Q2 2025 Redwood Review July 30, 2025 R E D W O O D T R U S T . C O M Cautionary Statement; Forward-Looking Statements This presentation contains forward-looking statements, including statements regarding our 2025 forward outlook and strategic priorities, key drivers to increase earnings, book value, and mortgage banking volumes, current target annualized non-GAAP EAD returns on equity, current target returns related to capital deployment opportunities, estimates of upside and potential earnings in our Redwo ...

Financial Data and Key Metrics Changes - For Q2 2025, PennyMac Financial Services Inc. reported net income of $136 million, or diluted earnings per share of $2.54, reflecting an annualized return on equity (ROE) of 14% [3][19] - Excluding fair value changes and a nonrecurring tax benefit, the annualized operating ROE was 13% [3][19] - The company declared a second quarter common share dividend of $0.30 per share [19] Business Line Data and Key Metrics Changes - Total acquisition and origination volumes were $38 billion, up 31% from the prior quarter, with $35 billion for PFSI's own account and $3 billion for fee-based fulfillment activity [20] - The servicing segment recorded pretax income of $54 million, with an increase in loan servicing fees due to growth in PFSI's MSR portfolio [25] - In the broker direct channel, originations were up almost 60% and locks were up more than 30% from the prior quarter [23] Market Data and Key Metrics Changes - The servicing portfolio totaled $700 billion in unpaid principal balance, representing 2.7 million households [5][24] - The company maintained a dominant position in correspondent lending with total acquisitions of $30 billion, up 30% from the prior quarter [20] - The broker direct market share expanded significantly, currently standing at approximately 5%, with a target of over 10% by the end of 2026 [9] Company Strategy and Development Direction - The company emphasizes a balanced business model and a comprehensive mortgage banking platform, which provides a strategic advantage in a higher interest rate environment [4][17] - There is a strong focus on artificial intelligence (AI) to enhance customer experience, unlock new revenue streams, and drive efficiency [12][16] - The company aims to capture growth in the expanding purchase market through robust correspondent lending and increasing market share in broker direct [6][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving mid to high teens operating ROE in the latter half of the year, citing improvements in margins and production trends [30][33] - The company anticipates continued growth in the servicing portfolio and expects lower hedge costs and greater consistency in hedge performance moving forward [27][36] - Management highlighted the importance of maintaining a strong risk management culture to ensure stability in delinquencies [69] Other Important Information - The company has launched or is developing over 35 AI tools and applications with a projected annual economic benefit of approximately $25 million [15] - The tax provision rate is expected to decrease to 25.2% from 26.7% in recent quarters due to a nonrecurring tax benefit [28] Q&A Session Summary Question: Discussion on operating ROEs and margin trends - Management noted that the operating ROE dipped to 13% due to production side margins and cross-channel activities, but expects improvement in the coming quarters [30][32] Question: Changes in hedging strategy - Management explained adjustments to the hedging approach to recognize potential recapture opportunities, targeting an 80% to 90% hedge ratio [34][36] Question: Servicing portfolio profitability - Management indicated that profitability in the servicing portfolio is expected to move toward a 9 to 10 basis point range, assuming stable rate levels [40] Question: Delinquency rates - Management confirmed that delinquency rates increased slightly but remained stable year-over-year, with a focus on judicious underwriting [67][69] Question: Update on subservicing initiatives - Management reported progress in subservicing efforts and expects good activity before the end of the year [57] Question: Loan origination expense increase - Management clarified that the increase in loan origination expenses was driven by broker direct volume, which includes broker fees [54][55]

