Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Investor Day (September 2021)
124 slides from Redwood Trust's investor day presentation, Sep 14, 2021
Slide 1: Redwood Trust Investor Day
Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 2: 2021 Investor Day Agenda
2021 Investor Day Agenda Strategic Overview | Redwood’s Path to Transformative Scale Chris Abate, Chief Executive Officer Multi-Year Operating Plan | Strategic Progress Dash Robinson, President Business Purpose Lending Beth O’Brien, CEO, CoreVest Chris Hoeffel, President, CoreVest Ryan McBride, COO,
Slide 3: 2021 Investor Day Agenda (cont.)
2021 Investor Day Agenda (cont.) The Future of Housing Finance (no slides) Chris Abate, CEO, Redwood Trust Michael Bright, CEO, Structured Finance Association Armando Falcon, CEO, Falcon Capital Advisors and Director, Redwood Trust Bernadette Kogler, Co-founder and CEO, RiskSpan RWT Horizons Ryan Mc
Slide 4: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-look
Slide 5: Strategic Overview | Redwood's Path to Transformative Scale
Strategic Overview | Redwood’s Path to Transformative Scale Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 6: Redwood Today
Redwood We are the market’s most innovative housing investor and highest-quality Today private lender Our model has diversified and evolved We manage $12 billion of assets(1) We are uniquely structured as a tax- advantaged REIT/TRS under one public company umbrella 6 Detailed Endnotes are included a
Slide 7: Pillars of the Redwood franchise
Pillars of the Redwood franchise Reputation and Brand Human Capital • Over 27-year history, with • Employees are the foundation of our unparalleled relationships franchise • Long standing reputation as thought • Culture of innovation and targeted leader and innovator employee programs including • In
Slide 8: Now positioned for transformative scale
Now positioned for transformative scale • Acquired CoreVest, transforming our business model • Deployed $1.1 billion of capital through combination of organic and acquisition activity 2020/ • Grew Redwood Choice product to nearly 40% of purchase volume in the 2021 Residential business 2019 • Managed
Slide 9: The next evolution of our vision
The next evolution of our vision Redwood Trust is the leading operator and strategic capital provider driving sustainable innovation in housing finance. We invest in the mortgage market through a broad array of disciplines, including direct lending, whole-loan aggregation, structured credit and priv
Slide 10: Our addressable market: much larger than the traditional mortgage sector
Our addressable market: much larger than the traditional mortgage sector $34 TRILLION SINGLE FAMILY HOUSING MARKET (1) Household Equity $23tn Mortgage Debt Outstanding $11tn • The $11 trillion mortgage debt outstanding is linked to $9 trillion of household equity, with $14 trillion of homes owned in
Slide 11: Key themes underpinning our disruptive vision
Key themes underpinning our disruptive vision Innovate to target large and growing Addressable Market Pursue strategies to Horizons further unlock and investments to maximize evolve antiquated shareholder value mortgage processes Sustain strong track record to continue to Capitalize on attract growt
Slide 12: 2025 | Transformative (and sustainable) scale
2025 | Transformative (and sustainable) scale Meeting these goals and milestones will demonstrate how we scale through growth and efficiency gains: Double Mortgage Banking volumes Double size of the Investment portfolio with expanded mandate Retain TRS earnings to support organic investment growth T
Slide 13: Our Mission
Our Mission Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households. “A mission is an enduring statement of purpose that provides the foundation for priorities, strategies, and plans.” “A mission specifies the fundamental reason why an organi
Slide 14: Multi-Year Operating Plan | Strategic Progress
Multi-Year Operating Plan | Strategic Progress Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 15: Driving quality earnings + sustainable growth
Driving quality earnings + sustainable growth Massive Addressable Market Unique and Scalable Platform Durable and Growing Revenue Streams Disruptive Innovation Our Path Forward 15
Slide 16: Substantial growth in home equity creates opportunities across the housing spectrum
Substantial growth in home equity creates opportunities across the housing spectrum ~30% Loan to Value ~70% of home value is held with equity Mortgage Debt Household Equity Outstanding Tied to Debt 100% Cash Owned (1) (1) (1) $11 Trillion $9 Trillion $14 Trillion Opportunity for growth: How Redwood
Slide 17: Tailwinds for further growth in our addressable markets
Tailwinds for further growth in our addressable markets Supply/demand driving home price appreciation Migration to lower cost regions expanding jumbo and SFR markets Evolving GSE affordability goals and impact on agency high-balance(1) volumes Evolution of Qualified Mortgage ("QM") rules and shrinki
