MILL VALLEY, Calif.,
Oct. 30, 2019 /PRNewswire/ -- Redwood
Trust, Inc. (NYSE:RWT), a leading innovator in housing credit
investing, today reported its financial results for the quarter
ended September 30, 2019.
Key Financial Results
- GAAP net income was $34 million,
or $0.31 per diluted common
share
- Non-GAAP core earnings(1) were $43 million, or $0.37 per diluted common share
- Book value per common share was $15.92 at September 30,
2019
- Economic return on book value(2) of 1.3% for the
third quarter of 2019
- Recourse debt-to-equity leverage ratio(3) of 2.7x at
September 30, 2019
- Paid a regular quarterly cash dividend of $0.30 per common share
Business Highlights
- Closed three Sequoia securitizations totaling $1.1 billion, including our 100th overall, and
sold $0.5 billion of whole loans
- Purchased $1.5 billion of jumbo
loans as volumes remained stable from the second quarter
- Originated $162 million of
business purpose residential loans in the third quarter of
2019
- Deployed $152 million of capital
into new investments in the third quarter of 2019
- Raised $228 million of equity
capital from a follow-on offering of common stock and generated
$248 million of capital through
portfolio optimization activities
- In September, we issued $201
million of 5.75% exchangeable debt due in 2025 to replace
our $201 million of exchangeable debt
maturing in November 2019
- In October, we completed our acquisition of CoreVest for
$492 million
"The third quarter marked a historic time for Redwood, a time
where we made significant progress positioning the company for the
future of housing finance," said Chris
Abate, Chief Executive Officer of Redwood Trust. "While the
rate environment offered a variety of opportunities and challenges,
we were able to leverage the strength of our business model to
navigate through continued market volatility and execute on our
long-term strategic initiatives. We spent ample time in the third
quarter focused on the acquisition of CoreVest, our long-term
funding needs, and our portfolio optimization goals, which we
believe will deliver strong and durable returns for our
shareholders."
Abate concluded, "As we look ahead, the strength and agility of
our business model has positioned us to perform well under varying
market conditions, and we've established a proven competency to
capitalize on strategic initiatives as opportunities arise. Our
25-year track record speaks to our ability to develop nascent,
emerging products into scalable funding solutions that are
transformative in nature. And with an eye towards integrating our
consumer mortgage and BPL businesses over time across our
national correspondent network, our vision of becoming the
preeminent specialty finance operator in the mortgage industry can
be realized."
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(1)
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During the third
quarter of 2019, Redwood updated its definition of core earnings. 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.
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(2)
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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.
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(3)
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Recourse debt
excludes $8.5 billion of consolidated securitization debt (ABS
issued and servicer advance financing) that is non-recourse to
Redwood.
|
Third Quarter 2019 Redwood Review Available Online
A further discussion of Redwood's business, financial results,
core earnings and taxable income, as well as a discussion of
management's 2019 outlook, is included in the third quarter 2019
Redwood Review, which is available on the Company's website at
www.redwoodtrust.com.
REDWOOD TRUST,
INC.
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Financial
Performance
|
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Three Months
Ended
|
($ in millions,
except per share data)
|
|
9/30/2019
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|
6/30/2019
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9/30/2018
|
|
|
|
|
|
|
|
GAAP net
income
|
|
$
|
34
|
|
|
$
|
31
|
|
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$
|
41
|
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GAAP net income per
diluted common share
|
|
$
|
0.31
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$
|
0.30
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$
|
0.42
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|
|
|
|
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Non-GAAP core
earnings
|
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$
|
43
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$
|
43
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$
|
36
|
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Non-GAAP core
earnings per diluted common share
|
|
$
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0.37
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$
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0.39
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$
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0.38
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REIT taxable income
(estimated)
|
|
$
|
39
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|
|
$
|
25
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$
|
23
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REIT taxable income
per share (estimated)
|
|
$
|
0.34
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$
|
0.25
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$
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0.27
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|
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GAAP book value per
share
|
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$
|
15.92
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$
|
16.01
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$
|
16.42
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Dividends per common
share
|
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$
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0.30
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|
|
$
|
0.30
|
|
|
$
|
0.30
|
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Economic return on
book value
|
|
1.3
|
%
|
|
1.9
|
%
|
|
3.0
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%
|
Recourse
debt-to-equity leverage ratio (1)
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2.7x
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3.1x
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3.1x
|
|
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Capital
deployment
|
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$
|
152
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$
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136
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|
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$
|
281
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Jumbo loans
purchased
|
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$
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1,483
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$
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1,562
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|
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$
|
1,804
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Jumbo loans
securitized or sold
|
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$
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1,574
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$
|
1,252
|
|
|
$
|
1,929
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(1)
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Recourse debt
excludes $8.5 billion, $7.2 billion, and $3.4 billion of
consolidated securitization debt (ABS issued and servicer advance
financing) that is non-recourse to Redwood at September 30, 2019,
June 30, 2019, and September 30, 2018, respectively.
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Conference Call and Webcast
Redwood will host an earnings call today, October 30, 2019,
at 2:00 p.m. Pacific Time /
5:00 p.m. Eastern Time to discuss its
third quarter 2019 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. Callers should reference call ID #13695283. A
replay of the call will be available through midnight on
November 13, 2019, 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 #13695283.
