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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 2024
REDWOOD TRUST, INC.
(Exact name of registrant as specified in its charter)
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| Maryland | | 001-13759 | | 68-0329422 |
(State or other jurisdiction of incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification No.) |
One Belvedere Place
Suite 300
Mill Valley, California 94941
(Address of principal executive offices and Zip Code)
(415) 389-7373
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.01 per share | RWT | New York Stock Exchange |
| 10% Series A Fixed-Rate Reset Cumulative Redeemable Preferred Stock, par value $0.01 per share | RWT PRA | New York Stock Exchange |
| 9.125% Senior Notes Due 2029 | RWTN | New York Stock Exchange |
| 9.0% Senior Notes Due 2029 | RWTO | New York Stock Exchange |
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| Item 2.02. | Results of Operations and Financial Condition; |
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| Item 7.01. | Regulation FD Disclosure. |
On October 30, 2024, Redwood Trust, Inc. (the "Company") issued a press release announcing its financial results for the quarter ended September 30, 2024, the Redwood Trust Shareholder Letter – 3rd Quarter 2024 and The Redwood Review – 3rd Quarter 2024, copies of which are attached as Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3, respectively, to this current report on Form 8-K.
In addition, on October 30, 2024, the Company made available Supplemental Financial Tables presenting certain financial results for the quarter ended September 30, 2024. A link to the Supplemental Financial Tables is available at the Company’s website at http://www.redwoodtrust.com, in the Investor Relations section of the website under “Financials.”
The information contained in this Item 2.02 and Item 7.01 and the attached Exhibits 99.1, 99.2 and 99.3 is furnished to and not filed with the SEC, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly set forth by specific reference in such filing.
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| Item 9.01. | Financial Statements and Exhibits. |
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| (d) | | Exhibits |
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| Exhibit 99.1 | | |
| Exhibit 99.2 | | |
| Exhibit 99.3 | | |
| Exhibit 104 | | Cover Page Interactive Data File (embedded within the inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Date: October 30, 2024 | | | REDWOOD TRUST, INC. |
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| | | By: | | /s/ BROOKE E. CARILLO |
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| | | | | Name: Brooke E. Carillo |
| | | | | Title: Chief Financial Officer |
Exhibit Index
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| Exhibit No. | | Exhibit Title | |
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| Exhibit 99.1 | | | |
| Exhibit 99.2 | | | |
| Exhibit 99.3 | | | |
| Exhibit 104 | | Cover Page Interactive Data File (embedded within the inline XBRL document) | |
REDWOOD TRUST REPORTS THIRD QUARTER 2024 FINANCIAL RESULTS
MILL VALLEY, CA – Redwood Trust, Inc. (NYSE:RWT; "Redwood", the "Company"), a leader in expanding access to housing for homebuyers and renters, today reported its financial results for the quarter ended September 30, 2024.
Key Q3 2024 Financial Results and Metrics
•GAAP book value per common share was $8.74 at September 30, 2024, relative to $8.73 per share at June 30, 2024
◦Economic return on book value of 2.1% for the third quarter and 6.8% year to date 2024(1)
•GAAP net income available to common stockholders of $13.1 million or $0.09 per basic and diluted common share
•Non-GAAP Earnings Available for Distribution ("EAD") of $25.2 million or $0.18 per basic common share(2)
•Recourse leverage ratio of 2.5x at September 30, 2024, relative to 2.1x at June 30, 2024(3)
•Declared and paid a regular quarterly dividend of $0.17 per common share, a 6.25% increase from the second quarter 2024
Q3 2024 Operational Business Highlights
Residential Consumer Mortgage Banking
•Generated 30% annualized GAAP Return on Capital ("ROC") and non-GAAP EAD ROC
•Locked $2.2 billion of loans,(4) compared to $2.7 billion in the second quarter of 2024
◦Achieved gross margins well in excess of our historical target range of 75bps to 100bps, driven by hedge outperformance and spread tightening on securitization execution during the quarter
◦Fixed-rate bulk volume from banks increased 1.8x from Q2'24
◦Lock volume split evenly between bulk and flow, while we also saw a 6% increase in locks from independent mortgage banks ("IMBs")
◦Refinance activity represented 27% of quarterly flow volume, up from 12% in the second quarter 2024
•Distributed $1.5 billion of jumbo loans across three securitizations
Residential Investor Mortgage Banking
•Generated 45% and 58% annualized GAAP ROC and non-GAAP EAD ROC, respectively, on $50 million of capital
•Funded $458 million of loans (65% bridge and 35% term), effectively flat from $459 million in the second quarter of 2024
◦Bridge loan volume increased 24% QoQ, including a record quarter of fundings for single asset bridge ("SAB") loans
◦Term loan production declined as many borrowers awaited clarity from September's Federal Reserve interest rate decision
•Continued to deepen distribution channels, selling $288 million of loans through whole loan sales and sales to joint ventures ("JVs") and an additional $63 million to existing bridge loan securitizations
Investment Portfolio
•Accretively deployed approximately $157 million of capital into internally sourced and third-party investments, the largest amount since the third quarter of 2022
•Re-performing loan ("RPL") and jumbo securities saw improvement in 90 day+ delinquency rates at 6.9% and 0.2%, respectively; 90 day+ delinquency rates for our combined Residential Investor portfolio increased to 6.5% from 5.4% at June 30, 2024, partially offset by resolutions(5)
•Payoffs in the Residential Investor portfolio increased 19% in the third quarter to $380 million, including $226 million of bridge loans
•Investment Portfolio recourse leverage ratio remained low at 0.7x at September 30, 2024
Financing / Corporate Highlights
•Unrestricted cash and cash equivalents of $254 million and unencumbered assets of approximately $300 million at September 30, 2024
•Total excess warehouse financing capacity of $4.8 billion at September 30, 2024
◦Successfully renewed or established financing facilities with key counterparties for $1.7 billion of capacity, including one additional line to support our JV with CPP Investments and another to support our Residential Consumer platform
•Closed two non-marginable financing transactions backed by CAFL securities and subordinate and interest-only SEMT securities, unlocking capital for redeployment
•Retired outstanding convertible debt maturing July 2024 with cash on hand; remaining convertible debt outstanding at September 30, 2024 totaled $364 million
Q4 2024 Highlights to Date(7)
•Distributed $1.5 billion of Residential Consumer jumbo loans through SEMT® securitizations of 30-year fixed rate jumbo loans ($0.4 billion), seasoned hybrid adjustable-rate loans ("ARMs") ($0.4 billion) and whole loan sales ($0.7 billion)(8)
•Distributed over $250 million of Residential Investor loans through whole loan sales and sales to JVs
•Launched an expanded set of ARM guidelines within our Residential Consumer platform
•Completed an opportunistic $40 million reopening of our 7.75% convertible notes due 2027; predominant use of proceeds was to repurchase convertible notes due 2025, effectively extending the maturity of our convertible debt outstanding
"Our operating platforms delivered their strongest performance in over three years, underscoring our deepening partnerships, sustained product demand and enhanced distribution capabilities,” said Christopher Abate, Chief Executive Officer of Redwood Trust. "As evidenced by the recent increase to our common dividend, our results reflect continued progress in growing earnings and deploying capital accretively."
Continued Abate, “As we progress through the final quarter of the year, we are excited to embrace this new chapter for our Company, with several favorable tailwinds propelling us forward. A more accommodative monetary policy and increasing clarity in bank regulations underscore the opportunity we see for Redwood. We are witnessing increased demand for our products in the non-Agency market and are well-positioned to leverage our leadership, expertise, and innovative solutions to meet this growing need.”
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1.Economic return on book value is based on the period change in GAAP book value per common share plus dividends declared per common share in the period.
2.Earnings available for distribution is a non-GAAP measure. See Non-GAAP Disclosures section that follows for additional information on this measure.
3.Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $14.3 billion of consolidated securitization debt (ABS issued and servicer advance financing), other liabilities and other debt that is non-recourse to Redwood, and tangible stockholders' equity excludes $44.6 million of goodwill and intangible assets.
4.Lock volume represents loans identified for purchase from loan sellers. Lock volume does not account for potential fallout from pipeline that typically occurs through the lending process.
5.Re-performing loan ("RPL") and jumbo securities delinquency rate calculations are weighted by notional balances of loans collateralizing each of our securities investments. Bridge loan and CAFL securities delinquency rates are calculated as BPL term loans in our consolidated CAFL securitizations, loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale with a delinquent payment greater than 90 days, divided by the total notional balance of loans in consolidated CAFL securitizations, loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale. Calculation excludes third-party purchased bridge loans.
6.Secured recourse leverage ratio for our Investment Portfolio is defined as secured recourse debt financing our investment portfolio assets divided by capital allocated to our investment portfolio.
7.Represents Q4'24 activity through October 29, 2024 unless otherwise noted.
8.Includes securitizations and sales that have priced but not yet closed as of October 29, 2024.
Third Quarter 2024 Redwood Review and Supplemental Tables Available Online
A further discussion of Redwood's business and financial results is included in the third quarter 2024 Shareholder Letter and Redwood Review which are available under "Financial Info" within the Investor Relations section of the Company’s website at redwoodtrust.com/investor-relations. Additional supplemental financial tables can also be found within this section of the Company's website.
Conference Call and Webcast
Redwood will host an earnings call today, October 30, 2024, at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time to discuss its third quarter 2024 financial results. The number to dial in order to listen to the conference call is 1-877-423-9813 in the U.S. and Canada. International callers must dial 1-201-689-8573. A replay of the call will be available through midnight on Wednesday, November 13, 2024, and can be accessed by dialing 1-844-512-2921 in the U.S. and Canada or 1-412-317-6671 internationally and entering access code #13749054.