Slide 18: Population migration is driving housing demand in more parts of the country
Population migration is driving housing demand in more parts of the country (1) Detailed Endnotes are included at the end of this presentation 18
Slide 19: Annual non-agency originations are primed to expand
Annual non-agency originations are primed to expand, in part due to regulatory tailwinds Non-Agency Loan Origination Volumes by Type $800 $735+ Recent regulatory changes (QM rules and new GSE caps) $35 $700 $150 $600 $525 $500 $482 $100 $90 $Billion $90 $400 $300 $435 $450+ $200 $392 $281 $100 $- (1
Slide 20: Potential GSE migration away from agency high balance
Potential GSE migration away from agency high balance is fertile ground for growth in non-agency GSE Purchase of High-Balance Loans Since 2018 (1) • Represent 11% Agency High- Balance of total GSE ($ in billions, except average loan size) purchases Total GSE % of Total GSE Average Year Purchases Vol
Slide 21: Credit availability to the under-banked
Further growth in non-agency mortgage debt could come from expanding credit availability to the “under-banked” Composition of U.S. Mortgage Originations by Credit Score(1) • Mortgage originations to borrowers with a FICO below 760 has declined from 70% in the early 2000’s to approximately 30% today
Slide 22: GSE footprint for housing investors is shrinking
As housing investors gain market share, the GSE footprint for those borrowers is shrinking Trailing 12-Month Volume of Non-Owner Occupied (NOO) mortgages in excess of cap(1) NOO $ Amount Above 7% Cap ($bn) 40 Estimate: $25 - $35 35 billion per annum in excess of cap 30 (2014 – 2018) 25 20 Impact: Po
Slide 23: The BPL market is providing constructive solutions
The BPL market is providing constructive solutions given housing supply and HPA dynamics Undersupply of single-family homes for rent is being Geographically diversified SFR portfolios have shown addressed by growth in the Build-for-Rent market lower volatility than other asset classes (1) (3) • Sing
Slide 24: Mortgage Banking Operations
We have a unique and scalable platform built to capitalize on these structural market changes 1H 2021 Metrics Mortgage Banking Operations Return on Capital (1) Consumer 36% Mortgage Acquisition 34% 34% 32% 30% Business 30% Purpose 28% Lending 26% Mortgage Banking Redwood Investments Credit- % of All
Slide 25: Evolution of our capital allocation strategy
The evolution of our capital allocation strategy results in a portfolio balanced across the housing market Housing Credit Investments(1) 2018 2021 Business Purpose Investments 2% Third-Party Third-Party Business Investments Investments Purpose 34% 34% Investments 43% Redwood Residential Investments
Slide 26: Continued product development will drive volume growth
Continued product development will drive volume growth 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 Potential Sectors Potential Products
Slide 27: Runway for growth as leading lender to housing investors
We have runway for significant growth as the leading lender to housing investors $3.5 $3.0 $2.9 $2.6 3yr CAGR: 27% $2.5 $2.5 5yr CAGR: 29% $ in billions $2.0 $1.5 $1.4 $1.0 $0.8 $0.8 $0.5 $0 2016 2017 2018 2019 LTM (1) 2021 Run Rate (2) Loans Closed Detailed Endnotes are included at the end of this
Slide 28: Residential business positioned to capture market share
Our residential business is well positioned to continue capturing market share and growing profitably $20 $18 $17 $16 $16 3yr CAGR: 26% 5yr CAGR: 19% $14 $12 $ Billions $10 $10 $8 $9 $8 $7 $6 $4 $2 $0 (1) (2) 2016 2017 2018 2019 LTM 2021 Run Rate Locked Loans (unadjusted for fallout) Detailed Endnot
Slide 29: Our platforms control substantial flow of non-agency loans
Our platforms control substantial flow of non- agency loans $7.8bn in loan distributions Securitizations YTD(1) • Broadly-marketed • Single investor • Private deals • Innovative with new product financings $3.1bn Securitizations $4.7bn Whole Loan Whole Loans Sales • Whole loan sales • Forward sales
Slide 30: Non-agency residential margins have proven durable
Non-agency residential margins have proven durable relative to agency loans Gain on Sale Volatility Comparison: 4Q'17 - 2Q'21 2.50% 2.37% The values in the chart calculate a “risk adjusted” metric for gain on sale (GOS) 2.00% 1.87% margin • A higher value implies a higher 1.50% margin per unit of vo
Slide 31: Market share growing with runway to capture additional share
Market share growing with runway to capture additional share RWT Residential Market Share BPL Volume as a Percentage of TAM 9.0% 9.0% 8.0% 8.0% 8.0% 7% 7.0% 7.0% 6.0% 6.0% 5.0% 5.0% 4.0% 4.0% 3.2% 3.0% 2.5% 3.0% 2.3% 2.0% 1.4% 2.0% 1.0% 1.0% 0.0% 0.0% (1) (2) (3) (4) (5) (6) 2016 - 2020 2021 2025 Ta
Slide 32: Disrupting non-agency mortgage with technology and distribution