The live conference call will also be webcast in listen-only
mode in the Newsroom section of Redwood's website under "Events."
To listen to the webcast, please go to Redwood's website at least
15 minutes prior to the call to register and 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 Tuesday, November 12, 2019, and also
make it available on Redwood's website.
About Redwood Trust
Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company
focused on making credit-sensitive investments in residential
mortgages and related assets and engaging in mortgage banking
activities. Our goal is to provide attractive returns to
shareholders through a stable and growing stream of earnings and
dividends, as well as through capital appreciation. Redwood Trust
was established in 1994, 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.
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 statements related to
estimates of 2019 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.
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Consolidated
Income Statements (1)
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Three Months
Ended
|
($ in millions,
except share and per share data)
|
|
9/30/19
|
|
6/30/19
|
|
3/31/19
|
|
12/31/18
|
|
9/30/18
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
150
|
|
|
$
|
149
|
|
|
$
|
131
|
|
|
$
|
120
|
|
|
$
|
99
|
|
Interest
expense
|
|
(117)
|
|
|
(116)
|
|
|
(99)
|
|
|
(85)
|
|
|
(64)
|
|
Net interest
income
|
|
34
|
|
|
32
|
|
|
32
|
|
|
35
|
|
|
35
|
|
Non-interest income
(loss)
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking
activities, net
|
|
10
|
|
|
19
|
|
|
12
|
|
|
11
|
|
|
11
|
|
Investment fair value
changes, net
|
|
11
|
|
|
3
|
|
|
20
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|
|
(39)
|
|
|
10
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|
Other income,
net
|
|
2
|
|
|
2
|
|
|
4
|
|
|
4
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|
|
3
|
|
Realized gains,
net
|
|
5
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|
|
3
|
|
|
11
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|
|
6
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|
|
7
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|
Total non-interest
income (loss), net
|
|
27
|
|
|
28
|
|
|
47
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|
|
(18)
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|
|
32
|
|
Operating
expenses
|
|
(27)
|
|
|
(26)
|
|
|
(23)
|
|
|
(19)
|
|
|
(21)
|
|
(Provision for)
benefit from income taxes
|
|
—
|
|
|
(2)
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|
|
(1)
|
|
|
1
|
|
|
(5)
|
|
Net income
(loss)
|
|
$
|
34
|
|
|
$
|
31
|
|
|
$
|
54
|
|
|
$
|
(1)
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares (thousands) (2)
|
|
136,523
|
|
|
130,697
|
|
|
126,278
|
|
|
83,217
|
|
|
114,683
|
|
Diluted earnings
(loss) per common share
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
|
$
|
0.49
|
|
|
$
|
(0.02)
|
|
|
$
|
0.42
|
|
Regular dividends
declared per common share
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain totals may
not foot due to rounding.
|
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(2)
|
In the periods
presented above, excluding the fourth quarter of 2018, 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,
2019, June 30, 2019, March 31, 2019, December 31, 2018, and
September 30, 2018 were 112,102, 97,715, 96,866, 84,884, and
82,930, respectively.
|
REDWOOD TRUST,
INC.
|
|
|
|
|
|
|
|
|
|
Consolidated
Income Statements (1)
|
|
Nine Months Ended
September 30,
|
($ in millions,
except share and per share data)
|
|
2019
|
|
2018
|
|
|
|
|
|
Interest
income
|
|
$
|
430
|
|
|
$
|
259
|
|
Interest
expense
|
|
(332)
|
|
|
(154)
|
|
Net interest
income
|
|
98
|
|
|
105
|
|
Non-interest
income
|
|
|
|
|
Mortgage banking
activities, net
|
|
41
|
|
|
48
|
|
Investment fair value
changes, net
|
|
35
|
|
|
13
|
|
Other income,
net
|
|
8
|
|
|
9
|
|
Realized gains,
net
|
|
18
|
|
|
21
|
|
Total non-interest
income
|
|
102
|
|
|
91
|
|
Operating
expenses
|
|
(76)
|
|
|
(64)
|
|
Provision for income
taxes
|
|
(3)
|
|
|
(12)
|
|
Net income
|
|
$
|
120
|
|
|
$
|
121
|
|
|
|
|
|
|
Weighted average
diluted shares (thousands)
|
|
131,203
|
|
|
107,792
|
|
Diluted earnings per
common share
|
|
$
|
1.09
|
|
|
$
|
1.30
|
|
Regular dividends
declared per common share
|
|
$
|
0.90
|
|
|
$
|
0.88
|
|
|
|
|
|
|
(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)
|
9/30/19
|
|
6/30/19
|
|
9/30/18
|
|
|
|
|
|
|
GAAP net
income
|
$
|
34
|
|
|
$
|
31
|
|
|
$
|
41
|
|
Adjustments:
|
|
|
|
|
|
Eliminate
mark-to-market changes on long-term investments and associated
derivatives (3)
|
(14)
|
|
|
(2)
|
|
|
(13)
|
|
Include cumulative
gain on long-term investments sold, net (4)
|
20
|
|
|
13
|
|
|
8
|
|
Eliminate purchase
accounting adjustments (5)
|
2
|
|
|
2
|
|
|
—
|
|
Eliminate corporate
acquisition and related expenses (5)
|
2
|
|
|
—
|
|
|
—
|
|
Income taxes
associated with core earnings adjustments (6)
|
(1)
|
|
|
(2)
|
|
|
—
|
|
Total
adjustments
|
9
|
|
|
12
|
|
|
(5)
|
|
Non-GAAP core
earnings
|
$
|
43
|
|
|
$
|
43
|
|
|
$
|
36
|
|
|
|
|
|
|
|
GAAP net income
per diluted common share
|
$
|
0.31
|
|
|
$
|
0.30
|
|
|
$
|
0.42
|
|
Non-GAAP core
earnings per diluted common share (7)
|
$
|
0.37
|
|
|
$
|
0.39
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
(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, (iii) exclude certain items related to Redwood's
acquisitions of 5 Arches and CoreVest and (iv) include the
hypothetical income taxes associated with core earnings
adjustments.
