Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q4 2023 Earnings Presentation
40 slides from Redwood Trust's earnings presentation, Feb 20, 2024
Slide 1: Q4 2023 Redwood Review
1 Q4 2023 Redwood Review February 20, 2024
Slide 2: Cautionary Statement; Forward-Looking Statements
2 Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2024 forward outlook, current illustrative returns related to capital deployment opportunities, estimates of upside and potential earnings in our investment po
Slide 3: Redwood is a Full Spectrum Residential Housing Finance Platform
3 Redwood is a Full Spectrum Residential Housing Finance Platform Residential Investment Portfolio Residential Mortgage Banking Platforms Securities Consumer Investor Strategy / Overview Includes assets organically created through mortgage banking activities and investments sourced through partnersh
Slide 4: Q4'23 Financial Performance
4 Q4’23 Financial Performance 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. In the fourth quarter of 2023, we updated our calculation of EAD - See “Non-GAAP Measures” slides in t
Slide 5: Q4'23 Business Performance
5 Q4’23 Business Performance Financing & Capital • At December 31, 2023: – Unrestricted cash and cash equivalents of $293 million – Unencumbered assets of $290 million – $2.1 billion of excess capacity on warehouse facilities • Unlocked $125 million of capital and reduced portfolio recourse leverage
Slide 6: Redwood is Well Positioned for the Current Environment
6 Redwood is Well Positioned for the Current Environment Detailed Endnotes are included at the end of this presentation. Poised to Capitalize on Generational Shift in the Holders of Mortgage Assets Deep Distribution Channels that Support Broad Suite of Product Offerings Diversified Product Set Servi
Slide 7: 2024 Positioning
7 2024 Positioning Redwood’s leadership in housing finance has never been more relevant than it is today Our investment portfolio is well positioned for the current environment with $2.68 of discount in our investment portfolio that benefits from tightening of credit spreads and strong housing funda
Slide 8: Strategic Progress in Residential Consumer Mortgage Banking
8 Strategic Progress in Residential Consumer Mortgage Banking… Detailed Endnotes are included at the end of this presentation. Residential Consumer Mortgage Banking activity increased meaningfully in 2023 Market Share Access to TAM Lock Volume Banking Partners 68 56% 60% ~5% Redwood’s Estimated 2H’2
Slide 9: Substantial Opportunity for Growth
9 Money-Center Banks, $160 Regional Banks, $100 Non-Banks, $40 $500 $1,000 $1,500 '18 '19 '20 '21 '22 '23 $ B ill io n s …with Substantial Opportunity for Growth Detailed Endnotes are included at the end of this presentation. Shifting regulatory landscape remains a tailwind for our Residential Consu
Slide 10: Active Balance Sheet Management
10 Active Balance Sheet Management Detailed Endnotes are included at the end of this presentation. We continued to bolster our liquidity and financing positions through active balance sheet management 2023 Key Balance Sheet Management Activities - 2023 to Present(1) Q1 2023: Issued $70 million of pr
Slide 11: Robust Liquidity Supports Capital Deployment Opportunities
11 Robust Liquidity Supports Capital Deployment Opportunities Detailed Endnotes are included at the end of this presentation. With our elevated liquidity position, we see a number of attractive capital deployment opportunities $204 $192 $396 $185 $581 Unrestricted Cash 9/30/23 Change from 9/30/23 Un
Slide 12: Continued Evolution of Distribution Channels
12 Continued Evolution of Distribution Channels Detailed Endnotes are included at the end of this presentation. We continue to diversify our distribution channels as institutions seek access to our loan production • Since inception, Redwood has built best-in-class securitization programs (SEMT® and
Slide 13: Opportunity in Home Equity Remains Elevated
