Redwood Trust Reports Third Quarter 2018 Results

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MILL VALLEY, Calif., Nov. 7, 2018 /PRNewswire/ -- Redwood Trust, Inc. (NYSE:RWT) (the "Company" or "Redwood") today reported its financial results for the third quarter of 2018.

Quarterly Financial Highlights

  • GAAP net income was $41 million, or $0.42 per diluted common share
  • Non-GAAP core earnings(1) were $37 million, or $0.39 per diluted common share
  • Book value per common share increased to $16.42 from $16.23 at June 30, 2018 and $15.67 at September 30, 2017
  • Economic return on book value(2) of 3.0% for the third quarter and 9.3% for the nine months ended September 30, 2018
  • Recourse debt-to-equity leverage ratio(3) of 3.1x

Business Highlights

  • Deployed a record $281 million of capital into new investments in the third quarter of 2018, bringing year-to-date deployment to $575 million through the end of September 2018
  • Through partnership with 5 Arches, began acquiring single-family rental loans and made an initial investment in a portfolio of fix-and-flip loans
  • Closed three Sequoia securitizations, bringing the total to 11 for 2018 and over 50 post-crisis
  • Raised $117 million of equity capital in first follow-on offering of common stock since 2009

"With our recent capital raise and record capital deployment in the third quarter, we made tangible progress towards our strategic goals of scaling our platform and broadening our reach across the full housing finance spectrum. Most importantly, we continued to deliver strong returns for our shareholders during a period of rising interest rates and heightened market volatility," commented Chris Abate, Chief Executive Officer of Redwood Trust.

A further discussion of Redwood's business, financial results, core earnings and taxable income, as well as a discussion of management's 2018 outlook, is included in the third quarter Redwood Review, which is available on the Company's website at www.redwoodtrust.com.

(1)

A reconciliation of GAAP net income to non-GAAP core earnings and a reconciliation of GAAP earnings per diluted share to non-GAAP core earnings per diluted share, along with additional information about Redwood's core earnings measure, is included in the tables that follow.

(2)

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.

(3)

Recourse debt excludes $3.4 billion of consolidated debt (ABS issued) that is non-recourse to Redwood.

 

REDWOOD TRUST, INC.












Financial Performance

Three Months Ended

($ in millions, except per share data)

September 30, 2018

June 30, 2018

September 30, 2017







GAAP net income

$

41

$

33

$

36

GAAP net income per diluted common share

$

0.42

$

0.38

$

0.41







Non-GAAP core earnings

$

37

$

36

$

30

Non-GAAP core earnings per diluted common share

$

0.39

$

0.41

$

0.35







REIT taxable income (estimated)

$

23

$

27

$

20

REIT taxable income per share (estimated)

$

0.27

$

0.35

$

0.26







GAAP book value per share

$

16.42

$

16.23

$

15.67

Dividend per common share

$

0.30

$

0.30

$

0.28

Economic return on book value

3.0

%

2.5

%

4.3

%

Recourse debt-to-equity leverage ratio

3.1x

3.4x

3.2x







Capital deployment

$

281

$

186

$

119

Jumbo loans purchased

$

1,804

$

1,952

$

1,462

Jumbo loans securitized or sold

$

1,929

$

1,938

$

1,393

Conference Call and Webcast

Redwood will host an earnings call today, November 7, 2018, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its third quarter 2018 financial results. The number to dial in order to listen to the conference call is 1-866-548-4713 in the U.S. and Canada. International callers must dial 1-323-794-2093. Callers should reference call ID #3216233. A replay of the call will be available through midnight on November 21, 2018, 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 #3216233.

The live conference call will also be webcast in listen-only mode in the Newsroom section of Redwood's website under "Events." 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 Friday, November 9, 2018, and also make it available on Redwood's website.

Cautionary Statement:  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 statements related to estimates of 2018 REIT taxable income and 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, 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 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.




















Consolidated Income Statements (1)

Third

Quarter

2018

Second

Quarter

2018

First

Quarter

2018

Fourth

Quarter

2017

Third

Quarter

2017

($ in millions, except share and per share data)





















Interest income

$

99

$

83

$

77

$

71

$

63

Interest expense

(64)

(48)

(42)

(36)

(27)

Net interest income

35

35

35

35

35

Non-interest income









Mortgage banking activities, net

11

11

27

3

21

Investment fair value changes, net

10

1

2

—

—

Other income, net

3

3

2

3

3

Realized gains, net

7

5

9

5

2

Total non-interest income, net

32

20

40

11

26

Operating expenses

(21)

(19)

(23)

(20)

(20)

(Provision for) benefit from income taxes

(5)

(3)

(5)

5

(5)

Net income

$

41

$

33

$

47

$

31

$

36











Weighted average diluted shares (thousands) (2)

114,683

100,432

108,195

109,621

102,703

Diluted earnings per common share

$

0.42

$

0.38

$

0.50

$

0.35

$

0.41

Regular dividends declared per common share

$

0.30

$

0.30

$

0.28

$

0.28

$

0.28













(1)

Certain totals may not foot due to rounding.

(2)

In the periods presented above, weighted average diluted shares included shares from the assumed conversion of our convertible and/or exchangeable debt in accordance with GAAP diluted EPS provisions. Actual shares outstanding at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017 were 82,930, 75,743, 75,703, 76,600, and 77,123,  respectively.