The conference call will be webcast live in listen-only mode through the News & Events section of Redwood’s Investor Relations website at https://www.redwoodtrust.com/investor-relations/news-events/events. To listen to the webcast, please go to Redwood's website at least 15 minutes before the call to register and to download and install any needed audio software. An audio replay of the call will also be available on Redwood's website following the call. Redwood plans to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission by Thursday, November 7, 2024, and also make it available on Redwood’s website.
About Redwood
Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company focused on several distinct areas of housing credit where we provide liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors through our best-in-class securitization platforms, whole-loan distribution activities, and our publicly traded shares. We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking and Investment Portfolio. Through RWT Horizons®, our venture investing initiative, we invest in early-stage companies that have a direct nexus to our operating platforms. Additionally, through Aspire, our home equity investment (“HEI”) platform, we directly originate HEI to homeowners. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. Redwood Trust is internally managed and structured as a real estate investment trust ("REIT") for tax purposes. For more information about Redwood, please visit our website at www.redwoodtrust.com or connect with us on LinkedIn.
Cautionary Statement; Forward-Looking Statements:
This press release and the related conference call contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including the expected timing for the filing of Redwood's Quarterly Report on Form 10-Q. Forward-looking statements involve numerous risks and uncertainties. Redwood's actual results may differ from Redwood's 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 our Annual Report on Form 10-K for the year ended December 31, 2023 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 we file with the Securities and Exchange Commission, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
REDWOOD TRUST, INC.
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| ($ in millions, except per share data) | Three Months Ended | | | |
| 9/30/2024 | | 6/30/2024 | | | |
| Financial Performance | | | | | | |
| Net income per diluted common share | $ | 0.09 | | | $ | 0.10 | | | | |
| Net income per basic common share | $ | 0.09 | | | $ | 0.10 | | | | |
| EAD per basic common share (non-GAAP) | $ | 0.18 | | | $ | 0.13 | | | | |
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| Return on Common Equity ("ROE") (annualized) | 4.5 | % | | 4.8 | % | | | |
| EAD Return on Common Equity ("EAD ROE") (annualized, non-GAAP) | 8.7 | % | | 6.5 | % | | | |
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| Book Value per Common Share | $ | 8.74 | | | $ | 8.73 | | | | |
| Dividend per Common Share | $ | 0.17 | | | $ | 0.16 | | | | |
Economic Return on Book Value (1) | 2.1 | % | | 1.3 | % | | | |
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Recourse Leverage Ratio (2) | 2.5x | | 2.1x | | | |
| Operating Metrics |
| Residential Investor Loans | | | | | | |
| Term fundings | $ | 159 | | | $ | 218 | | | | |
| Bridge fundings | 299 | | | 241 | | | | |
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| Term sold | 207 | | | 253 | | | | |
| Bridge sold | 81 | | | 162 | | | | |
| Residential Consumer Loans | | | | | | |
| Locks | $ | 2,226 | | | $ | 2,662 | | | | |
| Purchases | 2,024 | | | 1,902 | | | | |
| Securitized | 1,528 | | | 1,424 | | | | |
| Sold | 39 | | | 6 | | | | |
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(1) Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period.
(2) Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. At September 30, 2024, and June 30, 2024, recourse debt excluded $14.3 billion and $12.8 billion, respectively, of consolidated securitization debt (ABS issued and servicer advance financing), other liabilities and other debt that is non-recourse to Redwood, and tangible stockholders' equity excluded $45 million and $47 million, respectively, of goodwill and intangible assets.
REDWOOD TRUST, INC. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Consolidated Income Statements (1) | | Three Months Ended |
| ($ in millions, except share and per share data) | | 9/30/24 | | 6/30/24 | | 3/31/24 | | 12/31/23 | | 9/30/23 |
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| Net Interest Income From: | | | | | | | | | | |
| Investment portfolio | | $ | 32.7 | | | $ | 29.9 | | | $ | 29.6 | | | $ | 30.8 | | | $ | 31.1 | |
| Residential consumer mortgage banking | | 9.5 | | | 11.2 | | | 6.0 | | | 0.7 | | | 1.2 | |
| Residential investor mortgage banking | | 1.8 | | | 1.5 | | | 0.9 | | | 0.9 | | | 0.7 | |
| Corporate/other | | (18.6) | | | (17.3) | | | (12.3) | | | (12.3) | | | (12.7) | |
| Net Interest Income | | $ | 25.5 | | | $ | 25.3 | | | $ | 24.2 | | | $ | 20.1 | | | $ | 20.4 | |
| Non-interest income (loss) | | | | | | | | | | |
| Residential consumer mortgage banking activities, net | | 26.7 | | | 6.2 | | | 7.8 | | | 8.4 | | | 9.0 | |
Residential investor mortgage banking
activities, net | | 12.9 | | | 12.7 | | | 6.7 | | | 6.3 | | | 10.5 | |
| Investment fair value changes, net | | (12.2) | | | 1.1 | | | 21.8 | | | 15.2 | | | (41.7) | |
| HEI income, net | | 10.7 | | | 15.8 | | | 9.0 | | | 11.7 | | | 10.3 | |
| Other income, net | | 6.0 | | | 6.3 | | | 4.5 | | | 1.8 | | | 2.3 | |
| Realized gains, net | | 0.2 | | | — | | | 0.4 | | | 0.6 | | | 0.1 | |
| Total non-interest income (loss), net | | $ | 44.2 | | | $ | 42.2 | | | $ | 50.3 | | | $ | 44.0 | | | $ | (9.6) | |
| General and administrative expenses | | (36.0) | | | (33.3) | | | (34.6) | | | (32.2) | | | (29.7) | |
| Portfolio management costs | | (6.4) | | | (4.9) | | | (3.6) | | | (4.3) | | | (3.7) | |
| Loan acquisition costs | | (3.2) | | | (3.7) | | | (2.2) | | | (2.6) | | | (1.9) | |
| Other expenses | | (2.2) | | | (5.2) | | | (3.4) | | | (2.9) | | | (4.6) | |
| (Provision for) benefit from income taxes | | (7.1) | | | (4.9) | | | (0.5) | | | (1.0) | | | (1.7) | |
| Net income (loss) | | $ | 14.8 | | | $ | 15.5 | | | $ | 30.3 | | | $ | 21.0 | | | $ | (30.8) | |
| Dividends on preferred stock | | (1.8) | | | (1.8) | | | (1.8) | | | (1.8) | | | (1.8) | |
| Net income (loss) available (related) to common stockholders | | $ | 13.1 | | | $ | 13.8 | | | $ | 28.5 | | | $ | 19.3 | | | $ | (32.6) | |
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| Weighted average basic common shares (thousands) | | 132,218 | | | 132,116 | | | 131,570 | | | 121,927 | | | 115,466 | |
Weighted average diluted common shares (thousands) (2) | | 132,358 | | | 132,124 | | | 131,570 | | | 122,474 | | | 115,466 | |
| Earnings (loss) per basic common share | | $ | 0.09 | | | $ | 0.10 | | | $ | 0.21 | | | $ | 0.15 | | | $ | (0.29) | |
| Earnings (loss) per diluted common share | | $ | 0.09 | | | $ | 0.10 | | | $ | 0.21 | | | $ | 0.15 | | | $ | (0.29) | |
| Regular dividends declared per common share | | $ | 0.17 | | | $ | 0.16 | | | $ | 0.16 | | | $ | 0.16 | | | $ | 0.16 | |
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(1)Certain totals may not foot due to rounding.
(2)Actual shares outstanding (in thousands) at September 30, 2024, June 30, 2024, December 31, 2023 and September 30, 2023 were 132,237, 132,216, 131,871, 131,486, and 118,504, respectively.
Analysis of Income Statement - Changes from Second Quarter 2024 to Third Quarter 2024
•Net interest income increased from the second quarter due to accretive capital deployment, partially offset by a full quarter of expense on recently issued unsecured notes and lower interest income from residential consumer mortgage banking.
•Income from Residential Consumer Mortgage Banking increased from the second quarter, driven by a combination of spread tightening on securitization execution throughout the quarter and hedge outperformance. Gain on sale margins increased and were above our historic target range of 75 – 100 basis points.
•Income from Residential Investor Mortgage Banking activities increased slightly from the second quarter on relatively consistent volume and margins relative to the second quarter.
•Fair value changes on our Investment Portfolio in the third quarter primarily reflected improved credit performance and spread tightening on our SEMT and SLST securities, offset by incremental negative fair value changes on our bridge loans.
•HEI income, net decreased in the third quarter, as actual and projected trends in home price appreciation slowed, resulting in lower fair market value changes compared to the second quarter 2024.
•General and administrative (G&A) expenses increased from the second quarter primarily as a result of higher performance-based variable and equity compensation expenses relative to the second quarter given improved year-to-date earnings performance.
•Our provision for income taxes in the third quarter increased as a result of improved results from both our Residential Consumer and Residential Investor Mortgage Banking platforms.
REDWOOD TRUST, INC.