We are disrupting the non-agency mortgage industry with innovative technology and distribution channels Sourcing 175 discrete jumbo sellers >5,300 BPL borrower relationships Multichannel Distribution Model Organic Technology Processing Distribute loans 33% faster + 26% 3yr CAGR in volume of vs 2019
Slide 33: Mortgage banking growing share of revenue mix
Mortgage banking has represented a growing share of our revenue mix as our model has evolved Adjusted Revenue Mix(1) Mortgage Banking Investments 100% 32% 32% 80% 60% 67% 60% 40% 68% 68% 20% 40% 33% 0% 2018 2019 2H 20 (2) 1H 21 (3) Detailed Endnotes are included at the end of this presentation 33
Slide 34: Strategic vision: transformative innovation and increased scale
Our strategic vision will be achieved through transformative innovation and increased scale Roadmap to Transformative (and Sustainable) Scale Increase Market Reach Create Further Disrupt and and Wallet Share Value Through Capitalize Unique Portfolio Drive Efficiencies Grow Sustainably Through Techno
Slide 35: Transformation goals and milestones
Transformation goals and milestones Investment Portfolio • Double size of the investment portfolio given broader investment 2026 ESG • Dedicated responsible universe to penetrate TAMs and investing effort for beyond sustainable projects Horizons • Capital allocation increased 4x to $100mm based on o
Slide 36: Business Purpose Lending Update
Business Purpose Lending Update Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 37: Presentation Contents
Presentation Contents • Market Positioning and Competitive Landscape • Our Production and Outlook • Capital Markets • Technology • Our Goals for Revolutionary Growth 37
Slide 38: Market positioning and competitive landscape
Market positioning and competitive landscape Our growth plans for BPL are bolstered by several key tailwinds ✓ Addressable market continues to grow ✓ Mature platform and deep bench outperforms in the market ✓ Data-driven marketing, lead generation and scalable sales process ✓ Best-in-class human cap
Slide 39: Our technology | Data-driven analytics drives strategy
Our technology | Data-driven analytics drives strategy Market penetration by state of top 10 SFR lenders(1) Lender Detailed Endnotes are included at the end of this presentation 39
Slide 40: SFR lending is a large and growing sector
Production and outlook | SFR lending is a large and growing sector of the non-agency market SFR Home Demand Increasing in Top 20 Markets Total Housing Market (141.2M Unit Inventory)(2) • Rising home prices and supply shortages increasing 15.7M Units in Large demand for single-family rental homes, re
Slide 41: Capital markets product expansion
Capital markets product expansion | Strong investor demand for housing creates opportunities for product expansion and new origination channels Demand for short- Borrower demand for duration BPL 30-year investor loans Continue to optimize securities creates (similar to GSE flagship CAFL opportunity
Slide 42: Bridge loan securitization economics
Bridge loan securitization economics • Illustrative economics – warehouse financing relative to securitization Warehouse Securitize Assets Under Management $100,000 $100,000 Equity $20,000 $10,000 Weighted Avg. Coupon (WAC) 7.00% - 7.25% 7.00% - 7.25% Negative carry 0.00% (0.35%) Service fee / Trust
Slide 43: Technology is significant
Technology is significant | Investments in technology infrastructure improve efficiency and maintain/increase market share Data warehouse versatility and applications • Data warehouse is also utilized Data warehouse development for competitive intelligence and new customer acquisition • Generates dy
Slide 44: Customer portal | sample dashboard
Customer portal | sample dashboard 44
Slide 45: Customer portal in user testing
Customer portal | initial phase of development is completed and in user testing 1. Digitized Application Form 2. Digitized Data Tape 3. Integrated Signature Collection 4. Enhanced Document Upload 45 45
Slide 46: Our goals for revolutionary growth
Our goals for revolutionary growth Horizons/ Channel New accretive New loan technology to expansion in financing products disrupt current sourcing structures processes 46
Slide 47: Residential Business Update
Residential Business Update Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 48: Presentation Contents
Presentation Contents • Key Business Tailwinds • Sizing the Opportunity and Redwood’s Role • Supportive Macro Trends • Our Process as a Competitive Advantage • Proven Efficiencies of Scale • Technology Plan 48
Slide 49: Key business tailwinds
Key business tailwinds • The non-agency mortgage market is growing on an absolute basis and as a share of the overall mortgage market ⎻ Home price appreciation versus GSE loan limits ⎻ Key regulatory changes ⎻ Qualified mortgage rules ⎻ Changes to GSE footprint ▪ Non-owner occupied loan caps ▪ Incre
Slide 50: Sizing the opportunity and Redwood Residential's role
Sizing the opportunity Redwood Residential’s role Meeting demand for high-quality mortgage assets Providing $4.0 Bank deposits have liquidity for the $3.5 grown by $3.5 mortgage $3.0 trillion since the COVID-19 crisis, banking $2.5 $ in trillions 17.5x the growth rate of portfolio community $2.0 loa
