Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q3 2024 Earnings Presentation
37 slides from Redwood Trust's earnings presentation, Oct 30, 2024
Slide 1: Q3 2024 Redwood Review
Q3 2024 Redwood Review October 30, 2024 REDWOODTRUST.COM
Slide 2: Cautionary Statement; Forward-Looking Statements
Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2024 forward outlook and key drivers to increase earnings and book value, current target returns related to capital deployment opportunities, estimates of upside
Slide 3: Market Outlook Promotes Our Value Proposition
Market Outlook Promotes Our Value Proposition Demonstrated ability to capture market share amidst a changing regulatory environment Investment Portfolio and Mortgage Banking are positioned for significant upside into an evolving rate cycle Evolution of capital structure has freed up additional capit
Slide 4: Redwood is a Full Spectrum Residential Housing Finance Platform
Redwood is a Full Spectrum Residential Housing Finance Platform Redwood provides liquidity across the entire single-family residential market RESIDENTIAL INVESTMENT PORTFOLIO RESIDENTIAL MORTGAGE BANKING PLATFORMS Investments & Securities Consumer Investor Includes assets organically created through
Slide 5: Third Quarter 2024 Financial Performance
Third Quarter 2024 Financial Performance Earnings Per Share GAAP Book Value Per Share Common Dividend GAAP EPS Non-GAAP $8.73 $8.74 (Diluted) $0.17 EAD Per Share(1) $0.16 (Basic) $0.18 $0.13 $0.10 $0.09 Q2'24 Q3'24 Q2'24 Q3'24 Q3’24 Total Economic Return: 8.8% Indicative Dividend Yield as Q2'24 Q3'2
Slide 6: Third Quarter 2024 Business Performance
Third Quarter 2024 Business Performance • At September 30, 2024: – Unrestricted cash and cash equivalents of $254 million Financing & Capital – Unencumbered assets of approximately $300 million • Repaid July 2024 convertible debt maturity with cash on hand • Closed two non-marginable financing trans
Slide 7: Year-to-Date Financial and Operating Performance
Year-to-Date Financial and Operating Performance Financial and operating performance reflects ongoing strength of execution Earnings Per Share Mortgage Banking Return on Capital GAAP Earnings Non-GAAP EAD* Residential Consumer Residential Investor GAAP ROC Non-GAAP $0.40 EAD ROC* $0.39 21.9% 21.9% 1
Slide 8: Ongoing Balance Sheet Management
Ongoing Balance Sheet Management… Our recent activities have led to organic capital creation, reduction in corporate debt and strengthening of the overall balance sheet Reduction in Outstanding Convertible Debt Recent Financing Highlights Ratio of Convertible Debt to Equity RFT 2024-1 & RFT 2024-2 Q
Slide 9: Accretive Capital Deployment
…has Resulted in Accretive Capital Deployment We have been active deploying capital in 2024 and see continued opportunities for accretive investment Summary of Capital Deployment Third-Party Investments YTD’24 Capital Deployed as of 09/30/24 Organic Investments Investments in accretive third- Invest
Slide 10: Realizing Embedded Value Within Our Investment Portfolio
Realizing Embedded Value Within Our Investment Portfolio We expect GAAP earnings and book value to benefit from lower interest rates and a steeper yield curve, through improved investment portfolio valuations and recognized gains in our net discount (1) • Potential book value recovery supported by:
Slide 11: Refinance Activity to Grow Should Rates Decline
Refinance Activity to Grow Should Rates Decline Resurgence in refinance activity could provide a tailwind to higher Residential Consumer volumes Outstanding Mortgages by Mortgage Rate(1) Residential Consumer Outlook(2) ✓ We expect Residential Consumer volume to 77% of Existing Agency Mortgages conti
Slide 12: Growing Need for Alternative Non-Agency Products
Growing Need for Alternative Non-Agency Products A combination of low housing inventory, high home equity and growing demand for products outside Agency mandates drives support for our non-Agency strategies Low Housing Affordability(1) Undersupply of Housing(2) 230 16 2000-24 Avg. Net MF completions
Slide 13: Operating Businesses & Investment Portfolio
Operating Businesses & Investment Portfolio 13
Slide 14: Residential Consumer Mortgage Banking
Residential Consumer Mortgage Banking In addition to ongoing market share growth, we see additional opportunities to support banks with their balance sheet solutions Q3’24 Quarterly Overview • Q3’24 GAAP return on capital of 30%, compared to 16% in Q2’24 • $2.2 billion of locked loans(1) as we saw c
Slide 15: Residential Consumer Positioning
Residential Consumer Positioning 2023 & TODAY 2024 & BEYOND Added New Bank Loan Market & Wallet Additional Seller Activity & Purchases Seller Partners Share Growth(2) of Seasoned Collateral from Banks 93 56% 5% of the Top 50 jumbo loan New or Re-Established Banking Partnerships of our Loan Sellers a
Slide 16: Residential Investor Mortgage Banking
Residential Investor Mortgage Banking We have seen ongoing growth of our products, particularly SAB, with line of sight into greater term production Q3’24 Quarterly Overview Composition of Q3’24 Quarterly Fundings(2) • Delivered a GAAP return on capital of 45% and a Non- Multifamily GAAP EAD return