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Consolidated Balance Sheets (1) | | | | | | | | | | | |
| ($ in millions, except share and per share data) | | 9/30/24 | | 6/30/24 | | 3/31/24 | | 12/31/23 | | 9/30/23 | |
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| Residential Consumer Loans | | $ | 11,157 | | | $ | 9,210 | | | $ | 7,617 | | | $ | 7,051 | | | $ | 5,847 | | |
| Residential Investor Loans | | 4,746 | | | 4,880 | | | 5,182 | | | 5,220 | | | 5,249 | | |
| Consolidated Agency multifamily loans | | 426 | | | 422 | | | 423 | | | 425 | | | 421 | | |
| Real estate securities | | 334 | | | 264 | | | 212 | | | 128 | | | 129 | | |
| Home equity investments (HEI) | | 590 | | | 574 | | | 561 | | | 550 | | | 431 | | |
| Other investments | | 342 | | | 350 | | | 337 | | | 344 | | | 340 | | |
| Cash and cash equivalents | | 254 | | | 276 | | | 275 | | | 293 | | | 204 | | |
| Other assets | | 579 | | | 515 | | | 451 | | | 493 | | | 399 | | |
| Total assets | | $ | 18,427 | | | $ | 16,491 | | | $ | 15,058 | | | $ | 14,504 | | | $ | 13,021 | | |
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| Asset-backed securities issued, net | | $ | 13,020 | | | $ | 11,556 | | | $ | 10,628 | | | $ | 9,812 | | | $ | 8,392 | | |
| Debt obligations, net | | 3,801 | | | 3,415 | | | 2,959 | | | 3,239 | | | 3,306 | | |
| Other liabilities | | 383 | | | 300 | | | 247 | | | 251 | | | 217 | | |
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| Total liabilities | | $ | 17,204 | | | $ | 15,270 | | | $ | 13,834 | | | $ | 13,302 | | | $ | 11,915 | | |
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| Stockholders' equity | | 1,223 | | | 1,221 | | | 1,224 | | | 1,203 | | | 1,106 | | |
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| Total liabilities and equity | | $ | 18,427 | | | $ | 16,491 | | | $ | 15,058 | | | $ | 14,504 | | | $ | 13,021 | | |
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| Common shares outstanding at period end (thousands) | | 132,237 | | | 132,216 | | | 131,871 | | | 131,486 | | | 118,504 | | |
| GAAP book value per common share | | $ | 8.74 | | | $ | 8.73 | | | $ | 8.78 | | | $ | 8.64 | | | $ | 8.77 | | |
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(1)Certain totals may not foot due to rounding.
Non-GAAP Disclosures
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Reconciliation of GAAP Net Income Available to Common Stockholders to non-GAAP EAD(1)(2) | | |
| | Three Months Ended |
| ($ in millions, except per share data) | | 9/30/24 | | 6/30/24 | | | |
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| GAAP Net income available to common stockholders | | $ | 13.1 | | | $ | 13.8 | | | | |
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| Adjustments: | | | | | | | |
Investment fair value changes, net(3) | | 12.2 | | | (1.1) | | | | |
Realized (gains)/losses, net(4) | | (0.2) | | | — | | | | |
Acquisition related expenses(5) | | 2.2 | | | 2.2 | | | | |
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Tax effect of adjustments(6) | | (2.1) | | | 3.7 | | | | |
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| Earnings available for distribution (non-GAAP) | | $ | 25.2 | | | $ | 18.6 | | | | |
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| Earnings per basic common share (GAAP) | | $ | 0.09 | | | $ | 0.10 | | | | |
| EAD per basic common share (non-GAAP) | | $ | 0.18 | | | $ | 0.13 | | | | |
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| GAAP Return on common equity (annualized) | | 4.5 | % | | 4.8 | % | | | |
EAD Return on common equity (non-GAAP, annualized)(7) | | 8.7 | % | | 6.5 | % | | | |
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1.Certain totals may not foot due to rounding.
2.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" or "ROE"), respectively. EAD is defined as: GAAP net income (loss) available (related) to common stockholders adjusted to (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. EAD ROE is defined as EAD divided by average common equity. We believe EAD and EAD ROE provide supplemental information to assist management and investors in analyzing the Company’s results of operations and help facilitate comparisons to industry peers. Management also believes that EAD and EAD ROE are metrics that can supplement its analysis of the Company’s ability to pay dividends, by providing an indication of the current income generating capacity of the Company's business operations as of the quarter being presented. EAD and EAD ROE should not be utilized in isolation, nor should they be considered as an alternative to GAAP net income (loss) available (related) to common stockholders, GAAP ROE or other measurements of results of operations computed in accordance with GAAP or for federal income tax purposes.
3.Investment fair value changes, net includes all amounts within that same line item on our consolidated statements of income, which primarily represents both realized and unrealized gains and losses on our investments (excluding HEI) and associated hedges. As noted above, realized and unrealized gains and losses on our HEI investments are reflected in a new line item on our consolidated income statements titled "HEI income, net".
4.Realized (gains)/losses, net includes all amounts within that line item on our consolidated statements of income.
5.Acquisition related expenses include transaction costs paid to third parties, as applicable, and the ongoing amortization of intangible assets related to the Riverbend, CoreVest and 5 Arches acquisitions.
6.Tax effect of adjustments represents the hypothetical income taxes associated with all adjustments used to calculate EAD.
7.EAD ROE is calculated by dividing EAD by average common equity for each respective period.
Non-GAAP Disclosures (Continued)
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| Reconciliation of GAAP Net Contribution to non-GAAP EAD | | | | | | |
Net Contribution by Mortgage Banking Segment(1)(2) | | | | | | |
| | Three Months Ended | | | | Three Months Ended |
| | 9/30/24 | | | | 6/30/24 |
| ($ in millions) | | Residential Consumer Mortgage Banking | | Residential Investor Mortgage Banking | | | | Residential Consumer Mortgage Banking | | Residential Investor Mortgage Banking |
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| GAAP Net contribution | | $ | 22.8 | | | $ | 5.7 | | | | | $ | 9.9 | | | $ | 0.6 | |
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| Adjustments: | | | | | | | | | | |
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Acquisition related expenses(3) | | — | | | 2.2 | | | | | — | | | 2.2 | |
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Tax effect of adjustments(4) | | — | | | (0.6) | | | | | — | | | (0.6) | |
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| EAD Net contribution (non-GAAP) | | $ | 22.8 | | | $ | 7.3 | | | | | $ | 9.9 | | | $ | 2.2 | |
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| Capital utilized (average for period) | | $ | 307 | | | $ | 50 | | | | | $ | 255 | | | $ | 67 | |
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| Return on capital (GAAP) | | 30 | % | | 45 | % | | | | 16 | % | | 4 | % |
EAD Net Contribution return on capital (non-GAAP)(5) | | 30 | % | | 58 | % | | | | 16 | % | | 13 | % |
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1.Certain totals may not foot due to rounding.
2.EAD Net contribution and EAD Net contribution ROC are non-GAAP measures derived from GAAP Net contribution and GAAP Return on capital ("GAAP ROC" or "ROC"), respectively. GAAP ROC is defined as: GAAP Net contribution by segment adjusted to (i) exclude investment fair value changes, net (as applicable); (ii) exclude realized gains and losses (as applicable); (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. Each of these adjustments to arrive at EAD Net contribution are the same adjustments used to calculate EAD, as applicable to each segment for which it is being calculated. EAD Net contribution ROC presents a measure of profitability relative to the amount of capital utilized in the operations of each segment during a period and is calculated by dividing annualized non-GAAP EAD Net contribution by the average capital utilized by the segment during the period. Management utilizes these measures internally in analyzing each of the Company’s business segments’ contribution to EAD. See prior page for a further description of how management utilizes EAD and why EAD may assist investors, as well as limitations related to using EAD-based metrics. We caution that EAD Net contribution and EAD Net contribution ROC should not be utilized in isolation, nor should they be considered as alternatives to GAAP Net Contribution, GAAP ROC or other measurements of results of operations computed in accordance with GAAP.
3.Acquisition related expenses include transaction costs paid to third parties, as applicable, and the ongoing amortization of intangible assets related to the Riverbend, CoreVest and 5 Arches acquisitions.
4.Tax effect of adjustments represents the hypothetical income taxes associated with all adjustments used to calculate EAD.
5.EAD ROC is calculated by dividing EAD by average capital utilized for each respective period.
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| CONTACTS |
| Investor Relations |
| Kaitlyn Mauritz |
| Head of Investor Relations |
| Phone: 866-269-4976 |
| Email: investorrelations@redwoodtrust.com |
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| Exhibit 99.2 |
S H A R E H O L D E R L E T T E R T H I R D Q U A R T E R 2 0 2 4 |
R E D W O O D T R U S T |
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Dear Fellow Shareholders:
As we work towards the end of a productive year, we find ourselves at the dawn of a new rate regime and a too close to call presidential election. Many macroeconomic questions remain – particularly with respect to the speed and impact of monetary and fiscal policy shifts. What we do know is that the U.S. will have a new Administration and, in turn, a fresh take on improving access to quality housing – a challenge we have undertaken since Redwood’s founding three decades ago. Each major party candidate has acknowledged the need for more scalable solutions, with proposals that include enhanced down-payment assistance programs, incentives for increased construction, and easing of the maze of local regulations that blunt housing development. In an otherwise polarized environment, it seems many have found common cause in an issue that is central to our Company’s core mission. It’s why we’re confident that the need for our products will only grow, particularly as more regions of the country turn to the non-Agency sector for creative solutions.
As we rise to meet this formidable challenge, our platform continues to make good operating progress. We recently increased our common dividend for the first time since 2021 – up 6.25% to $0.17 per share for the third quarter 2024 – reflecting continued growth in our operating activities. Our combined mortgage banking returns were the highest in over three years, as each business unlocked operating leverage to achieve strong performance. Overall, we generated GAAP earnings of $0.09 per share and Earnings Available for Distribution (“EAD”) of $0.18 per share1. Our GAAP book value per share was $8.74 at September 30th, 2024, slightly higher than June 30th, 2024, resulting in a total economic return of 2.1% on the quarter inclusive of our common dividend2. Our Investment Portfolio also maintained embedded upside to continued strong performance and a rally in rates, with a $2.09 per share net discount to par at September 30, 2024.