|
|
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|
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 2019 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. During the third
quarter of 2019, management updated its calculation of this
adjustment. Additional information regarding this adjustment is
included in the Appendix to the third quarter 2019 Redwood
Review.
|
|
|
(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)
|
Beginning with
the first quarter of 2019, core earnings excludes several items
related to the acquisitions of 5 Arches and CoreVest. These items
include the exclusion of a one-time gain associated with the
re-measurement of our initial minority investment and purchase
option in 5 Arches and ongoing adjustments to exclude amortization
of intangible assets; beginning in the second quarter, changes in
fair value of the contingent consideration liability related to the
remaining purchase consideration for the 5 Arches platform; and,
for the third quarter of 2019, exclusion of certain transaction
expenses associated with our acquisition of CoreVest. Additional
information regarding this adjustment is included in the Appendix
to the third quarter 2019 Redwood Review.
|
|
|
(6)
|
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.
|
|
|
(7)
|
Additional
information on the calculation of non-GAAP core diluted 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)
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions,
except share and per share data)
|
|
9/30/19
|
|
6/30/19
|
|
3/31/19
|
|
12/31/18
|
|
9/30/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
loans
|
|
$
|
8,682
|
|
|
$
|
7,283
|
|
|
$
|
7,274
|
|
|
$
|
7,255
|
|
|
$
|
5,922
|
|
|
Business purpose
loans
|
|
336
|
|
|
251
|
|
|
161
|
|
|
141
|
|
|
116
|
|
|
Multifamily
loans
|
|
3,792
|
|
|
3,750
|
|
|
2,176
|
|
|
2,145
|
|
|
942
|
|
|
Real estate
securities
|
|
1,285
|
|
|
1,477
|
|
|
1,543
|
|
|
1,452
|
|
|
1,470
|
|
|
Other
investments
|
|
348
|
|
|
372
|
|
|
414
|
|
|
439
|
|
|
114
|
|
|
Cash and cash
equivalents
|
|
395
|
|
|
218
|
|
|
201
|
|
|
176
|
|
|
174
|
|
|
Other
assets
|
|
639
|
|
|
501
|
|
|
424
|
|
|
330
|
|
|
402
|
|
|
Total
assets
|
|
$
|
15,476
|
|
|
$
|
13,852
|
|
|
$
|
12,193
|
|
|
$
|
11,937
|
|
|
$
|
9,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$
|
1,981
|
|
|
$
|
2,463
|
|
|
$
|
2,163
|
|
|
$
|
2,400
|
|
|
$
|
1,424
|
|
|
Other
liabilities
|
|
411
|
|
|
338
|
|
|
270
|
|
|
206
|
|
|
176
|
|
|
Asset-backed
securities issued
|
|
8,346
|
|
|
6,913
|
|
|
5,638
|
|
|
5,410
|
|
|
3,407
|
|
|
Long-term debt,
net
|
|
2,954
|
|
|
2,573
|
|
|
2,573
|
|
|
2,572
|
|
|
2,771
|
|
|
Total
liabilities
|
|
13,691
|
|
|
12,288
|
|
|
10,643
|
|
|
10,589
|
|
|
7,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
1,785
|
|
|
1,564
|
|
|
1,550
|
|
|
1,349
|
|
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
equity
|
|
$
|
15,476
|
|
|
$
|
13,852
|
|
|
$
|
12,193
|
|
|
$
|
11,937
|
|
|
$
|
9,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at
period end (thousands)
|
|
112,102
|
|
|
97,715
|
|
|
96,866
|
|
|
84,884
|
|
|
82,930
|
|
|
GAAP book value per
share
|
|
$
|
15.92
|
|
|
$
|
16.01
|
|
|
$
|
16.00
|
|
|
$
|
15.89
|
|
|
$
|
16.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain totals may
not foot due to rounding.
|
CONTACTS
Lisa M. Hartman
SVP, Head of Investor Relations
Phone: 866-269-4976
Email: investorrelations@redwoodtrust.com
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SOURCE Redwood Trust, Inc.