13 0 25 50 75 100 0.0 1.0 2.0 3.0 4.0 O w n e r O c c u p ie d H o u s in g U n it s (m m ) L is ti n g s ( m m ) Listings Owner-Occupied Housing Units Opportunity in Home Equity Remains Elevated Detailed Endnotes are included at the end of this presentation. Our recently launched HEI and CES produc
Slide 14: Operating Businesses & Investment Portfolio
14 Operating Businesses & Investment Portfolio
Slide 15: Residential Consumer Mortgage Banking Q4'23 Quarterly Overview
15 • $1.2 billion of locked loans(1) and $1.0 billion of loans purchased – QoQ decline in volumes driven primarily by seasonal factors – 56% of Q4’23 lock volume from depositories, up from 38% in Q3’23 • New or re-established depository institution partnerships increased 25% in Q4’23, resulting in a
Slide 16: Residential Investor Mortgage Banking Q4'23 Quarterly Overview
16 Residential Investor Mortgage Banking Q4’23 Quarterly Overview Composition of Q4’23 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 sponsorsh
Slide 17: Residential Investor – Market Trends
17 Residential Investor – Market Trends Detailed Endnotes are included at the end of this presentation. Demand for our residential investor products remains strong, supported by both market and credit fundamentals Demand and Return Drivers Housing Affordability Crisis Drives Rental Demand Occupancy
Slide 18: Investment Portfolio Q4'23 Quarterly Performance
18 Investment Portfolio Q4’23 Quarterly Performance $3.4 Billion Housing Credit Investments Organically Created (80%) Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding. We were active in the fourth quarter optimizing financing across our inves
Slide 19: Single-Family Residential Credit Fundamentals Remain Strong
19 Single-Family Residential Credit Fundamentals Remain Strong Detailed Endnotes are included at the end of this presentation. Continued robust credit performance in our underlying securities portfolio could contribute to further upside in book value over time Underlying Loan Seasoning (Years) HPA A
Slide 20: Potential Book Value Per Share Upside Driven by Underlying Asset Strength
20 Potential Book Value Per Share Upside Driven by Underlying Asset Strength Detailed Endnotes are included at the end of this presentation. Our investment portfolio saw a partial recovery in valuations during Q4’23, driven by tighter spreads and continued strength in housing credit Drivers of Addit
Slide 21: Investment Portfolio – Residential Investor Bridge Loans (Strategy)
21 Investment Portfolio – Residential Investor Bridge Loans (Strategy) Our bridge portfolio is backed entirely by residential properties Detailed Endnotes are included at the end of this presentation. Loan Strategy(1) Renovate / Build for Rent (“BFR”) Single Asset Bridge (“SAB”) Multifamily Housing
Slide 22: Investment Portfolio – Residential Investor Bridge Loans (Composition)
22 Investment Portfolio – Residential Investor Bridge Loans (Composition) Detailed Endnotes are included at the end of this presentation. Note: Composition percentages are based on unpaid principal balance. Bridge Portfolio Characteristics(1) Coupon Range Loan Geography (Top 10) Vintage (Origination
Slide 23: Investment Portfolio – Residential Investor Bridge Loans (Credit)
23 Investment Portfolio – Residential Investor Bridge Loans (Credit) Detailed Endnotes are included at the end of this presentation. Renovate / BFR & SAB loans have demonstrated continued strong credit performance while multifamily loans have been impacted by higher rates and delayed timelines Renov
Slide 24: RWT Horizons
24 RWT Horizons Invests primarily in early-stage companies that drive innovation in financial and real estate technology RWT Horizons by the Numbers RWT Horizons Opportunity Thesis Enhance efficiency and scale in Redwood businesses Early-stage companies with opportunity for valuation upside Partners
Slide 25: Financial Results
25 Financial Results
Slide 26: Income Statement