Balance sheet optimization remained a focus during the third quarter. We unlocked incremental capital through two non-marginable refinancings secured by seasoned bonds from our Sequoia and CAFL issuance platforms. This work facilitated $157 million of capital deployed during the quarter, a high-water mark for the year. Combined with other measures to reduce or extend our debt outstanding, our debt maturing between now and year-end 2026 is down almost 80% from December 31, 2023.
Our mortgage banking activities in the third quarter played a pivotal role in driving overall performance, with GAAP contribution from these business units tripling versus the second quarter. Residential Consumer continued to benefit from deeper penetration with banking partners on both current production and seasoned portfolios. As portfolio lending from a handful of banks ticked up during the third quarter, we believe our competitive moat, particularly our products and distribution channels, continues to position Redwood as the natural take-out for non-Agency collateral across our seller
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1 Earnings Available for Distribution (“EAD”) is a non-GAAP measure. See “Non-GAAP Measures” slides in the Endnotes of our Q3’24 Redwood Review for additional information and reconciliation of third quarter Non-GAAP EAD per share of $0.18 to GAAP earnings per share of $0.09.
2 Total economic return is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period, divided by beginning period GAAP book value per common share.
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This Shareholder Letter contains time-sensitive information and may contain forward-looking statements. The information contained herein is only accurate as of October 30, 2024. We undertake no obligation to update or revise the information contained herein, including forward-looking statements, whether as a result of new information, future events, or otherwise. Additional detail regarding the forward-looking statements in this Shareholder Letter and the important factors that may affect our actual results in 2024 are described at the end of this Shareholder Letter under the heading “Forward-Looking Statements.”
1
network. To that point, our bulk purchases of fixed-rate production from banks nearly doubled during the quarter. With over 200 sellers now onboarded, we have locked loans with almost 80% of our seller base this year. Given the elevated numbers of sellers we have onboarded, we are pleased with the momentum we are seeing from new sellers and are focused on deeper wallet share gains in the coming quarters. Clarity around the capital rules will further codify our go-forward strategy with banks, but we don’t believe will impact their relevance to our go-forward consumer strategy.
As was the case with the broader market, we also observed a brief uptick in refinance activity in the third quarter due to a brief period of declining mortgage rates. With rates now nearly 70 basis points higher than prior to September’s FOMC announcement, that refinance window may have been fleeting, but the increase in activity is evidence that homeowners and originators alike are ready to transact once a more durable reprieve eventually emerges.
We priced three Sequoia (SEMT) securitizations during the third quarter, bringing our year-to-date total through the end of September to nine securitizations backed by over $4 billion of collateral. We have maintained a reliable monthly securitization cadence that promotes strong execution levels, a measure of contrast with other market participants that issue more episodically. To that point, we have continued to be active on the distribution front in the fourth quarter, already distributing $1.5 billion of jumbo collateral through a combination of securitizations and whole loan sales – activity we have prioritized to get ahead of any potential volatility on the horizon. These efforts continue to set us apart and place Redwood as a leading non-bank issuer of securitized jumbo collateral.
In addition to the absolute level of mortgage rates, the shape of the Treasury yield curve also plays a big part in how our market operates. More recently, the curve has once again turned positive (however slightly), providing an opportunity to aggregate and securitize hybrid adjustable-rate mortgage (“ARM”) loans. Early in the fourth quarter, we priced our first hybrid ARM securitization since 2010, backed by a regional bank portfolio of seasoned ARMs we locked in the second quarter. Furthering this momentum, we recently launched revamped hybrid ARM guidelines to our seller base, with favorable early feedback from both banks and nonbanks, alike.
Turning to our Residential Investor business, the third quarter marked the first full quarter of our joint venture with CPP Investments. This partnership has allowed us to capitalize on quality origination opportunities while operating our business with less working capital. We funded $458 million of investor loans during the third quarter, roughly flat to the third quarter but with continued growth in our smaller-balance, more liquid products. Most notably, our single-asset bridge (“SAB”) originations reached record volumes for the second consecutive quarter. With a healthy pipeline heading into the fourth quarter across our product offerings, we remain focused on deepening our distribution channels and serving a broader array of housing investors, both in our traditional focus areas and in products for which bank participation has declined in recent quarters.
As we set our sights on a new year and new leadership in Washington, we continue to believe our platform’s value to the market in support of greater housing accessibility will only grow. The industry is in dire need of positive disruption as it continues to grapple with an estimated undersupply of 3 to 4 million homes. In many corners of the market, there also remains a significant knowledge gap between prospective homeowners and the non-Agency housing finance solutions available to them. That’s why much of our focus heading into 2025 will be on “mission expanding” strategies designed to leverage areas of high potential growth, common-sense use cases for prospective homeowners, and a strong nexus between technology and consumer adoption. As always, this work will be coupled with expanded access to private market investors – an area that now represents a deep competitive strength.
Thank you for your continued support,
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| Christopher J. Abate | Dashiell I. Robinson | Brooke E. Carillo |
| Chief Executive Officer | President | Chief Financial Officer |
Note to Readers
We file annual reports (on Form 10-K) and quarterly reports (on Form 10-Q) with the Securities and Exchange Commission. These filings, our Redwood Review presentation and our earnings press releases provide information about Redwood and our financial results in accordance with generally accepted accounting principles (GAAP). These documents, as well as information about our business and a glossary of terms we use in this and other publications, are available through our website, www.redwoodtrust.com. We encourage you to review these documents. Within this document, in addition to our GAAP results, we may also present certain non-GAAP measures. When we present a non-GAAP measure, we provide a description of that measure and a reconciliation to the comparable GAAP measure within the Non-GAAP Measures section of the Endnotes to the Redwood Review, which can be found on our website, www.redwoodtrust.com, under “Financials” within the “Investor Relations” section. References herein to “Redwood,” the “company,” “we,” “us,” and “our” include Redwood Trust, Inc., and its consolidated subsidiaries. Note that because we generally round numbers in the tables to millions, except per share amounts, some numbers may not foot due to rounding. References to the “third quarter” refer to the quarter ended September 30, 2024, the “second quarter” refer to the quarter ended June 30, 2024, and the “fourth quarter” refer to the quarter ended December 31, 2024, unless otherwise specified.
Cautionary Statement; Forward-Looking Statements
This shareholder letter may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our 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,” "could" and similar expressions or their negative forms, or by references to strategy, plans, goals, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-K, 10-Q, and 8-K. We undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. Statements regarding the following subjects, among others, are forward-looking by their nature: statements we make regarding Redwood's business strategy and strategic focus, statements related to our financial outlook and expectations for 2024 and future years, estimates of upside and potential earnings in our Investment Portfolio from embedded discounts to par value on securities, and opportunities for our residential consumer and residential investor mortgage banking businesses. Additional detail regarding the forward-looking statements in this shareholder letter and the important factors that may affect our actual results in 2024 are described in the Redwood Review under the heading “Forward-Looking Statements,” which can be found on our website, www.redwoodtrust.com, under “Financials” within the “Investor Relations” section.
