Q3 2023
Redwood
Review
October 30, 2023
Cautionary Statement; Forward-Looking Statements
This presentation contains forward-looking statements, including statements regarding our 2023 forward outlook, current illustrative returns on assets that are either distributed through our various channels or retained on our balance sheet, estimates of upside and potential earnings in our investment portfolio from embedded discounts to par value on securities, outlook on jumbo residential loan purchase opportunities, and opportunities to capture jumbo residential mortgagee banking market share. 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-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as "anticipate," "estimate," "will," "should," "expect," "believe," "intend," "seek," "plan" and similar expressions or their negative forms, or by references to strategy, plans, opportunities, or intentions. These forward- looking statements are subject to risks and uncertainties, including, among other things, those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Reports on Form 10-Q under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports the Company files with the Securities and Exchange Commission, including Current Reports on Form 8-K.
Additionally, this presentation contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those referred to above, that could cause results to differ materially from those expressed in these publications and reports.
2
Redwood's mission is to make quality housing, whether
rented or owned, accessible to all American households
O U R D I F F E R E N T I A T O R S
29-Year Track Record of | Control Credit through |
Strong Performance | |
Disciplined Underwriting | |
and Earnings Generation | |
Diversified Product Set | Ability to Organically |
with Balanced Earnings | Create Assets |
Streams | for Balance Sheet |
Industry Leading | Innovative Technology |
Organically and | |
Operating Platforms | |
Through Partnerships | |
® | |
Best-in-Class | Deep and |
Securitization Platforms | Experienced |
and Distribution Channels | Management Team |
Detailed Endnotes are included at the end of this presentation. | 3 |
Redwood's Leadership in Housing Finance Has Never Been More Relevant Than It Is Today
Poised to Capitalize on Generational
- Shift in How Mortgages are Funded
P | Long-Tenured Bank & Non-Bank |
Seller Network |
Solutions Provider to Parts
P of Housing Market Not
Well Served by
Government Programs
P | Diversified Product Set |
Serving Homeowners and | |
Housing Investors |
- Deep Distribution Channels that Support Diversified Product Offerings
4
Detailed Endnotes are included at the end of this presentation.
Redwood is a Full Spectrum Mortgage Platform
Redwood provides strategic capital for sustainable innovation in housing finance
Strategy / Overview
Investment
Portfolio
Includes assets organically created through mortgage banking activities and investments sourced through partnerships and third parties
Residential
Mortgage Banking
Market leading non-Agency
correspondent platform serving
185 bank and non-bank originators
Business Purpose
Mortgage Banking
Leading direct life-cycle lender to single-family and multifamily housing investors; Term and Bridge loans
Products*
Organically
Created
RMBS & BPL
Third-Party Purchased
RPLs, HEI, CRT,
Multifamily
Securities
Prime Jumbo, Expanded
Prime Jumbo and Non-QM
Loans
Term | Bridge |
Single-Family | Multifamily, |
Rental ("SFR"), | Build/Renovate to |
Multifamily | Rent, Fix & Flip |
- of
Allocated Capital(1)
Annual
Addressable
Market
Opportunity(2)
81%
~$45bn
10%
~$170bn | ~$1tr+ |
Jumbo Lock | Jumbo Loan |
Volume (Flow) | Sales |
9%
~$130bn
(SFR + Multifamily)
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. | 5 |
Q3'23 Financial Performance
Earnings Per Share | GAAP Book Value |
Common Dividend
GAAP EPS
(Diluted)
$0.00
($0.29)
Q3'23 Q2'23
Non-GAAP
EAD Per Share(1)
(Basic) | |
$0.14 | |
$0.09 | |
Q3'23 | Q2'23 |
$9.26 | |
$8.77 | |
Q3'23 | Q2'23 |
Q3'23 Total Economic Return:
(3.6)%(2)
$0.16$0.16
Q3'23Q2'23
9.0% Indicative Dividend Yield
as of September 30, 2023(3)
Capital Allocation(4)
Return on Equity
Financing & Capital
$1.5 billion of allocated capital
Residential | Business |
Purpose | |
Mortgage |
GAAP
ROE
Non-GAAP EAD ROE(5)
Banking | Mortgage |
Banking | |
10% | 9% |
0.4%
4.3%
6.2%
Investment
Portfolio
81%
(12.3)%
Q3'23 | Q2'23 | Q3'23 | Q2'23 |
Recourse Leverage Ratio(6)
2.3x | 2.2x |
Q3'23 | Q2'23 |
Unrestricted Cash ($mm)
$357 | |
$204 | |
Q3'23 | Q2'23 |
Detailed Endnotes are included at the end of this presentation. | 6 |
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 information and reconciliation to GAAP metrics. |
Q3'23 Business Performance
Financing &
Capital
- Unrestricted cash and cash equivalents of $204 million at September 30, 2023
- $2.2 billion of excess capacity on warehouse facilities as of September 30, 2023
Residential
Mortgage
Banking
- Increased capital allocated to this segment to $150 million, up from $80 million in Q2'23
- Distributed $391 million of loans through securitization ($338 million) and whole loan sales ($54 million)