Slide 17: Residential Investor Positioning
Residential Investor Positioning 2023 & TODAY 2024 & BEYOND Improved Operating Increased Distribution Growing Total Addressable Market Efficiency Capabilities Single Family and Multifamily Total Addressable Market(2) $335 Capital Efficiency (Capital / Loan) 22% $4bn+ $260 $280 of Capacity Through Jo
Slide 18: Investment Portfolio
Investment Portfolio During the third quarter, we actively deployed capital into accretive new investments Q3’24 Quarterly Performance • Credit fundamentals within our single-family consumer investment portfolio remained strong • Deployed $157 million of capital into organic and third-party assets,
Slide 19: Investment Portfolio - Underlying Asset Strength
Investment Portfolio - Underlying Asset Strength Our credit portfolio is supported by strong underlying fundamentals that could contribute to further upside in book value and recovery of portfolio discount over time Strong Investment Portfolio Characteristics & Fundamentals 17.8 Underlying Seasoned
Slide 20: Investment Portfolio – Residential Investor
Investment Portfolio – Residential Investor Bridge Loans We maintain a diversified portfolio of organically created bridge loans Bridge Portfolio Characteristics at 9/30/24(1) Evolution of Bridge Portfolio(2) Maturity by Quarter Coupon Range ($mm) • Since the end of 2022, we have strategically incre
Slide 21: RWT Horizons
RWT Horizons® We added one new RWT Horizons investment (a payments / transactions company) in Q3’24 RWT Horizons Opportunity Thesis Enhance efficiency Early-stage Partnerships drive Alignment with and scale in Redwood companies with growth and Redwood’s mission, businesses opportunity for technologi
Slide 22: Financial Results
REDWOOD TRUST Financial Results
Slide 23: Detailed Endnotes are included at the end of this presentation. Note: Numbers may not
Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding. 23
Slide 24: Detailed Endnotes are included at the end of this presentation. Note: Numbers may not
Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding. 24
Slide 25: Detailed Endnotes are included at the end of this presentation Note: Numbers may not
Detailed Endnotes are included at the end of this presentation Note: Numbers may not foot due to rounding. 25 .
Slide 26: Detailed Endnotes are included at the end of this presentation. Note: Numbers may not
Detailed Endnotes are included at the end of this presentation. 26 Note: Numbers may not foot due to rounding.
Slide 27: Detailed Endnotes are included at the end of this presentation. Note: Numbers may not
Detailed Endnotes are included at the end of this presentation. 27 Note: Numbers may not foot due to rounding.
Slide 28: Recourse Debt Scheduled Maturities
Recourse Debt Scheduled Maturities ($ in millions) Detailed Endnotes are included at the end of this presentation. 28 Note: Numbers may not foot due to rounding.
Slide 29: Endnotes
REDWOOD TRUST Endnotes
Slide 30: Non-GAAP Measures
Non-GAAP Measures Earnings Available for Distribution (“EAD”) and EAD Return on Common Equity (“EAD ROE”) EAD and EAD ROE are non-GAAP measures derived from GAAP Net income (loss) available (related) to common stockholders and GAAP return on common equity (“GAAP ROE”), respectively. EAD is defined a
Slide 31: Non-GAAP Measures
Non-GAAP Measures Earnings Available for Distribution (“EAD”) and EAD Return on Common Equity (“EAD ROE") EAD and EAD ROE are non-GAAP measures derived from GAAP Net income (loss) available (related) to common stockholders and GAAP return on common equity (“GAAP ROE”), respectively. EAD is defined a
Slide 32: Non-GAAP Measures
Non-GAAP Measures EAD Net Contribution and EAD Net Contribution Return on Capital (“ROC”) 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
Slide 33: Non-GAAP Measures
Non-GAAP Measures EAD Net Contribution and EAD Net Contribution Return on Capital (“ROC”) 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
Slide 34: Endnotes
Endnotes Slide 3 (Market Outlook Promotes Our Value Proposition) Slide 6 (Third Quarter 2024 Business Performance) Source: Company financial data as of September 30, 2024 unless otherwise noted. Source: Company financial data as of September 30, 2024 unless otherwise noted. References to “QoQ” are
Slide 35: Endnotes
Endnotes Slide 11 (Refinance Activity to Grow Should Rates Decline) Slide 17 (Residential Investor Positioning) Source: Company financial data as of September 30, 2024 unless otherwise noted. Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Bloomberg; Morgan Stanl
Slide 36: Endnotes
Endnotes Slide 26 (Appendix: Mortgage Banking Key Results) Slide 23 (Appendix: Income Statement) 1. EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP 1. Net interest expense from “Corporate (unsecured debt)” consists primarily of interest measures. Please refer to Non-GAAP
Slide 37: Glossary of Terms
Glossary of Terms Term Definition Term Definition ARM Adjustable-Rate Mortgage MB Mortgage banking BFR Build for rent MSR Mortgage servicing rights bps Basis points Non-QM Non-qualified mortgage CAFL® CoreVest securitization program QM Qualified mortgage CES Closed end second liens QoQ Quarter over