Slide 51: Macro trends support non-agency residential expansion
Macro trends support non-agency residential consumer market expansion Average Annual Equity Gains from Q1 2021 Growing Markets will Likely Require Increased Underscore Homebuying & Mobility Trends Access to Non-Agency Lending(1) Emerging from COVID-19(2) Detailed Endnotes are included at the end of
Slide 52: Increasing universe of Qualified Mortgages
Increasing universe of The changing Qualified Mortgages (QMs) composition of Non-QM ▪ Recent changes for the CFPB mean that Non-QM Market Qualified Mortgage status is now (Est $40bn in 2021(1)) determined by mortgage rate, and not by Fico < 640, $5.0Bn measures such as debt-to-income ratio DTI > 43,
Slide 53: Growing gap between bank deposits and loans
Growing gap between bank deposits and loans(1) Banks can’t create enough loans to keep pace with deposit growth – our business helps fill the need for assets All Commercial Bank Loans and Leases All Commercial Bank deposits Detailed Endnotes are included at the end of this presentation 53
Slide 54: Our process is a competitive advantage
Redwood as a preferred partner | Our process is a competitive advantage To our Sellers To our Buyers / Investors • We view our sellers and • Our results are demonstrative of investors as partners with our differentiated manufacturing whom we seek to foster long term relationships quality ▪ A “high t
Slide 55: Credit performance of Redwood Residential
Credit performance of Redwood Residential Our best-in-class loan conduit results in the acquisition of higher quality loans than the industry Characteristics of Redwood Industry Securitized Loans Residential (1) Average(1)(2) Collateral Balance ($ in millions) $3,051 $14,690 Securitization transacti
Slide 56: Diversified distribution model
Diversified distribution model $14.0 Securitizations Whole Loan Sales $12.0 $10.7 $ in Billions $10.0 $8.6 $8.0 $7.2 $6.2 66% $6.0 31% 64% $4.6 $3.8 52% $4.0 29% 72% 69% $2.0 34% 71% 48% 36% 28% - (1) (2) 2016 2017 2018 2019 LTM 2021 Run Rate Detailed Endnotes are included at the end of this present
Slide 57: Our results demonstrate efficiencies of scale
Our results demonstrate efficiencies of scale Cost per Loan Pre-Tax Margin (2) Due Diligence Turn Time (in bps) (1) 80% (in days) (3) 40 bps 45 70% 74% 35 bps 40 35 bps 60% 30 bps 61% 35 50% 25 bps 28 bps 30 40% 25 Up to 20 bps 45 30% 20 15 bps days 20% 15 10 bps 10% 10 15 5 bps 5 days - 0% Historic
Slide 58: Technology as a driver of enterprise value
Technology as a driver of enterprise value ▪ The objective of our technology vision is to drive enterprise value through: ⎼ Creating competitive advantages by leading the re- invention of the mortgage ecosystem • Blockchain and Liquid Mortgage • Redwood Live ▪ Improving our internal operating effici
Slide 59: RWT Horizons
RWT Horizons Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 60: RWT Horizons is a strategic investment vehicle
RWT Horizons is a strategic investment vehicle that powers innovation across our organization Strategic venture investment strategy ▪ $25 million initial capital allocation, expected to upsize to $100 million by YE’22 (1) Overview ▪ Leverages our market and operating expertise to evaluate investment
Slide 61: RWT Horizons positioned as preeminent strategic investor
RWT Horizons is uniquely positioned to become a preeminent strategic investor Operating Sophisticated Flexible Expertise Counterparty Capital • Deep operating • Streamlined decision • Early stage focus with experience providing process ability to support insight into housing future funding rounds fi
Slide 62: RWT Horizons works across the enterprise
RWT Horizons works hand-in-hand across the enterprise to drive technology initiatives • Blockchain for real-time reporting Redwood Residential • Due diligence automation • Whole loan trading platform • Data and analytics for customer acquisition RWT CoreVest • Automated construction HORIZONS draw ma
Slide 63: Explosive industry growth across Fintech and Proptech
Explosive industry growth across Fintech and Proptech (1) (2) Fintech Proptech $40.0 $37.4 $35.0 $30.0 $25.0 $23.3 $23.8 $ in billions $21.5 $20.0 $15.0 $11.4 $10.0 $10.0 $7.3 $5.5 $5.8 $4.5 $4.6 $5.0 $2.6 $0.0 2016 2017 2018 2019 2020 H1 2021 ▪ Over 800 Fintech deals to date in 2021, with an averag
Slide 64: Focused on disruption across lending and real estate
RWT Horizons is focused on disruption within verticals across lending and real estate sectors ▪ Antiquated processes and biases are being dissected and reimagined ▪ Industry participants realize historical inefficiencies are no longer “good enough” ▪ Technologists have gained critical domain experti
Slide 65: RWT Horizons investment activity and pipeline
