T A B L E O F C O N T E N T S |
Introduction | |
Shareholder Letter | |
Current Company Update | |
Quarterly Results | |
Ñ First Quarter Overview | |
Ñ Quarterly Earnings and Analysis | |
Ñ Book Value | |
Ñ Segment Results | |
Pro Forma Financial Information | |
Ñ Capital Allocations | |
Ñ Recourse Debt Analysis | |
Quarterly Positions | |
Ñ Credit Overview | |
Ñ Mortgage Servicing Advance Obligations | |
Financial Tables | |
Appendix | |
Ñ Segment Overview | |
Ñ Dividends and Taxable Income | |
Ñ Forward-Looking Statements | |
Endnotes |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
1 |
I N T R O D U C T I O N |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
2 |
I N T R O D U C T I O N |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
3 |
S H A R E H O L D E R L E T T E R |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
4 |
S H A R E H O L D E R L E T T E R |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
5 |
S H A R E H O L D E R L E T T E R |
Christopher J. Abate | Dashiell I. Robinson | |
Chief Executive Officer | President |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
6 |
C U R R E N T C O M P A N Y U P D A T E |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
7 |
C U R R E N T C O M P A N Y U P D A T E |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
8 |
Q U A R T E R L Y R E S U L T S |
Key Financial Results and Metrics | ||||||||
Three Months Ended | ||||||||
3/31/2020 | 12/31/2019 | |||||||
Earnings (Loss) per Share | $ | (8.28 | ) | $ | 0.38 | |||
Book Value per Share | $ | 6.32 | $ | 15.98 | ||||
Dividend per Share | $ | 0.32 | $ | 0.30 | ||||
Unrestricted Cash (in millions) | $ | 375 | $ | 188 | ||||
Ñ | Our first quarter 2020 results were significantly impacted by the COVID-19 pandemic, which ultimately led to substantial losses on our investments and an overall loss for the quarter. Nearly two-thirds of our investment losses, or $(5.36) per share, were on assets we continued to hold at March 31, 2020 that we generally have the intention to hold for longer-term investment. The remainder of our investment losses, or $(3.08) per share, were on assets we sold and hedges we settled during the first quarter of 2020, and assets that we had either entered into agreements to sell or that we have the intent to sell in the near-term. While our operating businesses saw increased volumes early in the first quarter, as markets became dislocated in March, profitability was negatively impacted due to less favorable execution on securitizations we completed in March, and lower marks on the remaining loan inventories we held at quarter-end. Additionally, as a result of the recent market dislocation, we determined all of the goodwill on our balance sheet was impaired, resulting in an expense of $(0.78) per share. |
Ñ | We are not disclosing non-GAAP core earnings for the first quarter of 2020, as we determined that this measure, as we have historically calculated it, does not appropriately reflect the economic impact of the COVID-19 pandemic on our results. As financial markets stabilize, we will evaluate whether core earnings or other non-GAAP measures would help both management and investors evaluate our operating performance for future periods. |
Ñ | On March 27, 2020, we announced the deferral of the payment of our previously declared first quarter dividend of $0.32 per share, which was originally scheduled to be paid on March 30, 2020. On May 6, 2020, we announced the first quarter dividend will now be paid fully in cash on May 8, 2020. |
Ñ | Our unrestricted cash position increased meaningfully at March 31, 2020, as we repositioned our balance sheet to generate additional liquidity. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
9 |
Q U A R T E R L Y R E S U L T S |
GAAP Net (Loss) Income | ||||||||
($ in millions, except per share data) | ||||||||
Three Months Ended | ||||||||
3/31/2020 | 12/31/2019 | |||||||
Net interest income | ||||||||
From investments | $ | 43 | $ | 38 | ||||
From mortgage banking activities | 8 | 7 | ||||||
Total net interest income | 51 | 45 | ||||||
Non-interest (loss) income | ||||||||
Residential mortgage banking, net | (23 | ) | 17 | |||||
Business purpose mortgage banking, net | (5 | ) | 30 | |||||
Investment fair value changes, net | (871 | ) | 1 | |||||
Other income, net | 2 | 5 | ||||||
Realized gains, net | 4 | 6 | ||||||
Total non-interest (loss) income, net | (893 | ) | 58 | |||||
