Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q4 2021 Earnings Presentation
36 slides from Redwood Trust's earnings presentation, Feb 9, 2022
Slide 1: Q4 2021 Investor Presentation
Q4 2021 Investor Presentation February 9, 2022 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements, including statements regarding our 2022 forward outlook, statements related to increasing our market share of BPL origination, and estimates of upside and potential earnings in our investment portfolio from embedded di
Slide 3: Redwood's mission is to help make quality housing accessible to all Americans
Redwood’s mission is to help make quality housing, whether rented or owned, accessible to all Americans Ticker: RWT IPO Date: 1995 Market Cap: $1.5 billion 2021 Total Shareholder Return: 60.2%(1) Integrated Business Model Our Differentiators Track Record of Strong Performance and Earnings Generation
Slide 4: Complementary Business Lines Drive Balanced and Durable Earnings
Complementary Business Lines Drive Balanced and Durable Earnings We are the leading operator and strategic capital provider for sustainable innovation in housing finance Capital Allocation as '21 Return on Capital Annualized Market Strategy | Products of YE’21 (GAAP | Adjusted)(1) Opportunity(2) Bus
Slide 5: Redwood's Ability to Create, Retain and Distribute Assets
Redwood’s Ability to Create, Retain and Distribute Assets We play an integral role in providing liquidity to the housing market while creating and retaining assets for our investors and our own portfolio Asset Creation + Fee-Based ▪ Mortgage banking Revenue income generated from securitizing or sell
Slide 6: Redwood Q4'21 Financial Highlights
Redwood Q4’21 Financial Highlights GAAP Net Income GAAP Book Value Common Dividend $44 million, or $0.34 per +0.5% +9.5% $0.23 $0.21 diluted share $12.00 $12.06 ▪ 13% Return on Equity (annualized) $0.65 Q3'21 Q4'21 Q3'21 Q4'21 ▪ 4th consecutive quarterly $0.34 dividend increase Total Economic Return
Slide 7: 2021 by the Numbers
2021 by the Numbers In 2021, Redwood outperformed across a broad spectrum of financial and strategic performance metrics FY’21 YoY Financial Performance We grew our book value… Total Shareholder Return +60% +22% $11.46 $12.00 $12.06 $10.76 +30% $9.91 Total Economic Return(1) Book Value Change +22% S
Slide 8: Redwood Q4'21 Business Highlights
Redwood Q4’21 Business Highlights Business ▪ Corevest record quarterly funded volume of $733 million (+15% QoQ) Purpose ▪ Continued growth in the bridge portfolio (bridge fundings +50% QoQ) Mortgage ▪ Securitized $304 million of SFR loans Banking ▪ Completed ~$200 million sale of SFR loans to large
Slide 9: Business Purpose Mortgage Banking
Business Purpose Mortgage Banking The BPL market has been resilient and continued growing as benchmark interest rates have trended upwards - CoreVest’s quarterly funded volumes have continued to rise even as rates have moved higher Quarterly Highlights ▪ Corevest record quarterly funded volume of $7
Slide 10: Business Purpose Lending Market Opportunity
Business Purpose Lending Market Opportunity Current industry dynamics continue to support demand for CoreVest’s diverse product suite What is Driving the Growing BPL Market? CoreVest Differentiators ✓ Business Purpose Lending products provide ✓ Broad suite of products with proven scale, track record
Slide 11: Residential Mortgage Banking
Residential Mortgage Banking Gross margins remained at high end of historical target range in Q4’21 despite year-end volatility Quarterly Highlights Quarterly Volume ($bn) ▪ $2.8 billion of locks, contributed to FY’21 lock volume of $4.6 $4.7 $16.1 billion (1.5x recent historical average)(1) $3.8 $3
Slide 12: Best in Class "Gold Standard" Distribution Platforms
Best in Class “Gold Standard” Distribution Platforms The breadth, scale and execution of our distribution platforms increase our capital efficiency and drive durable margins and performance ▪ Industry leader for our speed, innovation and ability to successfully distribute loans ▪ Various distributio
Slide 13: Investment Portfolio
Investment Portfolio Continued strong credit quality within investment portfolio drives book value growth with substantial further upside Quarterly Performance Investment Portfolio by Assets ($mm) ▪ Deployed $222 million during Q4’21, largest quarter of capital deployment since onset of Covid-19 $2.