RWT Horizons investment activity and pipeline ▪ Completed ten investments to date Prevalent Investment Themes: ▪ Pipeline of 15-20 actionable investment ⎻ Alternative Real Estate financing opportunities ⎻ Home equity sharing/monetization ▪ Sourcing via direct relationships, internal/external referra
Slide 66: Environmental, Social, Governance (ESG)
Environmental, Social, Governance (ESG) Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 67: ESG Framework
ESG Framework WHO WE ARE Mission and Values HOW WE OPERATE - Our values - Board Oversight and ESG Committee OUR PRINCIPLES Key Focus Areas WHAT WE DO Strategies and Goals 67 67
Slide 68: Our Mission
Our Mission Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all American households. 68
Slide 69: Our Values
OUR VALUES OUR CORE VALUES ARE THE FOUNDATION OF HOW WE CONDUCT BUSINESS. THEY INSPIRE US TO DO OUR BEST WORK TOGETHER AND THEY ENGAGE AND CONNECT US TO EACH OTHER, TO OUR STAKEHOLDERS, AND TO OUR LARGER COMMUNITY. GROWTH PASSION INTEGRITY We pursue profitable organization growth that We are intelle
Slide 70: ESG Oversight
ESG Oversight Board Oversight • Redwood’s Board of Directors oversees our ESG strategy and key aspects of management’s execution of it ESG Committee • Our internal ESG committee is comprised of cross-functional leaders who are accountable for implementing Redwood’s ESG program 70
Slide 71: Principles | Key focus areas
Principles| Key focus areas Investment Approach Corporate Governance Risk Management Sustainability/ Social and Human Capital Environmental Community Impact 71
Slide 72: Investment Approach
Investment Approach • Core business includes financing mortgages for high- quality borrowers who could otherwise struggle to secure access to housing credit • Core business includes financing for workforce housing which targets medium-income households who would not typically qualify for low-income
Slide 73: Corporate Governance
Corporate Governance Director Independence • 82% of Directors are Independent • All board committees are comprised solely of independent directors • Separate independent Chair and CEO Board Diversity • Highly Diverse Board − 5 of 9 independent directors are women or African American/Hispanic males S
Slide 74: Risk Management
Risk Management Risk management is embedded in Redwood’s culture and is underpinned by consistent core principles Controlled Production Quality • Controlling production quality and access to quality investments in a constrained market is critically important Centralized Decision Making • We practice
Slide 75: Sustainability/Environmental
Sustainability/ Environmental We look at the relationship between our business and the environment from three perspectives Reducing Risk to Our Business • Robust underwriting processes ensure the underlying properties in our investments are adequately insured to reduce our risk of losses • Geographi
Slide 76: Human Capital
Human Capital Investing in our people and values-based culture is a driving factor in our success Culture and Strategy Alignment Human Capital Programs • Our culture is a critical link to organizational • We connect our people and culture programs and capability and the sustainability of our busines
Slide 77: Diversity, equity, inclusion and belonging
Diversity, equity, inclusion and belonging We are committed to creating a diverse and inclusive environment with a culture of belonging where all our team members feel connected, engaged, and are encouraged to express their identities at work • DEIB roadmap tied to corporate strategy • DEIB efforts
Slide 78: Social and community impact
Social and community impact Caring for our communities is a foundational aspect of our company culture • We’ve steadily increased our corporate giving over the past several years. In 2019 our pre- COVID-19 giving rate was 0.05% of pre-tax income • Our Redwood Employees Foundation is an employee-led
Slide 79: ESG Highlights | Redwood by the numbers
ESG Highlights | Redwood by the numbers Community Grants through 81% Independent Board Members 175+ Employee Foundation Diverse Independent Board Employee Satisfaction Score in Last 55% Members(1) 85% Engagement Survey Employees Agree that Redwood is Women Representation on 33% Management Team 87% C
Slide 80: 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 81: ESG Appendix Materials
REDWOOD TRUST ESG Appendix Materials
Slide 82: Our reputation and brand
Our reputation and brand Our brand equity was built Strategic moat around from strong results over a 27- operating platforms and year history, with unparalleled investment portfolio industry relationships We have credibility in the Long standing reputation as a mortgage market to influence leader in
Slide 83: Principles | Key focus areas
Principles | Key focus areas Investment Approach Governance Risk Management • Initiatives that both fulfill our • Strong governance, rooted in • Loan origination, acquisition, and housing accessibility mission and integrity, is key to Redwood’s portfolio investment activity, should provide attractiv
Slide 84: Principles | Key focus areas (cont.)