26 Detailed Endnotes are included at the end of this presentation. Income Statement ($ in millions, except per share data) Three Months Ended 12/31/2023 9/30/2023 Net interest income Investment portfolio $ 31 $ 31 Mortgage banking 2 2 Corporate (unsecured debt)(1) (12) (13) Total net interest income
Slide 27: Balance Sheet
27 Detailed Endnotes are included at the end of this presentation. Balance Sheet ($ in millions) 12/31/2023 9/30/2023 Residential loans - held-for-sale $ 911 $ 611 Residential loans - held-for-investment 6,139 5,236 Business purpose loans - held-for-sale 180 103 Business purpose loans - held-for-inv
Slide 28: Changes in Book Value per Common Share
28 Detailed Endnotes are included at the end of this presentation. Changes in Book Value per Common Share ($ in per share) Three Months Ended 12/31/2023 9/30/2023 Beginning book value per common share $ 8.77 $ 9.26 Basic earnings (loss) attributable to common shares 0.15 (0.29) Changes in accumulate
Slide 29: Capital Allocation Summary
29 Detailed Endnotes are included at the end of this presentation. Capital Allocation Summary ($ in millions) As of December 31, 2023 As of 9/30/23 Fair Value of Assets (1) Recourse Debt Non-Recourse Debt (2) Total Capital Total Capital Residential Consumer Mortgage Banking Loans and other working c
Slide 30: Mortgage Banking Key Results
30 Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. Mortgage Banking Key Results ($ in millions) Q4 2023 Q3 2023 Residential Investor Mortgage Banking Residential Consumer Mortgage Banking Total Residential Investor Mortgage Banking R
Slide 31: Investment Portfolio Key Results
31 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 12/31/2023 09/30/2023 Net interest income $ 31 $ 31 Investment fair value changes, net 15 (42) HEI income, net 12
Slide 32: Recourse Debt Scheduled Maturities and Balances
32 Detailed Endnotes are included at the end of this presentation. Recourse Debt Scheduled Maturities ($ in millions) Recourse Debt Balances ($ in millions) At December 31, 2023 At September 30, 2023 Secured Debt Fair Value of Secured Assets Non- Marginable Debt (1) Marginable Debt (1) Total Secured
Slide 33: Endnotes
33 Endnotes
Slide 34: Non-GAAP Measures: EAD and EAD ROE
34 Non-GAAP Measures Earnings Available for Distribution (“EAD”) and EAD Return on Capital (“EAD ROE”) EA D and EA D 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. In the fourth qua
Slide 35: Non-GAAP Measures: EAD Net Contribution and Return on Capital
35 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 36: Endnotes
36 Note: We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. Prior to the fourth quarter of 2023, the Residential Consumer Mortgage Banking segment was named Residential Mortgage Banking and the Residentia
Slide 37: Endnotes Slide (Q4'23 Business Performance)
37 Endnotes Slide 5 (Q4’23 Business Performance) Source: Company financial data as of December 31, 2023 unless otherwise noted. 1. Lock volume represents loans identified for purchase from loan sellers. Lock volume does not account for potential fallout from pipeline that typically occurs through t
Slide 38: Endnotes Slide (Investment Portfolio)
38 Endnotes Slide 18 (Investment Portfolio) Source: Company financial data as of December 31, 2023 unless otherwise noted. 1. Represents intrinsic value of total HEI collateralizing securitization, of which Redwood contributed approximately $75 million. Redwood retained approximately 40% of the tot
Slide 39: Endnotes Slide (Appendix: Capital Allocation Summary)
39 Endnotes Slide 29 (Appendix: Capital Allocation Summary) 1. Amounts of assets in our Investment Portfolio, as presented in this table, represent our economic interests (including our economic interests in consolidated VIEs) and do not present the assets within VIEs that we consolidate under GAAP
Slide 40: Glossary of Terms
40 Glossary of Terms Term Definition ATM At-the-market stock issuance program BFR Build for rent bps Basis points CAFL® CoreVest securitization program CES Closed end second liens CRE Commercial real estate DQ Delinquency EAD Earnings available for distribution* EPS Earnings per share FY Full year H