R E D W O O D T R U S T . C O M Q3 2024 Redwood Review October 30, 2024 Exhibit 99.3
2 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 and potential earnings in our investment portfolio from embedded discounts to par value on securities, and our expectations of increased residential consumer loan acquisition volume and positioning for growth at our Residential Investor platform. 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, 2023 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. Cautionary Statement; Forward-Looking Statements
3 Detailed Endnotes are included at the end of this presentation. Market Outlook Promotes Our Value Proposition RWT Horizons® and Aspire platforms are poised to provide transformational solutions in housing finance Capital-light strategy accelerated by private credit’s demand for our products Evolution of capital structure has freed up additional capital for accretive deployment Investment Portfolio and Mortgage Banking are positioned for significant upside into an evolving rate cycle Demonstrated ability to capture market share amidst a changing regulatory environment
4 Detailed Endnotes are included at the end of this presentation. *RPL refers to reperforming loans. HEI refers to home equity investments. CES refers to closed-end second lien mortgages. ARM refers to adjustable-rate mortgages. RMBS refers to residential mortgage-backed securities. Redwood is a Full Spectrum Residential Housing Finance Platform Redwood provides liquidity across the entire single-family residential market Investments & Securities Consumer Investor Strategy / Overview Includes assets organically created through mortgage banking activities and investments sourced through partnerships and third parties Market leading non- Agency correspondent platform serving 200+ bank and non-bank originators Leading direct life-cycle lender to housing investors Products* Organically Created Residential consumer RMBS, Residential Investor Loans and HEI Third-Party Purchased RPL, HEI, Multifamily Securities Prime Jumbo, Expanded Prime, Alternative Document, HEI, CES and ARM Term Single-Family Rental (“SFR”), Multifamily, Debt Service Coverage Ratio (“DSCR”) Bridge Single-Family Renovate / Build for Rent (“BFR”), Single Asset Bridge (“SAB”), Multifamily Target Returns(1) 15-20% 12-18% 15-20%+ RESIDENTIAL INVESTMENT PORTFOLIO RESIDENTIAL MORTGAGE BANKING PLATFORMS
5 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 information and reconciliation to GAAP metrics. Note that percentages may not foot due to rounding. Third Quarter 2024 Financial Performance Recourse Leverage Ratio(6) Q3’24 Total Economic Return: +2.1%(2) 8.8% Indicative Dividend Yield as of September 30, 2024(3) GAAP ROE Non-GAAP EAD ROE(5) GAAP EPS (Diluted) Non-GAAP EAD Per Share(1) (Basic) Earnings Per Share GAAP Book Value Per Share Common Dividend Capital Allocation(4) Return on Equity Financing & Capital 26% Mortgage Banking Unrestricted Cash ($mm) $1.5 billion of allocated capital 74% Investment Portfolio $8.73 $8.74 Q2'24 Q3'24 $0.13 $0.18 Q2'24 Q3'24 $276 $254 Q2'24 Q3'24 $0.10 $0.09 Q2'24 Q3'24 Single- Family Investment Portfolio 60% Multifamily Investment Portfolio 14% Residential Consumer MB 19% Residential Investor MB 6% 2.1x 2.5x Q2'24 Q3'24 $0.16 $0.17 Q2'24 Q3'24 6.5% 8.7% Q2'24 Q3'24 4.8% 4.5% Q2'24 Q3'24
6Detailed Endnotes are included at the end of this presentation. Third Quarter 2024 Business Performance Financing & Capital • At September 30, 2024: – Unrestricted cash and cash equivalents of $254 million – Unencumbered assets of approximately $300 million • Repaid July 2024 convertible debt maturity with cash on hand • Closed two non-marginable financing transactions backed by SEMT® and CAFL® collateral, unlocking capital for redeployment Residential Consumer Mortgage Banking • $2.2 billion of lock volume(1) – Refinance volume increased to 27% of flow lock volume, up from 12% in Q2’24 – Fixed-rate bulk volume from banks increased 1.8x from Q2’24 – Lock volume composition: 49% bulk / 51% flow • Distributed $1.5 billion of jumbo collateral through three SEMT securitizations Residential Investor Mortgage Banking • $458 million of loan fundings (flat QoQ) - 65% bridge / 35% term – Bridge fundings were up 24% QoQ, driven by another record quarter in single- asset bridge (“SAB”) fundings • Distributed $288 million of loans through whole loan sales and sales to JVs Investment Portfolio • Deployed approximately $157 million of capital into internally sourced and third-party investments, the largest quarter for capital deployment since Q3’22 Q4’24 QTD Activity(2) • Distributed $1.5 billion of Residential Consumer loans through securitizations and whole loan sales(3) • Distributed over $250 million of Residential Investor loans through whole loan sales and sales to JVs(3) • Launched an expanded set of ARM guidelines within Residential Consumer • Completed an opportunistic $40 million reopening of our 7.75% convertible notes due 2027, effectively extending the maturity of our convertible debt outstanding
7 *EAD and EAD ROC is a non-GAAP measures. See “Non-GAAP Measures” slides in the Endnotes for additional information and reconciliation to GAAP metrics. Detailed Endnotes are included at the end of this presentation. Year-to-Date Financial and Operating Performance Financial and operating performance reflects ongoing strength of execution Mortgage Banking Volumes ($bn) Earnings Per Share Capital Deployed ($mm) $1.3 $1.2 YTD'23 YTD'24 $2.3 $6.7 YTD'23 YTD'24 Residential Consumer (Locks)(1) Residential Investor (Fundings) $(0.27) $0.40 YTD'23 YTD'24 GAAP Earnings Non-GAAP EAD* $0.33 $0.39 YTD'23 YTD'24 $259 $444 YTD'23 YTD'24 Mortgage Banking Return on Capital Residential Consumer Residential Investor -6.3% 1.6%2.3% 14.8% YTD'23 YTD'24 GAAP ROC Non-GAAP EAD ROC* 10.3% 21.9% 9.1% 21.9% YTD'23 YTD'24
8 Ongoing Balance Sheet Management… Our recent activities have led to organic capital creation, reduction in corporate debt and strengthening of the overall balance sheet Recent Financing HighlightsReduction in Outstanding Convertible Debt RFT 2024-1 & RFT 2024-2 Q3’24 non-marginable financing transactions backed by subordinate and interest-only SEMT ® securities and CAFL ® securities, unlocking capital for redeployment $40mm Opportunistic re-opening of 2027 convertible debt maturity, effectively extending the maturity of our convertible debt outstanding(1) Detailed Endnotes are included at the end of this presentation. $1.7bn New or renewed financing capacity in Q3’24 78% Reduction since YE’23 in debt maturing through YE’26(1) 65% 30% Q4'22 Q3'24 Ratio of Convertible Debt to Equity
9 Detailed Endnotes are included at the end of this presentation. …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 Residential Investor 24% Residential Consumer 26% Third- Party 41% Debt Repurchase 9% $444 mm Third-Party Investments Organic Investments 12 – 18% Target Returns(1) 15 – 20% Target Returns(1) Investments created and underwritten by Redwood’s mortgage banking platforms Investments in accretive third- party opportunities that align with our long-term thesis on the strength in housing credit 50% of YTD deployment to purchase assets organically created by our mortgage banking platforms Focus on Short Duration Investments with Attractive Return Profiles YTD’24 Capital Deployed as of 09/30/24 Our capital deployment has target returns(1) between 12% – 20%
10 Third-Party Securities 1% RPL Securities 58%Sequoia Securities 8% CAFL Securities 33% Detailed Endnotes are included at the end of this presentation. 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) $2.09 Per Share Portfolio Net Discount by Security Type(1) • Potential book value recovery supported by: – Continued strong credit performance in underlying portfolio – Firming of risk sentiment – Return to more normalized prepayment speeds • We hold call rights on 97% of the assets that comprise the $2.09(1) per share net discount – Call rights give us the option to unlock premium values on underlying loan pools through sale or resecuritization We estimate that 40% of the total net discount in our Investment Portfolio at 9/30/24 was created by the Fed’s tightening cycle between 2022 and 2023 As of 9/30/24, the weighted average carrying value of our securities portfolio was 70% of face value(2) Portfolio Net Discount Change Since YE’21(1) $1.24 $2.09 $0.84 Q4'21 Net Discount Change Since Q4'21 Q3'24 Net Discount F ig u re s P e r S h a re
11 Detailed Endnotes are included at the end of this presentation. Refinance Activity to Grow Should Rates Decline Resurgence in refinance activity could provide a tailwind to higher Residential Consumer volumes <1% of Mortgages In-the-Money 10% of Mortgages <100Bps Out-of-the-Money 13% of Mortgages 100-200Bps Out-of-the-Money 77% of Existing Agency Mortgages 200Bps+ Out-of-the-Money Outstanding Mortgages by Mortgage Rate(1) Residential Consumer Outlook(2) Redwood’s Refinance Activity(3) 27% 17% 16% 12% 27% FY'22 FY'23 Q1'24 Q2'24 Q3'24 ✓ We expect Residential Consumer volume to continue to pick up, spurred by: ✓ Growing housing transaction activity ✓ Deepening market share with our seller network (IMB and bank) ✓ Recent vintage loans moving into the money for refinancing ✓ We also see opportunities for more seasoned loan pools to come for sale as banks look to reduce balance sheet exposure Refinance activity in Q3’24 was the highest since Q1’22 $0 $186 $1,743 $1,460 $902 $658 $499 $384 $411 $514 $482 $287 $77 $14 $1 $0 $0 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 O u ts ta n d in g M o rt g a g e s ( $ b n ) MBS Coupon %