Principles | Key focus areas (cont.) Social and Sustainability Human Capital Community Impact • Long-term sustainability is • We align the company's business • Our corporate mission is rooted in fundamental to our approach, strategy with our human capital our commitment to positively requiring an on
Slide 85: Investment Approach | Diverse financing programs
Investment Approach | Making a meaningful impact through our diverse financing programs • Our residential lending business, • Our business purpose lending • $77 million(2) of our portfolio is which has deployed $7.2B of business provides financing for invested in financing for capital in Choice loan
Slide 86: Governance | Strong corporate governance
Governance | Our strong corporate governance adheres to best practices across a broad set of issues • All directors, excluding the CEO and President, are independent Director • All board committees are comprised solely of independent directors Independence • Separate independent Chair and CEO • Our
Slide 87: Risk Management
Risk Management | We take an evolving approach to risk management to deliver attractive risk- adjusted returns Risk management is embedded in Redwood’s culture and is underpinned by consistent core principles Controlling Centralized Rigorous Liquidity Enhanced Capital Production Quality Decision Mak
Slide 88: Sustainability
Sustainability | We believe that everyone has a role to play in protecting the environment We look at the relationship between our business and the environment from three perspectives RISK TO OUR BUSINESS OUR IMPACT OUR INFLUENCE UNDERWRITING PROCESS BUSINESS OPERATIONS CONSTRUCTION Robust underwrit
Slide 89: Human Capital
Human Capital | Investing in our people and values- based culture is a driving factor in our success Culture and Strategy Human Capital Diversity, Equity, Women Alignment Programs Inclusion and Belonging at Redwood • Our culture is a critical link • We connect our people and • We are committed to •
Slide 90: Community Impact
Community Impact | Connecting with and making a positive impact on the communities in which Redwood does business Community Community Redwood Employee Giving Partnerships Foundation • Caring for our communities is a • We seek to establish sustainable • Our Redwood Employee Foundation foundational as
Slide 91: Community giving and volunteerism
Community giving and volunteerism Scholarship Fund 91
Slide 92: Protecting our workforce during COVID-19
Protecting our workforce and establishing an agile operating framework during COVID-19 Protecting the health and safety of our employees has been a top priority as we manage through the COVID-19 pandemic ⎻ Heath and safety plans for each of our offices and designated on-site response teams ⎻ Office
Slide 93: 2021 ESG Initiatives
2021 ESG Initiatives Invested in a data and analytics software company that quantifies Enhanced the diversity of social and climate risk the leadership team and the Board of Directors Introduced a new suite of Enhanced our employee housing-related employee benefits including a paid benefits, includi
Slide 94: Financial Review & Outlook
Financial Review & Outlook Redwood Trust Investor Day September 14, 2021 New York, NY
Slide 95: We have delivered strong financial results
We have delivered strong financial results Our response to Covid-19 dislocation:(1) Book value Annualized Industry- ~70% growth Improving growth of 41% ROEs in leading in dividend earnings excess of quarterly mix 20%+ economic returns(2) Detailed Endnotes are included at the end of this presentation
Slide 96: Stable and growing dividend
We have continued to pay a stable and growing dividend Adjusted Net Contribution Per Share (non-GAAP) for Investment Portfolio (1) $0.30 Dividends Paid $0.30 $0.28 $0.27 $0.26 $0.25 $0.25 $0.21 $0.21 $0.20 $0.20 $0.18 $0.17 $0.16 $0.15 $0.14 $0.14 $0.15 $0.10 $0.10 $0.05 $0.05 (2) $0.00 Q3 20 Q4 20
Slide 97: Rising dividend and book value growth
Rising dividend and book value growth have driven total return story Book Value (per share) $11.46 $10.76 $9.41 $9.91 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Quarterly Economic Return on Book Value(1) 17% 10% 8% 7% Q3 2020 Q4 2020 Q1 2021 Q2 2021 Detailed Endnotes are included at the end of this presentatio