Financial Data and Key Metrics Changes - PennyMac Financial Services Inc. reported net income of $136 million for Q2 2025, translating to diluted earnings per share of $2.54, with an annualized return on equity (ROE) of 14% [3][18] - Excluding fair value changes and a non-recurring tax benefit, the annualized operating ROE was 13% [3][18] - The company declared a second quarter common share dividend of $0.30 per share [18] Business Line Data and Key Metrics Changes - The production segment reported pretax income of $58 million, down from $62 million in the prior quarter [18] - Total acquisition and origination volumes reached $38 billion, up 31% from the previous quarter, with $35 billion for PFSI's own account [19] - The servicing portfolio grew to $700 billion in unpaid principal balance, representing 2.7 million households [5][23] Market Data and Key Metrics Changes - PennyMac maintained its dominant position in correspondent lending with total acquisitions of $30 billion, up 30% from the prior quarter [19] - Broker direct originations increased nearly 60%, with locks up more than 30% from the prior quarter [21] - Consumer Direct origination volumes were up 6%, while lock volumes decreased by 2% from the prior quarter [22] Company Strategy and Development Direction - The company emphasizes a balanced business model that provides stability in a high-interest-rate environment, expecting operating returns on equity to remain in the mid to high teens if rates stay between 6.5% and 7.5% [4][17] - PennyMac is focusing on artificial intelligence (AI) to enhance customer experience, unlock new revenue streams, and drive efficiency [13][16] - The company aims to grow its market share in the broker direct channel to over 10% by the end of 2026 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in improving operating ROE in the upcoming quarters, citing recent trends in margins and production [32][34] - The company anticipates lower hedge costs and greater consistency in hedge performance moving forward [36][37] - Management highlighted the importance of maintaining strong relationships with business partners and leveraging technology to drive growth [6][7] Other Important Information - The fair value of PFSI's mortgage servicing rights (MSR) increased by $16 million, with $26 million attributed to changes in market interest rates [26] - The company ended the quarter with $4 billion in total liquidity, including cash and amounts available to draw on facilities [27] Q&A Session Summary Question: Discussion on operating ROEs and margin trends - Management noted that the operating ROE dipped to 13% due to production side margins and cross-channel activities, but they expect improvement in the latter part of the year [30][32] Question: Changes in hedging strategy - Management explained adjustments to hedging practices to better recognize recapture opportunities and expect lower costs moving forward while maintaining an 80% to 90% hedge ratio [35][36] Question: Servicing portfolio profitability - Management indicated that they expect profitability in the servicing portfolio to move toward a 9 to 10 basis point range under current rate levels [42] Question: Delinquency rates commentary - Management confirmed that delinquency rates increased slightly but remained stable year-over-year, attributing this stability to judicious underwriting practices [70][72] Question: Loan origination expense increase - Management clarified that the increase in loan origination expenses was driven by the growing broker direct volume, which includes broker fees [56][58] Question: Update on subservicing initiatives - Management reported progress in subservicing initiatives and expects to see good activity before the end of the year [60]

Financial Performance - Net income for 2Q25 was $136 million, including an $82 million non-recurring tax benefit, resulting in diluted EPS of $2.54[7, 8] - The company achieved an annualized operating ROE of 13% and a book value per share of $78.04[7] - Total loan acquisitions and originations reached $379 billion, with correspondent lock volume at $287 billion, broker direct lock volume at $72 billion, and consumer direct lock volume at $38 billion[7] Segment Results - The production segment reported a pretax income of $58 million, while the servicing segment's pretax income, excluding valuation-related items, was $144 million[7] - MSR fair value changes and hedging resulted in a $(93) million impact, with a corresponding $(130) impact to diluted EPS[7] Strategic Initiatives and Market Position - The company aims to deliver mid-to-high teens operating returns on equity, expecting servicing to provide a strong base level of operating earnings[10, 12] - Pennymac is the outright leader in correspondent lending with $150 billion UPB of annual production capacity and 771 active clients across the US[19, 22] - The company is rapidly growing as a wholesale lender, holding the 3 market position[24, 26] Artificial Intelligence - Pennymac is building momentum in the deployment of artificial intelligence, with 35+ AI tools and applications projected to generate approximately $25 million annually in economic benefit[38, 41] - The company's vision for AI includes fully automated loan processing and self-service origination and servicing[46, 50] Servicing Portfolio - The total servicing portfolio UPB reached $700 billion as of June 30, 2025[7]