 



REDWOOD TRUST, INC.








Consolidated Income Statements (1)

Nine Months Ended September 30,

($ in millions, except share and per share data)

2018

2017





Interest income

$

259

$

177

Interest expense

(154)

(73)

Net interest income

105

104

Non-interest income



Mortgage banking activities, net

48

51

Investment fair value changes, net

13

10

Other income, net

9

9

Realized gains, net

21

9

Total non-interest income

91

79

Operating expenses

(64)

(57)

Provision for income taxes

(12)

(17)

Net income

$

121

$

109





Weighted average diluted shares (thousands)

107,792

99,398

Diluted earnings per common share

$

1.30

$

1.26

Regular dividends declared per common share

$

0.88

$

0.84







(1)

Certain totals may not foot due to rounding.

 

REDWOOD TRUST, INC.
















Reconciliation of GAAP Net Income to Non-GAAP Core Earnings (1) (2)

Three Months Ended

($ in millions, except per share data)

September 30, 2018

June 30, 2018

September 30, 2017






GAAP net income

$

41

$

33

$

36

Adjustments:




Eliminate mark-to-market changes on long-term investments and associated derivatives (3)

(12)

(3)

(6)

Include cumulative gain (loss) on long-term investments sold, net (4)

8

7

1

Income taxes associated with core earnings adjustments (5)

—

—

(1)

Total adjustments

(4)

4

(6)

Non-GAAP core earnings

$

37

$

36

$

30






GAAP net income per diluted common share

$

0.42

$

0.38

$

0.41

Non-GAAP core earnings per diluted common share (6)

$

0.39

$

0.41

$

0.35








(1)

Certain totals may not foot due to rounding.


(2)

Core earnings is a non-GAAP measure of Redwood's earnings and results of operations. Specifically, management has defined core earnings as: GAAP net income adjusted to (i) eliminate the impact of quarterly mark-to-market changes on the fair value of long-term investments (and associated derivatives) related to changes in benchmark interest rates and credit spreads, (ii) include the cumulative net gains or losses on long-term investments accounted for as trading securities under GAAP that were sold during the period presented, net of any gains or losses from derivatives associated with the investments sold, and (iii) include the hypothetical income taxes associated with core earnings adjustments.

 

Management utilizes this core earnings measure internally as one way of analyzing Redwood's performance over multiple periods, as it believes it provides useful comparative results absent the impact of certain quarterly mark-to-market changes and other items that management believes are not reflective of core results. Core earnings should not be utilized in isolation, nor should it be considered as an alternative to GAAP net income or other measurements of results of operations computed in accordance with GAAP. A further discussion of core earnings is included in the third quarter Redwood Review.


(3)

Adjustments eliminate the mark-to-market changes on the fair value of loans held-for-investment, trading securities, other investments, and associated derivatives that are primarily related to changes in benchmark interest rates and credit spreads. Details on the components of investment fair value changes, net, are included in the Appendix of the Redwood Reviews for the respective quarters presented.


(4)

Adjustment includes the cumulative net gains or losses on long-term investments accounted for as trading securities under GAAP that were sold during the period presented, net of any realized gains or losses from derivatives associated with the investments sold. Cumulative gains and losses are calculated by multiplying the difference between the sales price and original purchase price by the face value of the securities sold.



(5)

We apply estimated effective tax rates to core earnings adjustments occurring within Redwood's taxable REIT subsidiaries to estimate the hypothetical income tax expense or benefit associated with those adjustments.


(6)

Additional information on the calculation of non-GAAP core EPS can be found in Table 2 in the Financial Tables section of the Redwood Reviews for the respective quarters presented.

 

REDWOOD TRUST, INC.






















Consolidated Balance Sheets (1)

30-Sep

2018

30-Jun

2018

31-Mar

2018

31-Dec

2017

30-Sep

2017

($ in millions, except share and per share data)





























Residential loans

$

5,922

$

5,491

$

5,146

$

5,115

$

4,185

Business purpose loans

116

—

—

—

—

Multifamily loans (2)

942

—

—

—

—

Real estate securities

1,470

1,454

1,358

1,477

1,356

Cash and cash equivalents

174

185

179

145

258

Other assets

516

383

318

304

332

Total assets

$

9,140

$

7,513

$

7,000

$

7,040

$

6,131













Short-term debt

$

1,424

$

1,426

$

1,504

$

1,939

$

1,238

Other liabilities

176

157

157

149

166

Asset-backed securities issued

3,407

1,930

1,542

1,165

944

Long-term debt, net

2,771

2,770

2,576

2,575

2,574

Total liabilities

7,778

6,284

5,780

5,828

4,922













Stockholders' equity

1,361

1,229

1,220

1,212

1,209













Total liabilities and equity

$

9,140

$

7,513

$

7,000

$

7,040

$

6,131













Shares outstanding at period end (thousands)

82,930

75,743

75,703

76,600

77,123

GAAP book value per share

$

16.42

$

16.23

$

16.12

$

15.83

$

15.67















(1)

Certain totals may not foot due to rounding.

(2)

During the third quarter of 2018, we invested in subordinate bonds issued in Agency multifamily securitizations and were required to consolidate the securitizations under GAAP.

 

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SOURCE Redwood Trust, Inc.

Released November 7, 2018