whether rented or owned, accessible to all American households Detailed Endnotes are included at the end of this presentation. 28-Year Track Record of Strong Performance and Earnings Generation Diversified Product Set with Balanced Earnings Streams Ind
Slide 4: Redwood Operates Across Three Complementary Business Lines
4 Detailed Endnotes are included at the end of this presentation. *BPL refers to business purpose loans. RPLs refer to reperforming loans. HEI refers to home equity investments. CRT refers to credit risk transfer. Redwood Operates Across Three Complementary Business Lines Redwood provides strategic
Slide 5: Q4'22 Financial Performance
5 Q4’22 Financial Performance $1.6 billion of allocated capital Detailed Endnotes are included at the end of this presentation. Earnings Available for Distribution (“EAD”) and EAD Return on Equity (“EAD ROE”) are non-GAAP measures. See “Non-GAAP Measures” slides in the Endnotes for additional inform
Slide 6: Q4'22 Business Performance
6 Q4’22 Business Performance Detailed Endnotes are included at the end of this presentation. ▪ $43 million of locks(2) and $106 million of jumbo loan purchases ▪ Total net loan exposure of $659 million as of December 31, 2022 (down 7% compared to the end of Q3’22)(3) Residential Mortgage Banking ▪ C
Slide 7: 2023 Positioning
7 2023 Positioning We have positioned our Operating Businesses and Investment Portfolio for the environment ahead(1) 2023 Market Conditions Spreads Credit Volatility Interest Rates / Mortgage Rates Volatility, while still elevated, has come down from 2022 peak Redwood Positioning ▪ Favorable investi
Slide 8: QTD Q1'23 Distribution and Capital Update
8 QTD Q1’23 Distribution and Capital Update Detailed Endnotes are included at the end of this presentation. To date in Q1’23, we have been active in securing additional capital and financing as well as distributing mortgage banking pipelines Mortgage Banking Distribution ▪ Distributed ~$560 million
Slide 9: Multiple Opportunities to Deploy Capital Accretively in Today's Markets
9 Multiple Opportunities to Deploy Capital Accretively in Today’s Markets Detailed Endnotes are included at the end of this presentation. We have a diverse set of organic and third-party opportunities where we believe we can deploy capital accretively in today’s markets P P P P Capital Deployment Op
Slide 10: Strong Liquidity Position
10 Strong Liquidity Position Available Liquidity(1) We have maintained a strong capital position and have continued to generate cash organically and through public markets Detailed Endnotes are included at the end of this presentation. ($mm) ▪ Unrestricted cash position remains strong at $400 millio
Slide 11: Cost Savings Remain in Focus
11 Cost Savings Remain in Focus We have prudently managed our fixed and variable costs and continue to reduce run-rate expenses Detailed Endnotes are included at the end of this presentation. Annual Expenses 20% decline in FY’22 Pro Forma G&A compared to FY’21 ▪ Redwood maintains a nimble operating
Slide 12: Funding by Business
12 Funding by Business Across our entire enterprise, we have significant excess financing capacity and low exposure to marginable debt(1) Detailed Endnotes are included at the end of this presentation. Residential Mortgage Banking Business Purpose Mortgage Banking ~60% non-marginable(1) 100% non-mar
Slide 13: Investment Portfolio & Operating Businesses
13 Investment Portfolio & Operating Businesses
Slide 14: Investment Portfolio Quarterly Performance
14 Multifamily, CRT and Other, $237 HEI, $284 RPL Securities, $352 Business Purpose Bridge Loans, $2,024 SFR (CAFL) Securities, $304 Called Residential Jumbo Loans, $153 Residential Jumbo (SEMT) Securities, $322 MSRs & Other, $49 Multifamily, CRT and Other, 13% HEI, 13% RPL Securities, 20% Business
Slide 15: Investment Portfolio supported by low delinquencies, seasoning and declining LTVs
15 Our Investment Portfolio is supported by low delinquencies, underlying loan seasoning and declining LTVs Investment Portfolio Supported by Credit Strength Underlying Loan Seasoning (Years) Delinquencies (% 90+ DQ) Seasoned assets have lower sensitivity to changes in interest rates and market cond