Core Insights - Keefe, Bruyette & Woods, Inc. announces index rebalancing for the second quarter of 2025, specifically affecting the KBW Nasdaq Premium Yield Equity REIT Index [1][2] - The rebalancing will take effect before the market opens on June 23, 2025, with SITE Centers Corp. being dropped from the index [2] Company Overview - KBW is a leading independent authority in the financial services sector, established in 1962, and is a wholly owned subsidiary of Stifel Financial Corp. [4] - The firm specializes in research, corporate finance, mergers and acquisitions, as well as sales and trading in equities securities of financial services companies [4]

Group 1 - The company is reducing its mortgage banking income estimate due to a weak housing market [1] - The expected EPS for the company in 2025 has been revised down to $1.43 from a previous estimate of $1.67 [1]

Financial Performance - Redwood Trust's Q1 2025 total economic return was +13%[11] - The GAAP book value per share was $839 in Q1 2025[11] - The non-GAAP EAD common dividend per share was $018 in both Q4 2024 and Q1 2025[11] - GAAP segment net income for Sequoia was $258 million with a segment GAAP ROE of 28%[20] - GAAP segment net income for CoreVest was $13 million with a segment Non-GAAP EAD ROE of 20%[20] - GAAP Segment net income for Redwood Investments was $229 million[20] Business Segments - Sequoia's lock volume reached $40 billion, a 73% QoQ increase and a 125% YoY increase[20] - Aspire locked $111 million of loans after launching expanded loan products in January 2025[20] - CoreVest funded $482 million in loans, a 4% decrease QoQ but a 48% increase YoY[20] Capital Allocation and Investments - Approximately $100 million of capital was deployed into accretive Retained Operating Investments with target returns of 15% to 20%[20] - Redwood Investments represented 72% of Q1 2025 average allocated capital, totaling $15 billion[17]

Financial Data and Key Metrics Changes - The company reported adjusted pretax income of $25 million for Q1 2025, up from $15 million in the prior year quarter, resulting in an adjusted ROE of 22%, exceeding guidance of 16% to 18% [7][26] - GAAP net income attributable to common shareholders was $21 million, or $2.5 per share fully diluted, reflecting an annualized return on equity of 19% [8] - Book value per share increased by approximately 4% year over year and 2% compared to year-end 2024 [9] Business Line Data and Key Metrics Changes - The origination and servicing segments both operated profitably, with adjusted pretax income for origination and servicing at $48 million, driven by servicing performance [14] - Total servicing UPB increased by $13 billion year over year, with owned MSR additions more than doubling compared to Q1 2024 [20] - The servicing segment's fee generation grew by 6% year over year, while reverse servicing was lower compared to the prior year due to strong asset gains in Q1 2024 [28] Market Data and Key Metrics Changes - The Mortgage Bankers Association and Fannie Mae estimate industry origination volumes to increase by 17% year over year, contingent on a 9% rise in home purchase volume and a 39% increase in refinancing volume [10] - The company noted that the probability of a recession has increased, although mortgage delinquencies have not yet deteriorated [11] Company Strategy and Development Direction - The company aims to accelerate growth in originations volume and total servicing UPB as part of its 2025 operating priority [7] - The balanced business model is designed to perform well in both high and low interest rate environments, with a focus on maintaining a resilient servicing platform [12] - The company is targeting new product launches to expand market opportunities and access higher margin segments [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about navigating the dynamic market environment and delivering long-term value for shareholders [37] - The company is maintaining its full-year guidance, expecting continued growth in servicing and a stable efficiency ratio [32] - Management highlighted the importance of agility in evaluating options to create shareholder value amid market volatility [13] Other Important Information - The company reached a settlement in principle regarding a nearly two-decade-old class action litigation matter [52] - The majority of the deferred tax assets (DTA) are not limited by a timeframe, allowing for potential future benefits [51] Q&A Session Summary Question: Can you elaborate on the valuation allowance and its impact? - Management indicated that the valuation allowance could potentially increase book value and net income, depending on future performance [42][44] Question: Is there a timeframe for utilizing the deferred tax assets? - The majority of the DTA is indefinite, with no specific timeframe for utilization [51] Question: What is the status of legal and regulatory matters? - The company resolved a significant legacy litigation matter and continues to address various legal inquiries typical in the mortgage industry [54] Question: How does the Rocket Coupe merger impact the subservicing market? - Management noted that the merger creates opportunities for clients to explore alternatives, and the company is aggressively growing its subservicing business [60] Question: What advantages does being a flow buyer provide in the current market? - The company has flexibility in sourcing MSRs across different channels, allowing it to maximize returns based on market conditions [62]