Slide 98: Our strategic vision positions us for accelerating growth
Our strategic vision positions us for accelerating growth 98
Slide 99: Strategic vision: transformative innovation and increased scale
Our strategic vision will be achieved through transformative innovation and increased scale Roadmap to Transformative (and Sustainable) Scale Increase Market Reach Create Further Disrupt and and Wallet Share Value Through Capitalize Unique Portfolio Drive Efficiencies Grow Sustainably Through Techno
Slide 100: Disrupt & Capitalize
Disrupt & Capitalize Disrupt Through Product / Capitalize Through M&A and Investment / Financing Innovation Strategic Partnerships Re-launch Acquire Sequoia CoreVest Choice Expanded Launch Disrupt the Diversify Partner with BPL Partner RWT Housing Revenue Freddie Mac product with Point on SLST Horiz
Slide 101: Mortgage Banking is projected to scale meaningfully
Increase Market Reach | Mortgage Banking is projected to scale meaningfully Loan purchase volume ($bn) (1) Residential mortgage banking Business Purpose Mortgage Banking $30 $29.0 $4 $25 $ in billions $20 $14.3 $15 $2 $25 $10 $7.1 $6.9 $1 $12 $5 $6 $0 2018A 2019A 2021E 2023E Actuals Management Proje
Slide 102: Increase Wallet Share
Increase Wallet Share | Steady and defensible growth ahead (1) Share of Total Market Share (2) Addressable Market 2018 0.5% Today 3% 2023 Forecast 4% Target for 2025 ~5-7%+ Detailed Endnotes are included at the end of this presentation 102
Slide 103: Improving capital efficiency increases ROE potential
Technology and Efficiencies | Improving capital efficiency increases ROE potential Illustrative Example for Residential Business: $12 billion ~45 Days in ~$300m ~20% Today of loans Inventory Capital ROE(1) Combining growth with technology innovation 2023 to drive $25 billion ~35 Days ~$425m ~30% ROE
Slide 104: Value Creation Upside
Value Creation Upside | Through diligent credit management and asset creation $2.60 per share of Net Discount (1) ‒ by Investment Type 63% of Portfolio is Redwood- CAFL Securities controlled call 20% rights Other Third-Party Sequoia Securities Securities 38% 6% RPL Securities (SLST) 37% Detailed End
Slide 105: Grow Sustainably | Through prudent risk management
Grow Sustainably | Through prudent risk management Evolving Risk Management Healthy Balance Sheet & Liquidity 6/30/21 Portfolio • Continuous evolution of our risk framework 100% Non- as we evolve our business mix: 90% Recourse, Non- − Liquidity management 80% Marginable Third-Party Debt − Credit ris
Slide 106: Deliver Strong Results and Scale for the Future
Deliver Strong Results and Scale for the Future 106
Slide 107: Intrinsic value: growing operating earnings and portfolio returns
Our intrinsic value combines growing operating earnings and strong risk adjusted portfolio returns Redwood Consolidated 2022 Projections (1) Earnings Per Share(2) Return on Equity(2) Pre-Tax Margin(2) $1.50 - $1.60 ~15%+ ~55% Projected / Mortgage Banking Investment Portfolio Modeled 2022 Business RO
Slide 108: Contextualizing our forecast
Contextualizing our forecast GAAP GAAP Excluding M-t-M and Gains (1) Return on Equity 2022E ~15% (2) LTM 34% 13% 2019 11% 7% 2018 9% 9% 0% 5% 10% 15% 20% 25% 30% 35% 2022 forecast Earnings Per Share 2022E $1.50 – $1.60 (2) highlights $2.74 LTM $1.20 the sustained 2019 $1.03 $1.46 momentum $1.34 in o
Slide 109: Incremental upside to 2022 outlook
Incremental upside to 2022 outlook from call options and embedded discount within our portfolio $16.00 Potential Book Value Build $15.00 $2.60 $14.00 $13.00 $0.71 $12.00 $1.55 $11.00 $10.00 $9.91 $9.00 A B C $8.00 Book Value 12/31/20 Book Value Appreciation Potential Premium of Potential Book Value
Slide 110: Putting it all together
We’re committed to delivering on our financial targets We have unique lending businesses with multiple 2 opportunities for revenue growth and scale across our platform Putting it all We are focused on together 3 continuing to optimize our capital We are managing risk through a focus on long- term su
Slide 111: Appendix | Endnotes
RWT Appendix | Endnotes
Slide 112: Endnotes
