Redwood Trust, Inc. · NYSE:RWT
Redwood Trust — Q2 2023 Earnings Presentation
37 slides from Redwood Trust's earnings presentation, Jul 27, 2023
Slide 1: Q2 2023 Redwood Review
1 Q2 2023 Redwood Review July 27, 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, estimates of upside and potential earnings in our investment portfolio from embedded discounts to par value on securities, outlook on jum
Slide 3: Redwood's mission and our 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. 29-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: Q2'23 Financial Performance
5 Q2’23 Financial Performance $1.4 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: Q2'23 Business Performance
6 Q2’23 Business Performance Detailed Endnotes are included at the end of this presentation. ▪ Grew jumbo loan seller network through a number of new or re-established relationships ▪ Total loan seller network represents an estimated 45% of jumbo market share with opportunity to increase further(2)
Slide 7: Bridge Loan Joint Venture
7 Bridge Loan Joint Venture (“JV”) Detailed Endnotes are included at the end of this presentation. Benefits of JV to Redwood Summary of Bridge JV ▪ JV between Redwood and Oaktree to acquire forward production of bridge loans originated by CoreVest ▪ Arrangement focused exclusively on investing along
Slide 8: Incremental Opportunities in Jumbo Forward Production
8 Incremental Opportunities in Jumbo Forward Production Detailed Endnotes are included at the end of this presentation. Shifting regulatory landscape could result in massive opportunity for our Residential Mortgage Banking platform Jumbo Market Share by Lender Type(4)▪ We expect ongoing regulatory c
Slide 9: Incremental Opportunities in Seasoned Loan Purchases
9 Agency MBS, $8.9 Unsecuritized First Liens (Bank Portfolios), $2.6 Home Equity Loans, $0.4 PLS, $0.4 Incremental Opportunities in Seasoned Loan Purchases Shifting regulatory landscape may also present opportunities to invest in existing bank loan portfolios Detailed Endnotes are included at the en
Slide 10: Cost Savings Remain in Focus
10 $36 $31 Q1'23 Q2'23 Cost Savings Remain in Focus Expense management initiatives have driven run-rate expenses ~25% lower since 2021 Detailed Endnotes are included at the end of this presentation. Quarterly G&A Expenses ($mm) Summary of Cost Savings 13% QoQ Decline ▪ Redwood maintains an operating
Slide 11: Liquidity and Financing Support Our Strategic Objectives
11 Liquidity and Financing Support Our Strategic Objectives Detailed Endnotes are included at the end of this presentation. Lower Leverage Optimized FinancingElevated Liquidity Position ▪ Redwood has consistently operated with low overall leverage ▪ We remain focused on maintaining a disciplined and
Slide 12: Operating Businesses & Investment Portfolio
12 Operating Businesses & Investment Portfolio
Slide 13: Residential Mortgage Banking Q2'23 Quarterly Overview
13 ▪ Segment GAAP return and adjusted return of 43%* ▪ Improvement QoQ driven by increase in lock and purchase volumes ▪ Focus in Q2’23 on establishing new forward flow relationships (see page 8 for summary of opportunity) ▪ Established new relationships with several regional bank jumbo loan sellers
Slide 14: Business Purpose Mortgage Banking Q2'23 Quarterly Overview
14 Business Purpose Mortgage Banking Q2’23 Quarterly Overview Composition of Q2’23 Quarterly Fundings(1) Detailed Endnotes are included at the end of this presentation. We remain focused on originating loans secured by strong asset fundamentals and business plans with experienced sponsorship teams Q
Slide 15: Business Purpose Lending – Market Trends
15 Business Purpose Lending – Market Trends Detailed Endnotes are included at the end of this presentation. Demand for our BPL products remains strong and supported by market fundamentals BPL Demand and Return Drivers Housing Affordability Crisis Drives Rental Demand(2) Occupancy Levels Remain Eleva
Slide 16: Business Purpose Lending – Asset Management Strength
16Detailed Endnotes are included at the end of this presentation. Tenured asset management team supports performance of loans and works closely with borrowers throughout the lifetime of their loan In July 2023, DBRS Morningstar confirmed CoreVest's special servicer ranking, further acknowledging Cor
Slide 17: Investment Portfolio Quarterly Performance
17 Multifamily, CRT and Other, $171 HEI, $312 RPL Securities, $310 Business Purpose Bridge Loans, $2,161 SFR (CAFL) Securities, $306 Residential Jumbo (SEMT) Securities, $320 MSRs & Other, $50 Investment Portfolio Quarterly Performance $3.6 billion Housing Credit Investments Organically Created (78%
Slide 18: Potential Book Value Per Share Upside
18 $6.37 $9.20 $3.43 Share Price 6/30/23 Book Value 6/30/23 Potential Book Value Upside on Securities (1) Net Portfolio Discount to Par by Investment(1) $3.43 Per Share Illustrative Potential Book Value Upside Detailed Endnotes are included at the end of this presentation. Potential Book Value Per S
Slide 19: Investment Portfolio - BPL Bridge Loans
