• | 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 |
• | 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 |
(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 |
REDWOOD TRUST, INC. | ||||||||||||||||||||
Consolidated Income Statements (1) | Third | Second | First | Fourth | Third | |||||||||||||||
($ in millions, except share and per share data) | Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | ||||||||||||||||
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. |
(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 | 30-Jun | 31-Mar | 31-Dec | 30-Sep | ||||||||||||||||
($ in millions, except share and per share data) | 2018 | 2018 | 2018 | 2017 | 2017 | ||||||||||||||||
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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