12 50 70 90 110 130 150 170 190 210 230 2000-24 Avg. 0 2 4 6 8 10 12 14 16 Jan '15 Jul '16 Jan '18 Jul '19 Jan '21 Jul '22 Jan '24 Net MF completions (mn, vs. 2015) Net SF completions (mn, vs. 2015) Net households (mn, vs. 2015) Net homeowner households (mn, vs. 2015) Detailed Endnotes are included at the end of this presentation. 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 Undersupply of Housing(2)Low Housing Affordability(1) Number of Self-Employed Borrowers is On the Rise(4) U n it s m m Undersupply of 3mm to 4mm units 14.55 16.29 12.00 14.00 16.00 18.00 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 S e lf -E m p lo y e d A m e ri c a n s ( m m ) The percentage of self-employed borrowers has increased by 12% since 2013 Home Equity Remains at All Time Highs(3) T ri lli o n ~$32 Trillion of Home Equity $5 $10 $15 $20 $25 $30 $35 1 Q 1 1 3 Q 1 1 1 Q 1 2 3 Q 1 2 1 Q 1 3 3 Q 1 3 1 Q 1 4 3 Q 1 4 1 Q 1 5 3 Q 1 5 1 Q 1 6 3 Q 1 6 1 Q 1 7 3 Q 1 7 1 Q 1 8 3 Q 1 8 1 Q 1 9 3 Q 1 9 1 Q 2 0 3 Q 2 0 1 Q 2 1 3 Q 2 1 1 Q 2 2 3 Q 2 2 1 Q 2 3 3 Q 2 3 1 Q 2 4 3 Q 2 4 Affordability remains near its historic lows
13 Operating Businesses & Investment Portfolio
14 Detailed Endnotes are included at the end of this presentation. Note numbers may not foot due to rounding. Residential Consumer Mortgage Banking • Q3’24 GAAP return on capital of 30%, compared to 16% in Q2’24 • $2.2 billion of locked loans(1) as we saw continued progress with new and existing sellers • 51% flow / 49% bulk • Refinance volumes increased to 27% of total flow lock volume (compared to just 12% in Q2’24)(2) • Fixed-rate bulk volumes from banks increased 1.8x from Q2’24 • Achieved gross margins of 204bps during the quarter, well above our historical target range of 75bps to 100bps • Elevated distribution in Q4’24 with $1.5 billion of activity between securitizations and whole loan sales(3) Q3’24 Quarterly Overview Lock Volume by Product TypeBulk vs Flow Quarterly Volumes In addition to ongoing market share growth, we see additional opportunities to support banks with their balance sheet solutions $ billions Lock volume remained balanced between bulk and flow purchases in Q3’24 $0.6 $0.3 $0.6 $1.3 $1.1 $0.9 $0.8 $1.1 $1.3 $1.1 $1.5 $1.2 $1.7 $2.7 $2.2 Q3'23 Q4'23 Q1'24 Q2'24 Q3'24 Bulk Flow We expect hybrid ARM volumes to continue to increase in the coming quarters October ’24 Hybrid ARM Activity(3) ✓ Issued our first hybrid ARM securitization since 2010 ✓ Re-launched updated underwriting guides to seller network ✓ Hybrid ARMs represent 10% of total October 2024 lock activity 99% 92% <1% 8% FY'23 YTD'24 Fixed-Rate Jumbo Hybrid ARM
15 3% 5% Long Term Average FY'23 1H'24 Residential Consumer Positioning Detailed Endnotes are included at the end of this presentation. Estimated $1.3 trillion of jumbo loans on bank balance sheets, some of which we believe could come for sale as rates decline Additional Seller Activity & Purchases of Seasoned Collateral from Banks Market & Wallet Share Growth(2) 56% Added New Bank Loan Seller Partners $ B ill io n s 93 of our Loan Sellers are Banks New or Re-Established Banking Partnerships Since Q2’23 Improvement in Capital Efficiency Product and Channel Expansion ✓ ARM ✓ Non-QM Leading Distributor of Jumbo Loans #1 Non-Bank Issuer of Jumbo Securitizations in 2024(1) 2024 & BEYOND 2023 & TODAY $800 $1,000 $1,200 $1,400 '18 '19 '20 '21 '22 '23 '24 B ill io ns 2.0% - 3.0% Days on Balance Sheet(3) Holdings of Jumbo Loans by Bank Portfolios (2) 62 38 YE'23 Q3'24 ✓ CES Lien ✓ HEI 39% Improvement 60%+ of the Top 50 jumbo loan originators have a relationship with Redwood(3)
16 • Delivered a GAAP return on capital of 45% and a Non- GAAP EAD return on capital of 58%* on $50 million of capital • Segment profitability improved QoQ driven by elevated volumes and operating efficiencies • $458 million of total loan fundings (65% bridge / 35% term), effectively flat QoQ – 24% QoQ increase in bridge volumes, driven by record fundings of single asset bridge (“SAB”) loans – Term loan production declined as many borrowers were impacted by interest rate volatility and investors awaiting clarity from the September FOMC decision • 18% of Q3’24 term fundings were associated with refinancing of a CoreVest bridge loan • Distributed $288 million of loans through whole loan sales and sales to JVs and an additional $63 million to existing bridge loan securitizations • Q4’24 pipeline continues to grow across products(1) Residential Investor Mortgage Banking Composition of Q3’24 Quarterly Fundings(2)Q3’24 Quarterly Overview Quarterly Funded Volume ($mm) We have seen ongoing growth of our products, particularly SAB, with line of sight into greater term production Term (35%) Bridge (65%) $458mm Detailed Endnotes are included at the end of this presentation. *EAD return on capital is a non-GAAP measure. See “Non-GAAP Measures” slides in the Endnotes for additional information and reconciliation to GAAP metrics. Capital allocated to mortgage banking platforms is inclusive of risk-based capital. Multifamily 9% Renovate / Build to Rent 26% SAB 31% Term 35% $106 $117 $117 $218 $159 $305 $226 $209 $241 $299 $411 $343 $326 $459 $458 Q3'23 Q4'23 Q1'24 Q2'24 Q3'24 Term Bridge
17 $260 $280 $335 2023 2024E 2025E Fix & Flip DSCR Multifamily Residential Investor Positioning Detailed Endnotes are included at the end of this presentation. of investor loans distributed in 2024 through whole loan sales or sales to joint ventures(1) ~$1bn Increased Distribution Capabilities of Capacity Through Joint Ventures New Whole Loan Buyers 2024 & BEYOND 2023 & TODAY $4bn+ Improved Operating Efficiency 22% 11% YE'23 Q3'24 50% Improvement Growing Total Addressable Market Single Family and Multifamily Total Addressable Market(2) Capital Efficiency (Capital / Loan) Net Cost to Originate Other Supportive Tailwinds to Growth ✓ Continued borrower demand amid higher rates ✓ Housing affordability and accessibility remains at an extreme low ✓ Rental supply shortage Historical Target Range of 1.00% - 1.50% Est. 20% Increase 2.11% 0.88% FY'23 Q3'24 58% Improvement
18 MSR/Risk-Share, $51 Residential Jumbo (SEMT), $437 SFR (CAFL) Securities, $339 Multifamily Bridge Loans, $786 Single-Family Bridge Loans, $1,032 RPL (SLST) Securities, $268 HEI, $300 Other Investments, $238 Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding. Investment Portfolio During the third quarter, we actively deployed capital into accretive new investments Q3’24 Quarterly Performance $3.5 of Billion Housing Credit Investments Organically Created (77%) $1.1bn Residential Consumer $0.4bn (14%) Residential Investor $2.2bn (63%) Third-Party $0.8bn (23%) Figures ($mm) Summary of Investment Portfolio at 9/30/24 by Economic Investments(2) by Capital • Credit fundamentals within our single-family consumer investment portfolio remained strong • Deployed $157 million of capital into organic and third-party assets, our highest quarterly capital deployment since Q3’22 • Looking ahead, we will continue to add new organic and third-party investments for our portfolio with target returns in the mid-teens(1) • Continued to reduce Residential Investor balance sheet exposure through joint venture and whole loan sales • Portfolio secured recourse leverage remained low at 0.7x relative at 0.6x in Q2’24 (3) (3) MSR/Risk- Share 3% Residential Jumbo (SEMT) 13% SFR (CAFL) Securities 5% Multifamily Bridge Loans 18% Single-Family Bridge Loans 20% RPL (SLST) Securities 10% HEI 17% Other Investments 14%
19Detailed Endnotes are included at the end of this presentation. 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 Underlying Loan Seasoning (Years)(1) HPA Adjusted LTVs(2) Delinquencies (% 90+ DQ)(3) Strong Investment Portfolio Characteristics & Fundamentals SLST (RPL) SEMT (Jumbo) CAFL (Investor Term) Bridge Loans - - - Represents LTV at Origination SLST (RPL) SEMT (Jumbo) CAFL (Investor Term) Bridge Loans Seasoned assets have lower sensitivity to changes in interest rates and market conditions LTVs on our residential consumer securities have continued to steadily decline driven by strong house price appreciation Credit has continued to strengthen for our SLST and SEMT securities; delinquencies modestly higher in older vintage bridge loans 8.1 0.2 4.5 4.6 7.3 0.2 4.8 5.6 6.9 0.2 5.7 6.8 Q1'24 Q2'24 Q3'24 17.8 3.3 3.7 1.8 43% 41% 30% 80% 2019 2020 2021 2022 2023 2024 SEMT SLST
20 Detailed Endnotes are included at the end of this presentation. Note: Composition percentages are based on unpaid principal balance. Numbers may not foot due to rounding. Investment Portfolio – Residential Investor Bridge Loans Bridge Portfolio Characteristics at 9/30/24(1) Coupon Range Loan Geography (Top 10) Vintage (Origination Year) Evolution of Bridge Portfolio(2) • Since the end of 2022, we have strategically increased focus on single-family Renovate/BFR and SAB production • Since Q4’22, 90% of total funded volume has been backed by single-family real estate We maintain a diversified portfolio of organically created bridge loans 5-7% 7-9% 9-11% 11-13% 13%+ Maturity by Quarter ($mm) $307 $427 $472 $382 $145 $117 $65 $39 $8 $27 2019 0% 2020 1% 2021 18% 1H'22 26% 2H'22 15% 2023 18% 2024 22%15% TX 13% GA 11% IL 9% FL 9% CA 6% NJ 4% LA 4% AL 3% OH 3% TN 51% 11% 37% 37% 57% 46% 8% 31% 16% 4% 1% <1% Q3'22 Cumulative Fundings Since Q4'22 Q3'24 Multifamily Renovate / Build for Rent SAB Other <1% 27% 51% 22% <1%
21Detailed Endnotes are included at the end of this presentation. RWT Horizons® We added one new RWT Horizons investment (a payments / transactions company) in Q3’24 RWT Horizons by the Numbers RWT Horizons Opportunity Thesis Enhance efficiency and scale in Redwood businesses Early-stage companies with opportunity for valuation upside Partnerships drive growth and technological enhancements Alignment with Redwood’s mission, values and goals Q3’24 Portfolio Composition of Investment Commitments $30mm+ 1 New Investment in Q3’24 37 Active Investments 28 Active Portfolio Companies Blockchain/Web3 16% Alternative Financing Solutions 16% Real Estate Technology 14% Artificial Intelligence 12% Marketing/Lead Gen 9% Payments/Transactions 8% Other 25%
22 Financial Results
23 Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding.
24 Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding.
25 Detailed Endnotes are included at the end of this presentation Note: Numbers may not foot due to rounding. .
26 Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding.
27Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding.