General and administrative expenses | (33 | ) | (42 | ) | ||||
Other expenses | (91 | ) | (7 | ) | ||||
Benefit from (provision for) income taxes | 22 | (4 | ) | |||||
Net (loss) income | $ | (943 | ) | $ | 49 | |||
(Loss) earnings per diluted common share | $ | (8.28 | ) | $ | 0.38 | |||
GAAP Net (Loss) Income by Segment | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
3/31/2020 | 12/31/2019 | |||||||
Residential Lending | $ | (199 | ) | $ | 16 | |||
Business Purpose Lending | (228 | ) | 19 | |||||
Multifamily Investments | (225 | ) | 11 | |||||
Third-Party Residential Investments | (280 | ) | 21 | |||||
Corporate | (11 | ) | (18 | ) | ||||
Net (loss) income | $ | (943 | ) | $ | 49 |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
10 |
Q U A R T E R L Y R E S U L T S |
Ñ | Net interest income increased in the first quarter, compared to the fourth quarter of 2019, resulting from a higher average balance of invested capital during the first quarter, prior to the asset sales that occurred in late March. |
Ñ | Mortgage banking activities at both our residential and business purpose lending segments were negatively impacted by lower profitability on securitizations that settled late in the first quarter and from lower marks on loan inventories held at quarter-end, resulting from the recent market dislocation. |
Ñ | Negative investment fair value changes reflected significant declines in the value of our investments resulting from the market dislocation caused by the COVID-19 pandemic. Additionally, this line item includes losses associated with our decision to close-out substantially all of our outstanding interest rate hedges, as we determined that due to the recent market dislocations, the correlations between asset market values and interest rates had deteriorated and the hedges were no longer effective. Approximately $(510) million of investment losses were associated with assets we continued to hold at March 31, 2020 and that we generally have the intention to hold for longer-term investment. The remainder of our investment losses (approximately $(361) million) were on assets we sold and hedges we settled during the first quarter of 2020, and assets that we had either entered into agreements to sell or that we have the intent to sell in the near-term. See the "Q1 2020 Fair Value Changes on Assets Held at March 31, 2020" table below, which includes additional detail on the assets we held at March 31, 2020 and their associated losses recognized during the first quarter of 2020. |
Ñ | The realized gains, net line item on our income statement presents net gains and losses on securities classified as available-for-sale. While we realized a significant amount of losses on the sale of securities during the first quarter of 2020, those losses were on securities classified under fair value accounting, for which losses are recorded in the Investment fair value changes line item. |
Ñ | General and administrative expenses decreased in the first quarter, primarily due to a significant reduction in our variable compensation expense accrual, aligned with the quarter's financial results. |
Ñ | Other expenses increased during the quarter, primarily due to the impairment of $89 million of goodwill at our Business Purpose Lending segment. |
Ñ | Income tax provision changed to a benefit in the first quarter as a result of losses incurred at our taxable REIT subsidiaries (TRS), driven by mortgage banking losses as well as losses on investments held at our TRS. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
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Q U A R T E R L Y R E S U L T S |
Q1 2020 Fair Value Changes on Assets Held at March 31, 2020 | |||||||||||||||||||
By Investment Type | |||||||||||||||||||
($ in millions) | |||||||||||||||||||
Q1 2020 Fair Value Changes (1) | |||||||||||||||||||
Held-for-sale (2) | Held -for-investment | ||||||||||||||||||
Fair Value of Assets at March 31, 2020 | Income Statement (3) | Income Statement (3) | Balance Sheet (4) | Total | |||||||||||||||
Residential Lending | |||||||||||||||||||
Residential loans (5) | $ | 1,437 | $ | (73 | ) | $ | — | $ | — | $ | — | ||||||||
Sequoia securities | 275 | (103 | ) | (59 | ) | (162 | ) | ||||||||||||
MSRs/Other | 44 | (19 | ) | — | (19 | ) | |||||||||||||
Residential mortgage banking (5) | 894 | (30 | ) | — | — | — | |||||||||||||
Total Residential Lending | 2,650 | (103 | ) | (122 | ) | (59 | ) | (181 | ) | ||||||||||