Slide 14: Incremental Upside from Call Options and Embedded Discount Within Our Portfolio
Incremental Upside from Call Options and Embedded Discount Within Our Portfolio 2021 Actual Book Value Build Potential Book Value Build $16.00 $2.22 Book Value per Share $14.00 $0.51 $2.15 $12.06 $12.00 $9.91 $10.00 $8.00 Book Value 12/31/20 2021 Change in Book Book value 12/31/21 Potential Premium
Slide 15: Redwood's Book Value in a Rising Rate Environment
Redwood’s Book Value in a Rising Rate Environment We delivered strong book value and total economic returns during the previous Fed rate hike cycle ▪ During the last Fed rate hike cycle, Redwood’s Relative Performance During Last Fed Hike(1) book value increased 9% while delivering total Q4’15 – Q2’
Slide 16: Durable and Diversified Earnings Streams
Durable and Diversified Earnings Streams Through our complementary strategies, we have delivered durable earnings across changing markets Adjusted Revenue Contribution by Segment(1) % of Total Adjusted Revenue Contribution by Segment 2.0% 32% 28% 38% 1.6% 36% 19% 10 Yr Treasury 54% 1.2% 40% 28% 36%
Slide 17: Recent FHFA Announcement Creates Opportunity to Increase Allocation to High Balance Loans
Recent FHFA Announcement Creates Opportunity for Redwood to Increase Allocation to High Balance Loans ▪ On January 5, 2022, the FHFA announced plans to revise the GSE Enterprise Pricing “The FHFA’s announcement provides welcome additional Framework by increasing upfront fees for alignment between pr
Slide 18: RWT Horizons: Redwood's investment strategy
RWT Invests in primarily early-stage companies that drive innovation in financial H O R I Z O N S TM and real estate technology, with potential to enhance efficiency and scale to Redwood’s businesses Overview Current Investments in innovative $25 million pipeline of 15- technology complement deploye
Slide 19: Current Tailwinds for RWT's Strategy
Current Tailwinds for RWT’s Strategy We believe there are a number of current dynamics in the market that support our strategy and provide a tailwind for our execution going forward Growing BPL ▪ Robust borrower demand presents significant opportunities for Market full life-cycle lenders like CoreVe
Slide 20: Financial Results
Financial Results 20
Slide 21: Income Statement
Income Statement 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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s
Slide 22: Balance Sheet
Balance Sheet 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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’s inv
Slide 23: Book Value Per Share
Book Value Per Share (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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Co
Slide 24: Capital Allocation
Capital Allocation 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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” section on the Company’
Slide 25: Mortgage Banking Key Operating Metrics
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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review” sec
Slide 26: Investment Portfolio Key Financial Results
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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review”
Slide 27: Investment Portfolio Credit Characteristics
Investment Portfolio 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 fourth quarter 2021 Redwood Review, which is available within the “Financials-Redwood Review
Slide 28: Recourse Debt Balances
Recourse Debt Balances $2,000 $1,848 $1,500 $ millions $1,000 $543 $500 $274 $295 $231 $0 2022 2023 2024 2025 Beyond 2025 Marginable Warehouse Debt/Repo Non-Marginable Warehouse Non-Marginable Secured Term Unsecured Corporate (Non-Marginable) Detailed Endnotes are included at the end of this present
Slide 29: Endnotes
Endnotes 29
Slide 30: Non-GAAP Measures – Adjusted Return on Capital
Non-GAAP Measures – Adjusted Return on Capital After-Tax Net Operating Contribution and Adjusted Return on Capital After-Tax Net Operating Contribution and Adjusted Return on Capital are non-GAAP measures derived from GAAP Net Contribution and Return on Capital, respectively, for our mortgage bankin
Slide 31: Non-GAAP Measures – Adjusted Revenue
Non-GAAP Measures – Adjusted Revenue 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
Slide 32: Endnotes
Endnotes Slide 3 (Redwood’s Mission is to Help Make Quality Housing, Whether Slide 6 (Redwood Q4’21 Financial Highlights) Rented or Owned, Accessible to all Americans) 1. Total economic return is based on the periodic change in GAAP book value per common share plus dividends declared per common sha
Slide 33: Endnotes
Endnotes Slide 8 (Redwood Q4’21 Business Highlights) Slide 12 (Best in Class “Gold Standard” Distribution Platforms) Source: Company financial data as of December 31, 2021. Source: Company financial data as of December 31, 2021 unless otherwise noted. 1. Does not account for potential fallout from
Slide 34: Endnotes
Endnotes Slide 14 (Incremental Upside from Call Options and Embedded Discount Slide 16 (Durable and Diversified Earnings Streams) Within Our Portfolio) Source: Company financial data as of December 31, 2021 unless otherwise Source: Company financial data as of December 31, 2021 unless otherwise not
Slide 35: Endnotes
Endnotes Slide 22 (Appendix: Balance Sheet) Slide 24 (Appendix: Capital Allocations) 1. The format of this consolidated balance sheet is provided to more clearly 1. Capital allocated to our Business Purpose Mortgage Banking platform delineate between the assets and liabilities belonging to securitiz
Slide 36: Endnotes
Endnotes Slide 26 (Appendix: Investment Portfolio Key Operating Metrics) Slide 28 (Appendix: Recourse Debt Balances) 1. Realized gains and investment fair value changes presented in this table 1. Non-Marginable debt and marginable debt refers to whether such debt is to calculate Adjusted net contrib