Slide 16: Potential Book Value Per Share Upside
16 (1) Net Portfolio Discount to Par by Investment(1) $4.33 Per Share Illustrative Potential Upside to Book Value P Continued credit performance in underlying portfolio assets (e.g., consistent cashflows, low delinquencies) P Firming of risk sentiment could reverse unrealized losses taken in 2022 wh
Slide 17: Investment Portfolio - SLST 2018-2
17 0.0% 5.0% 10.0% 15.0% 20.0% Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Dec-22 Investment Portfolio - SLST 2018-2 Detailed Endnotes are included at the end of this presentation. Our SLST 2018-2 investment serves as an example of the strong and stable underlying credit performance of our RPL
Slide 18: Investment Portfolio - BPL Bridge Loans
18 Investment Portfolio - BPL Bridge Loans Detailed Endnotes are included at the end of this presentation. Our Bridge loan portfolio is predominantly comprised of multi-asset loans that we originate directly, in compliance with strict underwriting guidelines ▪ A significant portion of our borrowers
Slide 19: Investment Portfolio – BPL Bridge Commitments & Maturities
19 Investment Portfolio – BPL Bridge Commitments & Maturities Detailed Endnotes are included at the end of this presentation. Summary of Bridge Maturities & Unfunded Commitments ▪ Existing Bridge financing provides significant capacity to fund outstanding commitments ▪ Bridge unfunded commitments of
Slide 20: Investment Portfolio - Home Equity Investments (HEI)
20 Investment Portfolio - Home Equity Investments (“HEI”) Over the last few years, we have steadily evolved our investment in HEI based on our long-term thesis on the outlook for housing credit Structure ▪ HEIs are an effective and attractive option for homeowners seeking to access the equity in the
Slide 21: Business Purpose Mortgage Banking Quarterly Overview
21 Business Purpose Mortgage Banking Quarterly Overview Composition of Q4’22 Quarterly Fundings(1) Detailed Endnotes are included at the end of this presentation. We remain focused on originating loans secured by assets with strong fundamentals and business plans with experienced sponsorship teams Q
Slide 22: Business Purpose Lending Market Opportunity
22 Business Purpose Lending Market Opportunity Durability of BPL Demand Amidst Higher Rates & Recessionary Markets Housing Affordability Crisis Leads to Increase in Rental Demand(2) Detailed Endnotes are included at the end of this presentation. Strong fundamentals combined with near-term dynamics s
Slide 23: Residential Mortgage Banking Quarterly Overview and Positioning
23 ▪ We remained conservatively positioned in Q4’22 ▪ Muted loan lock and purchase activity; locked $43 million of loans(1) ▪ Focus on light inventory ▪ Entering Q1’23, total net loan exposure of $659 million with an average gross mortgage rate over 5.3%(2) Residential Mortgage Banking Redwood Resid
Slide 24: Industry-Leading Distribution Platform is a Clear Differentiator
24 Industry-Leading Distribution Platform is a Clear Differentiator Distribution by Strategy Over Time Detailed Endnotes are included at the end of this presentation. Investor demand has picked up, resulting in an increase in distribution efforts so far in Q1’23 Residential BPL Securitization Whole
Slide 25: RWT Horizons by the Numbers
25 R W T H O R I Z O N S RWT Horizons by the Numbers Detailed Endnotes are included at the end of this presentation. Invests primarily in early-stage companies that drive innovation in financial and real estate technology RWT Horizons Opportunity Thesis Enhance efficiency and scale in Redwood busine
Slide 26: Financial Results
26 Financial Results
Slide 27: Income Statement
27 Detailed Endnotes are included at the end of this presentation. Income Statement ($ in millions, except per share data) Three Months Ended 12/31/2022 9/30/2022 Net interest income Investment portfolio $ 41 $ 45 Mortgage banking 1 5 Corporate (unsecured debt)(1) (15) (15) Total net interest income
Slide 28: Balance Sheet
28 Detailed Endnotes are included at the end of this presentation. Balance Sheet ($ in millions) 12/31/2022 9/30/2022 Residential loans – held-for-sale $ 781 $ 834 Residential loans – held-for-investment 4,832 4,918 Business purpose loans – held-for-sale 364 337 Business purpose loans – held-for-inv