Business Purpose Lending | |||||||||||||||||||
SFR securities | 167 | (68 | ) | — | (68 | ) | |||||||||||||
Bridge investments | 817 | (40 | ) | — | (40 | ) | |||||||||||||
SFR loans (5) | 414 | (10 | ) | (23 | ) | — | (23 | ) | |||||||||||
Total Business Purpose Lending | 1,398 | (10 | ) | (131 | ) | — | (131 | ) | |||||||||||
Multifamily Investments | |||||||||||||||||||
Multifamily B-pieces | 49 | (16 | ) | (2 | ) | (18 | ) | ||||||||||||
Other investments | 37 | (4 | ) | — | (4 | ) | |||||||||||||
Total Multifamily Investments | 86 | — | (20 | ) | (2 | ) | (22 | ) | |||||||||||
Third-Party Residential Investments | |||||||||||||||||||
RPL investments | 369 | (175 | ) | — | (175 | ) | |||||||||||||
CRT & third-party securities | 73 | (61 | ) | (26 | ) | (87 | ) | ||||||||||||
Other investments | 104 | (19 | ) | (19 | ) | ||||||||||||||
Total Third-Party Residential Investments | 546 | — | (255 | ) | (26 | ) | (281 | ) | |||||||||||
Total | $ | 4,680 | $ | (113 | ) | $ | (528 | ) | $ | (87 | ) | $ | (615 | ) |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
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Q U A R T E R L Y R E S U L T S |
Changes in Book Value per Share | ||||||||
($ in per share) | ||||||||
Three Months Ended | ||||||||
3/31/2020 | 12/31/2019 | |||||||
Beginning GAAP book value per share | $ | 15.98 | $ | 15.92 | ||||
Comprehensive (Loss) Income | ||||||||
Q1 2020 fair value changes on investments held at March 31, 2020 (1) | (5.36 | ) | — | |||||
Other Q1 2020 fair value changes on investments (2) | (3.08 | ) | — | |||||
Impairment of goodwill | (0.78 | ) | — | |||||
Change in value of long-term debt hedge | (0.29 | ) | 0.09 | |||||
Other comprehensive income, net | 0.16 | 0.37 | ||||||
Total comprehensive (loss) income per share | (9.35 | ) | 0.46 | |||||
Dividends | (0.32 | ) | (0.30 | ) | ||||
Other, net | 0.01 | (0.10 | ) | |||||
Ending GAAP book value per share | $ | 6.32 | $ | 15.98 |
Ñ | Our GAAP book value decreased $(9.66) per share during the first quarter of 2020, resulting primarily from negative investment fair value changes that were recorded both through our income statement and through accumulated comprehensive income on our balance sheet. |
Ñ | During the first quarter, we recognized losses of $(5.36) per share on assets we continued to hold at March 31, 2020 that we generally have the intention to hold for longer-term investment. These losses represent the decline in price of the related assets from December 31, 2019 (or their purchase date, if purchased after December 31, 2019) to March 31, 2020. |
Ñ | Other investment fair value changes of $(3.08) per share were associated with assets we sold and hedges we settled during the first quarter of 2020, and assets that we had either entered into agreements to sell or that we have the intent to sell in the near-term. For securities, these losses represent their decline in price from December 31, 2019 (or their purchase date, if purchased after December 31, 2019) to the price the assets were sold at during the first quarter. For loans, these losses represent the decline in price from December 31, 2019 (or their purchase date, if purchased after December 31, 2019) to the earlier of the date they were sold or March 31, 2020 (which in many cases represents agreed-upon sales prices for transactions entered into as of March 31, 2020 and that have since settled or are expected to settle after March 31, 2020). |
Ñ | During the first quarter of 2020, we recorded a goodwill impairment of $0.78 per share, associated with the BPL operating platforms we acquired in 2019. At March 31, 2020, after excluding $0.60 per share of our remaining intangible assets, our non-GAAP tangible book value per share was $5.72.(3) |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
13 |
Q U A R T E R L Y R E S U L T S |
Ñ | Our Residential Lending segment incurred a $(199) million net loss during the first quarter of 2020, driven primarily by $(197) million of negative investment fair value changes and a $(19) million net loss from mortgage banking operations. |