Endnotes Slide 6 (Redwood Today) 1. Total consolidated assets, as of 6/30/21. Slide 8 (Now Positioned for Transformative Scale) 1. 1H’21 includes locked/funded loans January 1, 2021 through June 30, 2021. Slide 10 (Our Addressable Market: Much Larger than the Traditional Mortgage Sector) 1. Source:
Slide 113: Endnotes
Endnotes Slide 16 (Substantial growth in home equity creates opportunities across Slide 21 (Further growth in non-agency mortgage debt could come from the housing spectrum) expanding credit availability to the “under-banked”) 1. Source: Federalreserve.gov. 1. Source: Goldman Sachs “The US housing ma
Slide 114: Endnotes
Endnotes Slide 25 (The evolution of our capital allocation strategy results in a Slide 31 (Market share growing with runway to capture additional share) portfolio balanced across the housing market) 1. Calculated as Redwood’s loan purchase commitment volumes divided by 1. As of June 30, 2021. the
Slide 115: Endnotes
Endnotes Slide 32 (We are disrupting the non-agency mortgage industry with innovative technology and distribution channels) 1. From January 1 through August 31, 2021. 2. 80% faster in Residential is based on performance through our Rapid Funding program for qualified sellers. Based on industry avera
Slide 116: Endnotes
Endnotes Slide 39 (Our technology | Data-driven analytics drives strategy) 1. CoreVest internal analysis using Black Knight data. Slide 40 (Production and outlook | SFR lending is a large and growing sector of the non-agency market) 1. Data is the estimated single-family occupancy rate as reported
Slide 117: Endnotes
Endnotes Slide 50 (Sizing the Opportunity) | Redwood Residential's role Slide 57 (Our Results Demonstrate Efficiencies of Scale) 1. Source 2021 various industry research. 1. Calculated as residential mortgage banking general and administrative 2. We estimate Redwood’s medium-term opportunity based o
Slide 118: Endnotes
Endnotes Slide 60 (RWT Horizons is a strategic investment vehicle that powers innovation across our organization) 1. Expected increase in capital allocation to RWT Horizons is based on our current market observations, estimates, and assumptions. Actual amounts may differ based on these or other fact
Slide 119: Endnotes
Endnotes Slide 74 (Risk Management) 1. Non-marginable debt and marginable debt refers to whether such debt is subject to market value-based margin calls on underlying collateral that is non-delinquent. Slide 79 (ESG Highlights | Redwood by the numbers) 1. Considers female and racially/ethnically div
Slide 120: Endnotes
Endnotes Slide 95 (We have delivered strong financial results) Slide 102 (Increase Wallet Share | Steady and defensible growth ahead) 1. For metrics presented below, period is defined to include fiscal quarters beginning Q3 2020 through Q2 2021, except for dividend which 1. Market share calculated a
Slide 121: Endnotes
Endnotes Slide 108 (Contextualizing our forecast) 1. For historical amounts presented within chart, “GAAP excluding M-t-M and Gains” represents our return on equity, earnings per share and pre-tax margin, in each case calculated using GAAP revenue and income amounts exclusive of investment fair valu
Slide 122: Endnotes – Non-GAAP Measures
Endnotes – Non-GAAP Measures Adjusted Net Contribution per Share The table below presents a reconciliation of GAAP Portfolio Net Contribution to Adjusted Net Contribution for the periods presented: Adjusted Net Contribution per Share is calculated by dividing Adjusted Net Contribution by ending shar
Slide 123: Endnotes – Non-GAAP Measures (cont.)
Endnotes – Non-GAAP Measures (cont.) GAAP Excluding M-t-M and Gains The table below presents a reconciliation of GAAP Net Income, GAAP Revenue, and GAAP Pre-tax Net Income to their respective non-GAAP measures Excluding M-t-M and Amounts calculated using GAAP Excluding M-t-M and Gains use Gains: GAA
Slide 124: Endnotes – Non-GAAP Measures (cont.)
Endnotes – Non-GAAP Measures (cont.) Adjusted Revenue Adjusted Revenue is a non-GAAP measure derived from GAAP revenue, exclusive of non-cash amortization for amounts related to historical business acquisitions, realized gains, investment fair value changes, and corporate interest expense. Managemen