Financial Data and Key Metrics Changes - The company reported adjusted pretax income of $25 million for Q1 2025, up from $15 million in the prior year quarter, resulting in an adjusted ROE of 22%, exceeding guidance of 16% to 18% [7][26] - GAAP net income attributable to common shareholders was $21 million, or $2.5 per share fully diluted, reflecting an annualized return on equity of 19% [8] - Book value per share increased by approximately 4% year over year and 2% compared to year-end 2024 [9] Business Line Data and Key Metrics Changes - The origination and servicing segments both operated profitably, with adjusted pretax income for origination and servicing at $48 million, driven by servicing performance [14] - Total servicing UPB increased by $13 billion year over year, with owned MSR additions more than doubling compared to Q1 2024 [20] - The servicing segment's fee generation grew by 6% year over year, while reverse servicing was lower compared to the prior year due to strong asset gains in Q1 2024 [28] Market Data and Key Metrics Changes - The Mortgage Bankers Association and Fannie Mae estimate industry origination volumes to increase by 17% year over year, contingent on a 9% increase in home purchase volume and a 39% increase in refinancing volume [10] - The company noted that the probability of a recession has increased, although mortgage delinquencies have not yet deteriorated [11] Company Strategy and Development Direction - The company aims to accelerate growth in originations volume and total servicing UPB as part of its 2025 operating priority [7] - The balanced business model is designed to perform well in both high and low interest rate environments, with a focus on maintaining a resilient servicing platform [12] - The company is targeting new product launches to expand market opportunities and access higher margin segments [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about navigating the dynamic market environment and delivering long-term value for shareholders [37] - The company is maintaining its full-year guidance, expecting continued interest rate volatility and M&A activity in the industry [12][10] - Management highlighted the importance of special servicing skills in minimizing exposure to advances during a recession [18] Other Important Information - The company reached a settlement in principle for a nearly two-decade-old class action litigation matter, allowing it to move forward [52] - The majority of the company's deferred tax assets are not limited by a timeframe, providing flexibility for future utilization [51] Q&A Session Summary Question: Inquiry about the valuation allowance and its impact - Management discussed the potential to lift the valuation allowance, which could positively impact net income and book value [41][42] Question: Timing for utilizing deferred tax assets - Management confirmed that the majority of deferred tax assets are indefinite and not limited by a timeframe [51] Question: Legal expenses and regulatory matters - Management addressed a legal expense related to a settlement of a long-standing litigation and confirmed compliance with regulatory matters [52][54] Question: Impact of Rocket Coupe merger on subservicing market - Management noted mixed reactions from clients regarding the merger, with some exploring alternatives while others align with Rocket [57] Question: Advantages of being a flow buyer versus a bulk buyer - Management highlighted the flexibility of targeting different markets based on economic conditions, which provides a competitive advantage [60][62]

Financial Highlights - The company's annualized return on equity was 8% in 1Q25[7] - The company's annualized operating return on equity was 15% in 1Q25[7] - Book value per share was $7557 and dividend per common share was $030 in 1Q25[7] - Net income was $76 million and diluted EPS was $142 in 1Q25[7] Production Segment - Total loan acquisitions and originations reached $289 billion in 1Q25[7] - PFSI correspondent lock volume was $221 billion in 1Q25[7] - Broker direct lock volume was $55 billion in 1Q25[7] - Consumer direct lock volume was $39 billion in 1Q25[7] - The production segment's pretax income was $62 million in 1Q25[7] Servicing Segment - The total servicing portfolio UPB was $680 billion in 1Q25[7] - The servicing segment's pretax income, excluding valuation-related items, was $172 million in 1Q25[7] - MSR fair value changes and hedging impact to diluted EPS was $(135) in 1Q25[7]