Ñ | As a result of the economic and financial market impacts of COVID-19, the terms of our borrowing facility with the Federal Home Loan Bank of Chicago (our "FHLBC Facility") evolved and we decided to reduce the financing we obtain from the FHLBC. Accordingly, in March we began entering into transactions to sell several pools of residential whole loans financed through this facility and in the coming weeks we expect to sell or refinance substantially all of the remaining assets financed through this facility and repay substantially all of our borrowings from the FHLBC. (See the Pro Forma Financial Information section that follows for additional details.) |
Ñ | During the first quarter, we sold $83 million of securities from our residential lending investment portfolio. |
Ñ | During the first quarter, our residential mortgage banking business purchased $2.7 billion of jumbo residential loans (the majority during the first two months of the quarter). In March 2020, in response to market conditions, we became more selective in making loan purchases. |
Ñ | During the first quarter, we sold $2.7 billion of loans held in inventory for our mortgage banking business, including through three Select securitizations totaling $1.6 billion and through Select and Choice whole loan sales to third parties totaling $1.1 billion. At March 31, 2020, we held loans in inventory of $898 million. Subsequent to March 31, 2020, we sold a substantial portion of these loans. (See the Pro Forma Financial Information section that follows for additional details.) |
Ñ | Our Business Purpose Lending segment incurred a $(228) million net loss during the first quarter of 2020, driven primarily by $(142) million of negative investment fair value changes and a $(12) million net loss from mortgage banking operations, exclusive of an $(89) million charge related to the full impairment of this segment's goodwill. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
14 |
Q U A R T E R L Y R E S U L T S |
Ñ | During the first quarter of 2020, we funded $206 million of business purpose bridge loans and received repayments of $123 million of such loans. In addition, we retained $42 million of securities from a single-family rental loan securitization we completed during the first quarter. |
Ñ | As of March 31, 2020, we reclassified our single-family rental loans financed at the FHLBC to held-for-sale and currently plan to securitize a portion of these loans. |
Ñ | BPL originations in the first quarter included $259 million of single-family rental loans and $227 million of bridge loans, largely during the first two months of the quarter. While we were able to price and complete a $374 million single-family rental loan securitization in early March with a modest impact to pricing, our remaining loan inventory experienced meaningful price declines through the end of March. |
Ñ | Our Multifamily Investments segment incurred a net loss of $(225) million during the first quarter of 2020, driven primarily by $(227) million of negative investment fair value changes. |
Ñ | During the first quarter, we sold $430 million of multifamily securities, representing nearly all of our multifamily mezzanine securities, and all but two of our multifamily b-piece securities. |
Ñ | Our Third-Party Residential Investments segment incurred a net loss of $(280) million during the first quarter of 2020, driven primarily by $(304) million of negative investment fair value changes. |
Ñ | During the first quarter, we sold $210 million of third-party residential investments, including $95 million of recently issued subordinate securities, $74 million of RPL securities, $23 million of CRT securities, and $18 million of legacy securities. The proceeds from these sales were used to pay down associated repurchase debt. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
15 |
P R O F O R M A F I N A N C I A L I N F O R M A T I O N |
Capital Allocation Detail | ||||||||||||||||||||||||
By Investment Type | ||||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
December 31, 2019 | March 31, 2020 | March 31, 2020 Pro Forma(1) | ||||||||||||||||||||||
Fair Value of Assets (2) | Total Recourse Debt | Fair Value of Assets (2) | Total Recourse Debt | Fair Value of Assets (2) | Total Recourse Debt | |||||||||||||||||||
Residential Lending | ||||||||||||||||||||||||
Residential loans | $ | 2,105 | $ | (1,776 | ) | $ | 1,437 | $ | (1,190 | ) | $ | — | $ | — | ||||||||||
Sequoia securities | 483 | (320 | ) | 275 | (259 | ) | 254 | (230 | ) | |||||||||||||||
MSRs/Other | 63 | — | 44 | (30 | ) | 44 | (20 | ) | ||||||||||||||||
Residential mortgage banking | 544 | (186 | ) | 894 | (841 | ) | 226 | (212 | ) | |||||||||||||||
Total Residential Lending | 3,195 | (2,282 | ) | 2,650 | (2,321 | ) | 524 | (463 | ) | |||||||||||||||