28 Detailed Endnotes are included at the end of this presentation. Note: Numbers may not foot due to rounding. Recourse Debt Scheduled Maturities ($ in millions)
29 Endnotes
30 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 as: GAAP net income (loss) available (related) to common stockholders adjusted to (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. EAD ROE is defined as EAD divided by average common equity. We believe EAD and EAD ROE provide supplemental information to assist management and investors in analyzing the Company’s results of operations and help facilitate comparisons to industry peers. Management also believes that EAD and EAD ROE are metrics that can supplement its analysis of the Company’s ability to pay dividends, by providing an indication of the current income generating capacity of the Company's business operations as of the quarter being presented. EAD and EAD ROE should not be utilized in isolation, nor should they be considered as an alternative to GAAP net income (loss) available (related) to common shares, GAAP ROE or other measurements of results of operations computed in accordance with GAAP or for federal income tax purposes. Footnotes: 1. Investment fair value changes, net includes all amounts within that same line item on our consolidated statements of income, which primarily represents both realized and unrealized gains and losses on our investments (excluding HEI) and associated hedges. 2. Realized (gains)/losses, net includes all amounts within that line item on our consolidated statements of income. 3. Acquisition related expenses include transaction costs paid to third parties, as applicable, and the ongoing amortization of intangible assets related to the Riverbend, CoreVest and 5 Arches acquisitions. 4. Tax effect of adjustments represent the hypothetical income taxes associated with all adjustments used to calculate EAD. 5. EAD ROE is calculated by dividing EAD by average common equity for each respective period. Non-GAAP Measures
31 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 as: GAAP net income (loss) available (related) to common stockholders adjusted to (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. EAD ROE is defined as EAD divided by average common equity. We believe EAD and EAD ROE provide supplemental information to assist management and investors in analyzing the Company’s results of operations and help facilitate comparisons to industry peers. Management also believes that EAD and EAD ROE are metrics that can supplement its analysis of the Company’s ability to pay dividends, by providing an indication of the current income generating capacity of the Company's business operations as of the quarter being presented. EAD and EAD ROE should not be utilized in isolation, nor should they be considered as an alternative to GAAP net income (loss) available (related) to common shares, GAAP ROE or other measurements of results of operations computed in accordance with GAAP or for federal income tax purposes. Footnotes: 1. Investment fair value changes, net includes all amounts within that same line item on our consolidated statements of income, which primarily represents both realized and unrealized gains and losses on our investments (excluding HEI) and associated hedges. As noted above, realized and unrealized gains and losses on our HEI are reflected in a line item on our consolidated income statements titled “HEI income, net”. 2. Realized (gains)/losses, net includes all amounts within that line item on our consolidated statements of income. 3. Acquisition related expenses include transaction costs paid to third parties, as applicable, and the ongoing amortization of intangible assets related to the Riverbend, CoreVest and 5 Arches acquisitions. 4. Organizational restructuring charges for the nine-month periods of 2024 and 2023 represent costs associated with employee severance and transition expenses. 5. Tax effect of adjustments represent the hypothetical income taxes associated with all adjustments used to calculate EAD. 6. EAD ROE is calculated by dividing EAD by average common equity for each respective period. Non-GAAP Measures
32 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 profitability of our business operations and is defined as: GAAP Net Contribution adjusted to (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. Each of these adjustments to arrive at EAD Net Contribution are the same adjustments used to calculate EAD, as applicable to each segment for which it is being calculated. EAD Net Contribution Return on Capital presents a measure of profitability relative to the amount of capital utilized in the operations of each segment during a period and is calculated by dividing annualized non-GAAP EAD Net Contribution by the average capital utilized by the segment during the period. Management utilizes these measures internally in analyzing each of the Company’s business segments’ contribution to EAD. See prior slide for a further description of how management utilizes EAD and why EAD may assist investors, as well as limitations related to using EAD-based metrics. We caution that EAD Net Contribution and EAD Net Contribution Return on Capital should not be utilized in isolation, nor should they be considered as alternatives to GAAP Net Contribution, GAAP Return on Capital or other measurements of results of operations computed in accordance with GAAP. The following table presents a reconciliation of GAAP net contribution from our segments, reconciled to EAD Net Contribution, and the associated GAAP return on capital and non-GAAP EAD Net Contribution Return on Capital. (1) See footnotes to table on prior page for a full description of these adjustments. Note: Numbers may not foot due to rounding. Non-GAAP Measures
33 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 profitability of our business operations and is defined as: GAAP Net Contribution adjusted to (i) exclude investment fair value changes, net; (ii) exclude realized gains and losses; (iii) exclude acquisition related expenses; (iv) exclude certain organizational restructuring charges (as applicable); and (v) adjust for the hypothetical income taxes associated with these adjustments. Each of these adjustments to arrive at EAD Net Contribution are the same adjustments used to calculate EAD, as applicable to each segment for which it is being calculated. EAD Net Contribution Return on Capital presents a measure of profitability relative to the amount of capital utilized in the operations of each segment during a period and is calculated by dividing annualized non-GAAP EAD Net Contribution by the average capital utilized by the segment during the period. Management utilizes these measures internally in analyzing each of the Company’s business segments’ contribution to EAD. See prior slide for a further description of how management utilizes EAD and why EAD may assist investors, as well as limitations related to using EAD-based metrics. We caution that EAD Net Contribution and EAD Net Contribution Return on Capital should not be utilized in isolation, nor should they be considered as alternatives to GAAP Net Contribution, GAAP Return on Capital or other measurements of results of operations computed in accordance with GAAP. The following table presents a reconciliation of GAAP net contribution from our segments, reconciled to EAD Net Contribution, and the associated GAAP return on capital and non-GAAP EAD Net Contribution Return on Capital. (1) See footnotes to table on prior page for a full description of these adjustments. Note: Numbers may not foot due to rounding. Non-GAAP Measures
34 Slide 3 (Market Outlook Promotes Our Value Proposition) Source: Company financial data as of September 30, 2024 unless otherwise noted. Slide 4 (Redwood is a Full Spectrum Residential Housing Finance Platform) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Target returns represents management’s estimates and actual results may differ materially. Slide 5 (Third Quarter 2024 Financial Performance) Source: Company financial data as of September 30, 2024 unless otherwise noted. Market data per Bloomberg as of September 30, 2024. 1. Earnings Available for Distribution (“EAD”) is a non-GAAP measure. See slide in the Endnotes section of this presentation for additional information and reconciliation to GAAP net income. 2. Total economic return is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period, divided by beginning period GAAP book value per common share. 3. Indicative dividend yield based on RWT closing stock price of $7.73 on September 30, 2024. 4. Allocated capital includes working capital and platform premium for mortgage banking operations and all investments net of associated debt for investment portfolio. Capital allocation excludes corporate capital and RWT Horizons. Further detail on the components of allocated capital is included in the Financial Results section of this presentation. Single-Family Investment Portfolio capital allocation includes all capital allocated to the Investment Portfolio, including nominal amount of capital allocated to Freddie K-Series and CAFL securities with multifamily collateral, and excludes capital allocated to Multifamily Bridge, which is depicted as its own sub-category on this chart. 5. EAD ROE is a non-GAAP metric. Please refer to Non-GAAP Measures in the Endnotes section of this presentation for additional information. 6. Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $14.3 billion of consolidated securitization debt (ABS issued and servicer advance financing), other liabilities and other debt that is non-recourse to Redwood, and tangible stockholders' equity excludes $44.6 million of goodwill and intangible assets. Slide 6 (Third Quarter 2024 Business Performance) Source: Company financial data as of September 30, 2024 unless otherwise noted. References to “QoQ” are comparisons of the quarterly performances between Q2’24 and Q3’24. 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 the lending process. 2. Includes Q4’24 activity through October 29, 2024. 3. Includes securitizations and sales that have priced but not yet closed as of October 29, 2024. Slide 7 (Year-to-Date Financial and Operating Performance) Source: Company financial data as of September 30, 2024 unless otherwise noted. YTD represents performance from January 1 through September 30 for the years presented. 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 the lending process. Slide 8 (Ongoing Balance Sheet Management…) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Includes Q4’24 activity through October 29, 2024 and pro forma for October re- opening of 7.75% convertible notes due 2027. Slide 9 (…has Resulted in Accretive Capital Deployment) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Target returns represents management’s estimates and actual results may differ materially. Slide 10 (Realizing Embedded Value Within Our Investment Portfolio) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Represents management’s estimates of potential book value per share upside on securities acquired prior to 2023 in our investment portfolio due to the net discount to par value, net of portfolio hedges. There are several factors that may impact our ability to realize all, or a portion, of this amount which may be outside our control, including credit performance and prepayment speeds. Actual realized book value returns may differ materially. 2. Represents the market value of subordinate securities at September 30, 2024 divided by the outstanding principal balance at September 30, 2024 as a dollar price per $100 par value. Endnotes