19 Investment Portfolio - BPL Bridge Loans Detailed Endnotes are included at the end of this presentation. Our bridge loan portfolio is predominantly comprised of multi-asset loans that we originate directly to dynamic underwriting guidelines that reflect current market conditions ▪ A significant po
Slide 20: Investment Portfolio – BPL Bridge Maturities & Commitments
20 Investment Portfolio – BPL Bridge Maturities & Commitments Detailed Endnotes are included at the end of this presentation. Summary of Bridge Maturities & Unfunded Commitments ▪ Existing bridge financing provides significant capacity to fund outstanding commitments ▪ Bridge unfunded commitments of
Slide 21: Investment Portfolio - Home Equity Investments
21 Investment Portfolio - Home Equity Investments (“HEI”) Over the last few years, Redwood has been steadily growing investment in HEI to help homeowners access the significant amount of equity trapped in homes today Detailed Endnotes are included at the end of this presentation. Significant Demand
Slide 22: RWT Horizons by the Numbers
22 R W T H O R I Z O N S RWT Horizons by the Numbers Detailed Endnotes are included at the end of this presentation. Invests primarily in early-stage companies that drive innovation in financial and real estate technology RWT Horizons Opportunity Thesis Enhance efficiency and scale in Redwood busine
Slide 23: Financial Results
23 Financial Results
Slide 24: Income Statement
24 Detailed Endnotes are included at the end of this presentation. Income Statement ($ in millions, except per share data) Three Months Ended 6/30/2023 3/31/2023 Net interest income Investment portfolio $ 37 $ 40 Mortgage banking 1 (1) Corporate (unsecured debt)(1) (12) (13) Total net interest incom
Slide 25: Balance Sheet
25 Balance Sheet ($ in millions) 6/30/2023 3/31/2023 Residential loans - held-for-sale $ 197 $ 27 Residential loans - held-for-investment 5,259 5,466 Business purpose loans - held-for-sale 283 371 Business purpose loans - held-for-investment 4,944 4,993 Consolidated Agency multifamily loans 420 427
Slide 26: Changes in Book Value per Common Share
26 Detailed Endnotes are included at the end of this presentation. Changes in Book Value per Common Share ($ in per share) Three Months Ended 6/30/2023 3/31/2023 Beginning book value per common share $ 9.40 $ 9.55 Basic earnings attributable to common shares — 0.02 Changes in accumulated other compr
Slide 27: Capital Allocation Summary
27 Detailed Endnotes are included at the end of this presentation. Capital Allocation Summary ($ in millions) As of June 30, 2023 As of 3/31/23 Fair Value of Assets (1) Recourse Debt Non-Recourse Debt (2) Total Capital Total Capital Residential Mortgage Banking Loans and other working capital (3) $
Slide 28: Mortgage Banking Key Results
28 Detailed Endnotes are included at the end of this presentation, including details regarding our non-GAAP measures. Mortgage Banking Key Results ($ in millions) Q2 2023 Q1 2023 Business Purpose Mortgage Banking Residential Mortgage Banking Total Business Purpose Mortgage Banking Residential Mortga
Slide 29: Investment Portfolio Key Results
29 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 6/30/2023 03/31/2023 Net interest income $ 37 $ 40 Investment fair value changes, net (2) (1) Realized gains/(loss
Slide 30: Recourse Debt Scheduled Maturities and Balances
30 Detailed Endnotes are included at the end of this presentation. Recourse Debt Scheduled Maturities ($ in millions) Recourse Debt Balances ($ in millions) At June 30, 2023 At March 31, 2023 Secured Debt Fair Value of Secured Assets Non- Marginable Debt (1) Marginable Debt (1) Total Secured Debt Un
Slide 31: Endnotes
31 Endnotes
Slide 32: Non-GAAP Measures: EAD and EAD ROE
32 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 (loss) available (related) to common shares and GAAP return on common equity (“GAAP ROE”), respectively. EAD is defined as: GAAP n
Slide 33: Non-GAAP Measures: EAD Net Contribution
33 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 34: Endnotes: Three Complementary Business Lines
34 Slide 4 (Redwood Operates Across Three Complementary Business Lines) Source: Company financial data as of June 30, 2023 unless otherwise noted. 1. Allocated capital includes working capital and platform premium for mortgage banking operations and all investments net of associated debt for investm
Slide 35: Endnotes: Q2'23 Business Performance
35 Endnotes Slide 6 (Q2’23 Business Performance) Source: Company financial data as of June 30, 2023 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 val
Slide 36: Endnotes: Asset Management Strength and Investment Portfolio
36 Endnotes Slide 16 (Business Purpose Lending – Asset Management Strength) 1. Includes Q3’23 activity through July 26, 2023. Slide 17 (Investment Portfolio) Source: Company financial data as of June 30, 2023 unless otherwise noted. 1. Figures reflect our investments held in our Investment Portfol
Slide 37: Endnotes: Appendix Key Results
37 Endnotes Slide 28 (Appendix: Mortgage Banking Key Results) 1. EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP measures. Please refer to Non-GAAP Measures in the Endnotes section of this presentation for additional information on these measures. 2. Capital utilized for