Business Purpose Lending | ||||||||||||||||||||||||
SFR securities | 191 | (80 | ) | 167 | (103 | ) | 167 | (103 | ) | |||||||||||||||
Bridge investments | 764 | (567 | ) | 817 | (626 | ) | 817 | (626 | ) | |||||||||||||||
SFR loans | 570 | (432 | ) | 415 | (308 | ) | 415 | (308 | ) | |||||||||||||||
Platform premium | 161 | — | 69 | — | 69 | — | ||||||||||||||||||
Total Business Purpose Lending | 1,686 | (1,079 | ) | 1,468 | (1,037 | ) | 1,468 | (1,037 | ) | |||||||||||||||
Multifamily Investments | ||||||||||||||||||||||||
Multifamily mezzanine | 423 | (334 | ) | — | (26 | ) | — | — | ||||||||||||||||
Multifamily B-pieces | 234 | (171 | ) | 49 | (50 | ) | 49 | (42 | ) | |||||||||||||||
Other investments | 61 | — | 37 | — | 37 | — | ||||||||||||||||||
Total Multifamily Investments | 718 | (505 | ) | 86 | (76 | ) | 86 | (42 | ) | |||||||||||||||
Third-Party Residential Investments | ||||||||||||||||||||||||
RPL investments | 611 | (354 | ) | 369 | (300 | ) | 364 | (282 | ) | |||||||||||||||
CRT & third-party securities | 306 | (142 | ) | 73 | (32 | ) | 50 | (1 | ) | |||||||||||||||
Other investments | 102 | — | 104 | — | 104 | — | ||||||||||||||||||
Total Third-Party Residential Investments | 1,019 | (496 | ) | 546 | (332 | ) | 518 | (283 | ) | |||||||||||||||
Cash and cash equivalents (3) | 188 | — | 378 | — | 596 | — | ||||||||||||||||||
Other Assets and liabilities, net | 169 | — | 151 | — | 143 | — | ||||||||||||||||||
Corporate debt | — | (786 | ) | — | (786 | ) | — | (786 | ) | |||||||||||||||
Total Corporate / Other | 357 | (786 | ) | 529 | (786 | ) | 739 | (786 | ) | |||||||||||||||
Totals | $ | 6,975 | $ | (5,148 | ) | $ | 5,279 | $ | (4,554 | ) | $ | 3,335 | $ | (2,610 | ) | |||||||||
GAAP Equity | $ | 1,827 | $ | 725 | $ | 725 |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
16 |
P R O F O R M A F I N A N C I A L I N F O R M A T I O N |
Ñ | Between April 1, 2020 and April 30, 2020, we sold $1.5 billion of residential loans to third parties, including $1.0 billion of loans previously financed under our FHLBC facility and $0.5 billion of loans previously funded with warehouse debt. In addition, as of April 30, 2020, we had entered into agreements to sell residential mortgage loans with a fair value of $0.5 billion. Additionally, we expect to transfer all of our remaining residential loans under our FHLBC facility, to our new non-marginable loan warehouse facility, which we closed subsequent to April 30, 2020. Upon completion of these sales and financing arrangements, we expect to reduce our residential warehouse debt to $145 million, and borrowings under our FHLBC facility that fund residential loans to zero. |
Ñ | Between April 1, 2020 and April 30, 2020, we sold $22 million of Sequoia securities and repaid associated repurchase debt. |
Ñ | During April 2020, we paid down our secured revolving debt financing our MSR investments by $10 million. |
Ñ | Since April 30, 2020, we established a new non-marginable warehouse facility and are exploring additional financing transactions to further reduce the remaining marginable financing for our business purpose loans. |
Ñ | Between April 1, 2020 and April 30, 2020, we repaid $26 million of securities repurchase debt that financed multifamily securities associated with sales that were executed as of March 31, 2020 and settled in April 2020. The settlement amount for these security sales is included in other assets as a trade receivable as of March 31, 2020, and the associated debt was repaid upon settlement of the receivable in April 2020. |
Ñ | Between April 1, 2020 and April 30, 2020, we sold $29 million of securities in our third-party residential investments segment and repaid associated repurchase debt. We also paid down certain repurchase debt during April 2020 in accordance with new terms when the debt was refinanced. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
17 |
P R O F O R M A F I N A N C I A L I N F O R M A T I O N |
Debt Balances at March 31, 2020 Pro Forma (1) | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Scheduled Maturity | ||||||||||||||||||||
Q2 2020 | Q3 2020 | Q4 2020 | Beyond 2020 | Total | ||||||||||||||||
Securities repurchase debt | $ | 373 | $ | — | $ | — | $ | — | $ | 373 | ||||||||||
Warehouse/secured revolving debt | — | — | 298 | 405 | 704 | |||||||||||||||
Non-marginable warehouse debt | — | — | — | 444 | 444 | |||||||||||||||