35 Slide 11 (Refinance Activity to Grow Should Rates Decline) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Bloomberg; Morgan Stanley Research. Note MBS coupon per 30-year mortgage rate per Freddie Mac. 2. Represents management’s estimates and actual results may differ materially. 3. Refinance activity calculated as a percentage of total flow lock volume for the periods presented. Slide 12 (Growing Need for Alternative Non-Agency Products) 1. Sources: National Association of Realtors, Bloomberg, Piper Sandler 2. Source: J.P. Morgan Research, census. Note: Homeowner household estimation uses the Census homeownership rate. A household consists of all the people who occupy a housing unit. Chart shows net household formations, homeowner household formations and housing completions (mm, net vs. 2015). 3. Source: Federal Reserve through September 2024. 4. Source: Bureau of Labor as of September 2024. Slide 14 (Residential Consumer Mortgage Banking) Source: Company financial data as of September 30, 2024 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 the lending process. 2. Based on flow lock volume for the periods presented. 3. Includes Q4’24 activity through October 29, 2024. Includes securitizations that have priced but not yet closed as of October 29, 2024. Slide 15 (Residential Consumer Positioning) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Source: JP Morgan Research, CoreLogic, Bank Filings and S&P. 2. Source: Inside Mortgage Finance Jumbo Origination Data as of June 30, 2024. 3. Days on Balance sheet calculated based on the weighted average days between a loan purchase date and the sale date (through either a securitization or whole loan sale). 4. Market share data based off of Inside Mortgage Finance reported jumbo volumes for the periods presented. Q3’24 estimated market share represents management’s estimates and actual results may differ materially. Slide 16 (Residential Investor Mortgage Banking) Source: Company financial data as of September 30, 2024 unless otherwise noted. References to “QoQ” are comparisons of the quarterly performances between Q2’24 and Q3’24. 1. Includes Q4’24 activity through October 29, 2024. 2. Composition percentages are based on unpaid principal balance. Slide 17 (Residential Investor Positioning) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Includes Q4’24 activity through October 29, 2024. Includes sales that have priced but not yet closed as of October 29, 2024. 2. Fix & Flip Volume based on Fannie Mae Single Family Total Home Sales and Attom Data Fix & Flip Percentage. DSCR/Term based on the same for the rest of the investor owned %. Multifamily based on MBA MF origination and adjusted for FNMA estimate of originations by other lenders. Analysis uses Wells Fargo Research and actual result may vary materially. Slide 18 (Investment Portfolio) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Target returns represents management’s estimates and actual results may differ materially. 2. Figures reflect our investments held in our Investment Portfolio on balance sheet and our economic interests in securities we own in securitizations we consolidate in accordance with GAAP (and excludes the assets within these consolidated securitizations that appear on our balance sheet) as of September 30, 2024. 3. $238 million of “Other Investments” includes $34 million net investment of multifamily securities, $112 million of third-party securities, and $92 million of other investments. Slide 19 (Investment Portfolio – Underlying Asset Strength) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Averages are calculated using a weighted average. 2. Source: Bloomberg (HPI LTV (Amort) %), Home Price Indexed Amortized Loan to Value. 3. Bridge loan delinquency rate calculations were updated in Q2'24 to include full UPB values for loans in JVs (prior period presented was conformed to updated calculation methodology). Calculation excludes third-party originated bridge loans. Slide 20 (Investment Portfolio – Residential Investor Bridge Loans) Source: Company financial data as of September 30, 2024 unless otherwise noted. 1. Bridge loan composition was updated in Q2'24 to include full UPB values for loans in JVs (prior period presented was conformed to updated calculation methodology). Calculation excludes third-party originated bridge loans. 2. Excludes real estate owned. Slide 21 (RWT Horizons) Source: Company financial data as of September 30, 2024 unless otherwise noted. Endnotes
36 Slide 23 (Appendix: Income Statement) 1. Net interest expense from “Corporate (unsecured debt)” consists primarily of interest expense on corporate unsecured debt. Slide 25 (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 (except for our CAFL Bridge VIEs and SLST resecuritization). See our GAAP Balance Sheet and Reconciliation to Non-GAAP Economic Balance Sheet in the Supplemental Financial Tables available on our website for additional information on consolidated VIEs. 2. Consistent with our presentation of assets within this table, non-recourse debt presented within this table excludes ABS issued from certain securitizations consolidated on our balance sheet, including Residential Jumbo (SEMT), BPL Term (CAFL), Freddie Mac SLST and K-Series, and HEI, as well as non-recourse debt used to finance certain servicing investments. 3. Capital allocated to mortgage banking operations represents the working capital we have allocated to manage our loan inventory at each of our operating businesses. This amount generally includes our net capital in loans held on balance sheet (net of financing), capital to acquire loans in our pipeline, net capital utilized for hedges, and risk capital. 4. Corporate capital includes, among other things, capital allocated to RWT Horizons and other strategic investments as well as available capital. Endnotes Slide 26 (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 within the Endnotes section of this presentation for additional information on these measures. 2. Capital utilized for Residential Investor Mortgage Banking operations does not include $45 million of platform premium. Slide 27 (Appendix: Investment Portfolio Key Results) 1. EAD Net Contribution and EAD Net Contribution Return on Capital are non-GAAP measures. Please refer to Non-GAAP Measures within the Endnotes section of this presentation for more information on these measures. 2. Recourse leverage ratio is calculated as Secured recourse debt balances divided by Capital invested, as presented within this table. Slide 28 (Appendix: Recourse Debt Balances) 1. Non-marginable debt and marginable debt refers to whether such debt is subject to margin calls based solely on the lender’s determination in its discretion of the market value of underlying collateral that is non-delinquent. Non-marginable debt may be subject to a margin call due to delinquency or another credit event related to the mortgage or security being financed, a decline in the value of the underlying asset securing the collateral, an extended dwell time (i.e., period of time financed using a particular financing facility) for certain types of loans, or a change in the interest rate of a specified reference security relative to a base interest rate amount, among other reasons. 2. Average borrowing cost represents the weighted average contractual cost of recourse debt outstanding at the end of each period presented and does not include deferred issuance costs or debt discounts. 3. Includes certificated mortgage servicing rights.
37*Earnings Available for Distribution (“EAD”) is a non-GAAP measure- See “Non-GAAP Measures” slides in the Endnotes for additional information and reconciliation to GAAP metrics. Glossary of Terms Term Definition ARM Adjustable-Rate Mortgage BFR Build for rent bps Basis points CAFL® CoreVest securitization program CES Closed end second liens DQ Delinquency DSCR Debt Service Coverage Ratio EAD Earnings available for distribution* EPS Earnings per share FY Full year HEI Home equity investment HPA Home price appreciation IMB Independent mortgage banker JV Joint venture LTC Loan to cost Term Definition MB Mortgage banking MSR Mortgage servicing rights Non-QM Non-qualified mortgage QM Qualified mortgage QoQ Quarter over quarter RMBS Residential mortgage backed security RPL Reperforming loans SAB Single asset bridge SEMT® Residential Consumer (Sequoia) securitization program SFR Single-family rental SMA Separately managed accounts TAM Total addressable market UPB Unpaid principal balance WA Weighted average YoY Year over year
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Oct. 30, 2024 |
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- DefinitionBoolean flag that is true when the XBRL content amends previously-filed or accepted submission.
| Name: |
dei_AmendmentFlag |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionFor the EDGAR submission types of Form 8-K: the date of the report, the date of the earliest event reported; for the EDGAR submission types of Form N-1A: the filing date; for all other submission types: the end of the reporting or transition period. The format of the date is YYYY-MM-DD.
| Name: |
dei_DocumentPeriodEndDate |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:dateItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word 'Other'.
| Name: |
dei_DocumentType |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:submissionTypeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionAddress Line 1 such as Attn, Building Name, Street Name
| Name: |
dei_EntityAddressAddressLine1 |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionAddress Line 2 such as Street or Suite number
| Name: |
dei_EntityAddressAddressLine2 |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- Definition
+ References
+ Details
| Name: |
dei_EntityAddressCityOrTown |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCode for the postal or zip code
| Name: |
dei_EntityAddressPostalZipCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the state or province.
| Name: |
dei_EntityAddressStateOrProvince |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:stateOrProvinceItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionA unique 10-digit SEC-issued value to identify entities that have filed disclosures with the SEC. It is commonly abbreviated as CIK. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityCentralIndexKey |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:centralIndexKeyItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionIndicate if registrant meets the emerging growth company criteria. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityEmergingGrowthCompany |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCommission file number. The field allows up to 17 characters. The prefix may contain 1-3 digits, the sequence number may contain 1-8 digits, the optional suffix may contain 1-4 characters, and the fields are separated with a hyphen.
| Name: |
dei_EntityFileNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:fileNumberItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTwo-character EDGAR code representing the state or country of incorporation.
| Name: |
dei_EntityIncorporationStateCountryCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarStateCountryItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe exact name of the entity filing the report as specified in its charter, which is required by forms filed with the SEC. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityRegistrantName |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe Tax Identification Number (TIN), also known as an Employer Identification Number (EIN), is a unique 9-digit value assigned by the IRS. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityTaxIdentificationNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:employerIdItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionLocal phone number for entity.
| Name: |
dei_LocalPhoneNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 13e
-Subsection 4c
| Name: |
dei_PreCommencementIssuerTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 14d
-Subsection 2b
| Name: |
dei_PreCommencementTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTitle of a 12(b) registered security. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b
| Name: |
dei_Security12bTitle |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:securityTitleItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the Exchange on which a security is registered. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection d1-1
| Name: |
dei_SecurityExchangeName |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarExchangeCodeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as soliciting material pursuant to Rule 14a-12 under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Section 14a
-Number 240
-Subsection 12
| Name: |
dei_SolicitingMaterial |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTrading symbol of an instrument as listed on an exchange.
| Name: |
dei_TradingSymbol |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:tradingSymbolItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as written communications pursuant to Rule 425 under the Securities Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Securities Act
-Number 230
-Section 425
| Name: |
dei_WrittenCommunications |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=us-gaap_CommonStockMember |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=us-gaap_SeriesAPreferredStockMember |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=rwt_A9.125SeniorNotesDue2029Member |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
| X |
- Details
| Name: |
us-gaap_StatementClassOfStockAxis=rwt_A9.000SeniorNotesDue2029Member |
| Namespace Prefix: |
|
| Data Type: |
na |
| Balance Type: |
|
| Period Type: |
|
|
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