Slide 29: Changes in Book Value per Share
29 Detailed Endnotes are included at the end of this presentation. Changes in Book Value per Share ($ in per share) Three Months Ended 12/31/2022 9/30/2022 Beginning book value per share $ 10.18 $ 10.78 Basic earnings (loss) (0.40) (0.44) Changes in accumulated other comprehensive income Unrealized
Slide 30: Capital Allocation Summary
30 Detailed Endnotes are included at the end of this presentation. Capital Allocation Summary ($ in millions) As of December 31, 2022 As of 9/30/22 Fair Value of Economic Assets (1) Recourse Debt Non-Recourse Debt (2) Total Capital Total Capital Residential Mortgage Banking Loans and other working c
Slide 31: Mortgage Banking Key Results
31 Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. Mortgage Banking Key Results ($ in millions) Q4 2022 Q3 2022 Business Purpose Mortgage Banking Residential Mortgage Banking Total Business Purpose Mortgage Banking Residential Mortga
Slide 32: Investment Portfolio Key Results
32 Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. Investment Portfolio Key Results ($ in millions) Three Months Ended 12/31/2022 09/30/2022 Net interest income $ 41 $ 45 Investment fair value changes, net (26) (62) Realized gains/(l
Slide 33: Recourse Debt Scheduled Maturities and Balances
33 Detailed Endnotes are included at the end of this presentation. Recourse Debt Scheduled Maturities ($ in millions) Recourse Debt Balances (1) ($ in millions) At December 31, 2022 At September 30, 2022 Secured Debt Fair Value of Secured Assets Non- Marginable Debt (1) Marginable Debt (2) Total Sec
Slide 34: Endnotes
34 Endnotes
Slide 35: Non-GAAP Measures: EAD and EAD ROE
35 Non-GAAP Measures Earnings Available for Distribution (“EAD”) and EAD Return on Capital (“EAD ROE”) EAD and EAD ROE are non-GAAP measures derived from GAAP Net income and GAAP return on equity (“GAAP ROE”), respectively. EAD is defined as: GAAP net income (loss) adjusted to (i) exclude investment
Slide 36: Non-GAAP Measures: EAD Net Contribution
36 Non-GAAP Measures EAD Net Contribution and EAD Net Contribution Return on Capital EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP measures derived from GAAP Net Contribution and GAAP Return on Capital, respectively. EAD Net Contribution presents a measure of the profi
Slide 37: Endnotes: Redwood Operates Across Three Complementary Business Lines
37 Slide 4 (Redwood Operates Across Three Complementary Business Lines) Source: Company financial data as of December 31, 2022 unless otherwise noted. 1. Allocated capital includes working capital and platform premium for mortgage banking operations and all investments net of associated debt for inv
Slide 38: Endnotes: Q4'22 Business Performance
38 Endnotes Slide 6 (Q4’22 Business Performance) Source: Company financial data as of December 31, 2022 unless otherwise noted. 1. Non-Marginable debt and marginable debt refer to whether such debt is subject to margin calls based solely on the lender’s determination in its discretion of the market
Slide 39: Endnotes: Potential Book Value Per Share Upside
39 Endnotes Slide 16 (Potential Book Value Per Share Upside Driven by Underlying Asset Strength) Source: Company financial data as of December 31, 2022 unless otherwise noted. 1. Represents potential book value per share upside on our securities portfolio due to the net discount to par value, net o
Slide 40: Endnotes: Home Equity Investments
40 Endnotes Slide 20 (Investment Portfolio - Home Equity Investments (“HEI”)) Source: Company financial data as of December 31, 2022. 1. Target lifetime returns represent blended returns based on leverage assumptions and are based on management’s expectations and calculations, and actual results may
Slide 41: Endnotes: Appendix Investment Portfolio Key Results
41 Endnotes Slide 32 (Appendix: Investment Portfolio Key Results) 1. EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP measures. Please refer to Non-GAAP Measures in in our Endnotes for more information. 2. Leverage ratio is calculated as Secured debt balances divided by c