- $1.6 billion of locks(1), representing a significant QoQ increase driven by growth in seller base and favorable securitization market
- Achieved gross margins of 80bps during the quarter, within our historical 75bps to 100bps range
BPL
Mortgage
Banking
Investment
Portfolio
Q4'23 QTD
Activity(2)
- $411 million of loan fundings (74% bridge / 26% term)
- Volumes increased modestly QoQ driven by a 10% increase in bridge fundings
- Distributed $340 million of BPL loans through private securitization ($278 million) and whole loan sales ($62 million)
- Deployed approximately $70 million of capital into internally sourced investments, while generating incremental capital from sales of non-strategicthird-party assets
- Closed SEMT 2023-4 securitization, backed by $369 million of jumbo loans
- Priced securitization backed by HEI, with approximately $139 million of securities expected to be issued through co-sponsored deal(3)
- Sold $44 million of BPL term loans
- Repurchased approximately $5 million of convertible debt due July 2024(4)
Detailed Endnotes are included at the end of this presentation. Note: Totals may not foot due to rounding. | 7 |
Select Q3'23 Corporate Highlights
Jumbo Loan Network
50+ New or Re-Established Bank Seller
Relationships in Q3'23
- To date, over 50% of these new sellers have already begun selling Redwood loans(1)
Product & Platform Launch
Distribution Activity
Distributed ~$730 Million
of Loans
- Through securitizations and whole loan sales, we distributed $730 million of residential and BPL loans
ESG
Launched Aspire, In-House HEI Platform
- Formally launched Aspire, HEI origination platform to support homeowners' ability to access the equity in their homes
Issued Annual ESG
Report with Enhanced Disclosure
- For the second consecutive year, published an ESG report in accordance with SASB Standards, demonstrating our continued progress on ESG disclosure
Detailed Endnotes are included at the end of this presentation. | 8 |
Basel III Endgame: Bank Regulatory Capital in Focus
While it will take time for the Basel III regulations to be finalized, banks have already begun responding to
forthcoming changes
Summary of Basel III Endgame
- In July 2023, Basel III Endgame was unveiled, proposing stricter capital requirements for banks with over $100 billion in assets
- Banks are expected to comply with these changes before the official compliance date (estimated mid-2028)
- Coupled with higher capital requirements, we expect changes to meaningfully impact bank business models going forward, including sales of mortgage production or ceding of market share(1)
Banks are Already Preparing for Basel III Endgame
Looking ahead to Basel III | And while the ultimate | |
" finalization, we intend to | " impact of potentially higher | |
adapt and manage to the | capital requirements won't | |
new rules very quickly as | be known until the Basel III | |
we have shown in the | Endgame is finalized, we | |
past… | have been actively working | |
through mitigating actions. | ||
- Jamie Dimon, JPM Q3'23 | - Jane Fraser, Citi Q3'23 Earnings | |
Earnings Conference Call | Conference Call | |
Proposed Risk Weight Impact to Bank Holdings of Mortgages(2)
▪ More stringent stress testing | Basel III Endgame Proposed Risk | |||||||
Weight for Residential Mortgages | ||||||||
including treatment of | ||||||||
90% | ||||||||
mortgage holdings | ||||||||
▪ Higher overall capital | Weight | 70% | ||||||
40% | 60% | |||||||
thresholds | ||||||||
45% | 50% | |||||||
▪ Inclusion of AOCI in capital | Risk | |||||||
for larger cohort of banks | ||||||||
▪ Higher risk-transfer | ||||||||
thresholds for regulatory | ||||||||
≤50% 50% < | 60% < | 80% < | 90% < | LTV | ||||
capital relief transactions | ||||||||
LTV ≤ | LTV ≤ | LTV ≤ | LTV ≤ | >100% | ||||
60% | 80% | 90% | 100% | |||||
Detailed Endnotes are included at the end of this presentation. | 9 |
Substantial Opportunity for Redwood Residential
Shifting regulatory landscape could result in massive opportunity for our
Residential Mortgage Banking platform(1)
Holdings of Jumbo Loans by Bank Portfolios(2) | Jumbo Market Share by Lender Type(3) |
$1,500
on Bank | ||
Jumbo Loans Held | Balance Sheets | $1,300 |
$1,100 | ||
$ Billions of | ||
Of the $2.8 trillion of
residential assets held on bank balance sheets, $1.4 trillion are jumbo loans
Money-Center
Banks, 43%
Non-Banks,
12%
A significant portion of | ||
Regional Banks, | this market share could | |
change hands | ||
28% | ||
Others, 17% | ||
$900 | |||||
2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
We have seen an increase in pools for sale from
banks, a trend that we expect to continue(1)
2021 - Q2'2023 |
Jumbo Market Share |
We see an opportunity to unlock market and wallet
share as depositories pivot to an "originate to
sell" model
Detailed Endnotes are included at the end of this presentation. | 10 |
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Redwood Trust Inc. published this content on 30 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2023 20:27:42 UTC.