Non-marginable secured term debt | — | — | — | 286 | 286 | |||||||||||||||
Non-marginable corporate unsecured debt | — | — | — | 786 | 786 | |||||||||||||||
FHLB debt | — | — | — | 18 | 18 | |||||||||||||||
Total debt | $ | 373 | $ | — | $ | 298 | $ | 1,939 | $ | 2,610 |
Ñ | We expect to reduce our recourse debt from $4.6 billion at March 31, 2020 to $2.6 billion, on a pro forma basis.(1) |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
18 |
P R O F O R M A F I N A N C I A L I N F O R M A T I O N |
Ñ | Securities repurchase debt of $373 million, financing $308 million of third-party securities, $56 million of Sequoia securities, and $47 million of multifamily b-pieces. On a pro forma basis, we expect to have $19 million of remaining cash margin posted against our pro forma securities repurchase debt, which is held by our counterparties, and $191 million of unencumbered securities. |
Ñ | Warehouse debt of $704 million, financing $514 million of bridge loans, $154 million of SFR loans, and $140 million of residential loans, and secured revolving debt of $20 million, financing $49 million of MSRs and certificated servicing assets. |
Ñ | New non-marginable warehouse facilities we entered into since April 30, 2020 of $444 million, financing $273 million of bridge loans, $222 million of SFR loans, and $39 million of residential loans. |
Ñ | Non-marginable secured term debt of $286 million, financing $155 million of Sequoia securities and $103 million of SFR securities, with final maturity dates in 2024 and 2025. |
Ñ | Unsecured corporate debt comprised of $245 million of 4.75% convertible notes due in 2023, $200 million of 5.625% convertible notes due in 2024, $201 million of 5.75% exchangeable notes due in 2025, and $140 million of trust-preferred securities due in 2037. |
Ñ | FHLB debt of $18 million, financing $25 million of SFR loans. |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
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Q U A R T E R L Y P O S I T I O N S |
Residential Investments Credit Characteristics | ||||||||||||
March 31, 2020 | ||||||||||||
($ in millions, except where noted) | ||||||||||||
Sequoia Select Securities | Sequoia Choice Securities | Re-Performing Loan Securities | ||||||||||
Market value | $ | 105 | $ | 136 | $ | 369 | ||||||
Average FICO (at origination) | 771 | 744 | 613 | |||||||||
HPI updated LTV (1) | 47 | % | 66 | % | 69 | % | ||||||
Average loan size (in thousands) | $ | 690 | $ | 704 | $ | 187 | ||||||
Gross weighted average coupon | 4.0 | % | 5.0 | % | 4.5 | % | ||||||
Current 3-month prepayment rate | 19 | % | 36 | % | 6 | % | ||||||
90+ days delinquency (as a % of UPB) | 0.1 | % | 0.4 | % | 5.8 | % | ||||||
Investment thickness | 4 | % | 11 | % | 21 | % | ||||||
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
20 |
Q U A R T E R L Y P O S I T I O N S |
Business Purpose and Multifamily Investments Credit Characteristics | ||||||||||||
March 31, 2020 | ||||||||||||
($ in millions, except where noted) | ||||||||||||
Multifamily B-Pieces | SFR Securities | BPL Bridge Loans | ||||||||||
Market value | $ | 49 | $ | 167 | $ | 817 | ||||||
Average current DSCR (1) | 1.5x | 1.36x | N/A | |||||||||
LTV (at origination) (2) | 72 | % | 68 | % | 68 | % | ||||||
Average loan size (in thousands) | $ | 20,116 | $ | 2,650 | $ | 399 | ||||||
Gross weighted average coupon | 4.2 | % | 5.6 | % | 7.9 | % | ||||||
90+ days delinquency (as a % of UPB) | 0.0 | % | 1.5 | % | 4.3 | % | ||||||
Investment thickness | 10 | % | 11 | % | N/A | |||||||
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
21 |
Q U A R T E R L Y P O S I T I O N S |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
22 |
Q U A R T E R L Y P O S I T I O N S |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
23 |
Q U A R T E R L Y P O S I T I O N S |
Mortgage Servicing P&I Advance Obligations | ||||||||||||||
March 31, 2020 | ||||||||||||||
($ in millions) | ||||||||||||||
Fair Value | Notional Principal Balance | Estimated Average Monthly P&I Advance Requirement (per 10 percentage points of DQ) | Maximum Period of P&I Advance Obligation | |||||||||||
MSRs - Non-Stop Advance | $ | 15 | $ | 2,496 | $ | 1 | N/A | |||||||
MSRs - Stop Advance | 8 | 1,355 | 1 | 120 days | ||||||||||
Certificated MSRs - Stop Advance | 26 | 7,190 | 4 | 120 days | ||||||||||
$ | 49 | $ | 11,041 | $ | 6 | |||||||||
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
24 |
Detailed endnotes are included at the end of this Redwood Review. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 |
25 |
Table 1: GAAP Earnings (in thousands, except per share data) | ||||||||||||||||||||||||||
2020 Q1 | 2019 Q4 | 2019 Q3 | 2019 Q2 | 2019 Q1 | Twelve Months 2019 | |||||||||||||||||||||
Net interest income | ||||||||||||||||||||||||||
From investments | $ | 43,115 | $ | 37,639 | $ | 27,679 | $ | 27,565 | $ | 26,952 | $ | 119,835 | ||||||||||||||
From mortgage banking activities | 8,295 | 7,234 | 5,834 | 4,757 | 4,813 | 22,638 | ||||||||||||||||||||
Net interest income | 51,410 | 44,873 | 33,513 | 32,322 | 31,765 | 142,473 | ||||||||||||||||||||
Non-interest (loss) income | ||||||||||||||||||||||||||
Residential mortgage banking activities, net | (23,081 | ) | 16,540 | 5,016 | 15,361 | 10,826 | 47,743 | |||||||||||||||||||
Business purpose mortgage banking activities, net | (5,330 | ) | 29,742 | 4,499 | 3,799 | 1,483 | 39,523 | |||||||||||||||||||
Investment fair value changes, net | (870,832 | ) | 759 | 11,444 | 3,138 | 20,159 | 35,500 | |||||||||||||||||||
Realized gains, net | 3,852 | 5,594 | 4,714 | 2,827 | 10,686 | 23,821 | ||||||||||||||||||||
Other income | 2,437 | 5,417 | 4,356 | 4,859 | 4,625 | 19,257 | ||||||||||||||||||||
Total non-interest (loss) income, net | (892,954 | ) | 58,052 | 30,029 | 29,984 | 47,779 | 165,844 | |||||||||||||||||||
Fixed compensation expense | (14,684 | ) | (12,899 | ) | (9,391 | ) | (9,252 | ) | (8,205 | ) | (39,747 | ) | ||||||||||||||
Variable compensation expense (excluding commissions) | (11 | ) | (10,372 | ) | (3,489 | ) | (3,573 | ) | (4,402 | ) | (21,836 | ) | ||||||||||||||
Equity compensation expense | (1,995 | ) | (3,270 | ) | (3,155 | ) | (4,024 | ) | (2,953 | ) | (13,402 | ) | ||||||||||||||
Acquisition-related equity compensation expense (1) | (1,212 | ) | (1,010 | ) | — | — | — | (1,010 | ) | |||||||||||||||||
Loan acquisition costs (including commissions) | (4,726 | ) | (4,830 | ) | (1,993 | ) | (1,964 | ) | (1,477 | ) | (10,264 | ) | ||||||||||||||
Other general and administrative expense | (10,040 | ) | (10,062 | ) | (8,787 | ) | (7,442 | ) | (6,122 | ) | (32,413 | ) | ||||||||||||||
Total general and administrative expenses | (32,668 | ) | (42,443 | ) | (26,815 | ) | (26,255 | ) | (23,159 | ) | (118,672 | ) | ||||||||||||||
Other expenses | (91,415 | ) | (7,001 | ) | (2,531 | ) | (2,452 | ) | (1,038 | ) | (13,022 | ) | ||||||||||||||
Benefit from (provision for) income taxes | 22,229 | (4,338 | ) | 114 | (2,333 | ) | (883 | ) | (7,440 | ) | ||||||||||||||||
Net (loss) income | $ | (943,398 | ) | $ | 49,143 | $ | 34,310 | $ | 31,266 | $ | 54,464 | $ | 169,183 | |||||||||||||
Diluted average shares (2) | 114,077 | 152,983 | 136,523 | 130,697 | 126,278 | 136,781 | ||||||||||||||||||||
Diluted (loss) earnings per common share | $ | (8.28 | ) | $ | 0.38 | $ | 0.31 | $ | 0.30 | $ | 0.49 | $ | 1.46 |
(1) | Acquisition-related equity compensation expense relates to shares of restricted stock that were issued to members of CoreVest management as a component of the consideration paid to them for our purchase of their interests in CoreVest. |
(2) | Diluted average shares includes shares from the assumed conversion of our convertible and/or exchangeable debt in certain periods, in accordance with GAAP diluted EPS provisions. See Table 3 that follows for details of this calculation for the current and prior quarter and our respective Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 | Table 1: GAAP Earnings 26 |
Table 2: Segment Results ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | Three Months Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Residential Lending | Business Purpose Lending | Multifamily Investments | Third-Party Residential Investments | Corporate / Other | Total | Residential Lending | Business Purpose Lending | Multifamily Investments | Third-Party Residential Investments | Corporate / Other | Total | ||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 19,229 | $ | 18,070 | $ | 3,597 | $ | 9,842 | $ | 672 | $ | 51,410 | $ | 19,647 | $ | 12,838 | $ | 2,392 | $ | 9,142 | $ | 855 | $ | 44,874 | |||||||||||||||||||||||||
Non-interest (loss) income | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage banking activities, net | (23,081 | ) | (5,330 | ) | — | — | — | (28,411 | ) | 16,539 | 29,742 | — | — | — | 46,281 | ||||||||||||||||||||||||||||||||||
Investment fair value changes, net | (196,635 | ) | (142,130 | ) | (227,122 | ) | (304,436 | ) | (509 | ) | (870,832 | ) | (11,182 | ) | (4,910 | ) | 8,149 | 9,311 | (609 | ) | 759 | ||||||||||||||||||||||||||||
Other income, net | (497 | ) | 1,693 | 1,240 | 1 | — | 2,437 | 2,896 | 1,502 | 1,020 | — | — | 5,418 | ||||||||||||||||||||||||||||||||||||
Realized gains, net | 1,796 | — | (1,604 | ) | 3,660 | — | 3,852 | 563 | — | 134 | 4,897 | — | 5,594 | ||||||||||||||||||||||||||||||||||||
Total non-interest (loss) income, net | (218,417 | ) | (145,767 | ) | (227,486 | ) | (300,775 | ) | (509 | ) | (892,954 | ) | 8,816 | 26,334 | 9,303 | 14,208 | (609 | ) | 58,052 | ||||||||||||||||||||||||||||||
General and administrative expenses | (5,632 | ) | (14,333 | ) | (610 | ) | (1,178 | ) | (10,915 | ) | (32,668 | ) | (10,221 | ) | (15,187 | ) | (569 | ) | (1,031 | ) | (15,436 | ) | (42,444 | ) | |||||||||||||||||||||||||
Other expenses | — | (92,985 | ) | — | 1,882 | (312 | ) | (91,415 | ) | — | (4,088 | ) | — | (242 | ) | (2,671 | ) | (7,001 | ) | ||||||||||||||||||||||||||||||
Benefit from (provision for) income taxes | 5,330 | 6,582 | (106 | ) | 10,423 | — | 22,229 | (2,318 | ) | (971 | ) | (11 | ) | (1,038 | ) | — | (4,338 | ) | |||||||||||||||||||||||||||||||
Net (loss) income | $ | (199,490 | ) | $ | (228,433 | ) | $ | (224,605 | ) | $ | (279,806 | ) | $ | (11,064 | ) | $ | (943,398 | ) | $ | 15,924 | $ | 18,926 | $ | 11,115 | $ | 21,039 | $ | (17,861 | ) | $ | 49,143 | ||||||||||||||||||
Residential and business purpose lending subcategories: | |||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Banking | $ | (19,372 | ) | $ | (102,175 | ) | $ | 10,811 | $ | 13,278 | |||||||||||||||||||||||||||||||||||||||
Investments | (180,118 | ) | (126,258 | ) | 5,113 | 5,648 | |||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (199,490 | ) | $ | (228,433 | ) | $ | 15,924 | $ | 18,926 | |||||||||||||||||||||||||||||||||||||||
THE REDWOOD REVIEW I 1ST QUARTER 2020 | Table 2: Segment Results 27 |
Table 3: GAAP Basic and Diluted Earnings per Common Share (in thousands, except per share data) | |||||||||
2020 Q1 | 2019 Q4 | ||||||||
GAAP Earnings per Common Share ("EPS"): | |||||||||
Net (loss) income attributable to Redwood | $ | (943,397 | ) | $ | 49,143 | ||||
Less: Dividends and undistributed earnings allocated to participating securities | (1,209 | ) | (1,546 | ) | |||||
Net (loss) income allocated to common shareholders for GAAP basic EPS | (944,606 | ) | 47,597 | ||||||
Incremental adjustment to dividends and undistributed earnings allocated to participating securities | — | (113 | ) | ||||||
Add back: Interest expense on convertible notes for the period, net of tax (1) | — | 9,941 | |||||||
Net (loss) income allocated to common shareholders for GAAP diluted EPS | $ | (944,606 | ) | $ | 57,425 | ||||
Basic weighted average common shares outstanding | 114,077 | 112,818 | |||||||
Net effect of dilutive equity awards | — | 221 | |||||||
Net effect of assumed convertible notes conversion to common shares (1) | — | 39,943 | |||||||
Diluted weighted average common shares outstanding | 114,077 | 152,982 | |||||||
GAAP Basic (Loss) Earnings per Common Share | $ | (8.28 | ) | $ | 0.42 | ||||
GAAP Diluted (Loss) Earnings per Common Share | $ | (8.28 | ) | $ | 0.38 | ||||
(1) | Certain convertible notes were determined to be dilutive in the periods presented and were included in the calculations of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 | Table 3: GAAP Earnings per Basic and Diluted Common Share 28 |
Table 4: Taxable and GAAP Income (1) Differences and Dividends (In thousands, except for per share data) | |||||||||||||||||||||||||
Estimated Three Months 2020 (2) | Estimated Twelve Months 2019 (2) | ||||||||||||||||||||||||
Taxable Income | GAAP Income | Differences | Taxable Income | GAAP Income | Differences | ||||||||||||||||||||
Taxable and GAAP Income Differences | |||||||||||||||||||||||||
Interest income | $ | 94,011 | $ | 198,081 | $ | (104,070 | ) | $ | 320,480 | $ | 622,281 | $ | (301,801 | ) | |||||||||||
Interest expense | (45,219 | ) | (146,671 | ) | 101,452 | (183,550 | ) | (479,808 | ) | 296,258 | |||||||||||||||
Net interest income | 48,792 | 51,410 | (2,618 | ) | 136,930 | 142,473 | (5,543 | ) | |||||||||||||||||
Realized credit losses | (643 | ) | — | (643 | ) | (534 | ) | — | (534 | ) | |||||||||||||||
Mortgage banking activities, net | (28,181 | ) | (28,411 | ) | 230 | 80,146 | 87,266 | (7,120 | ) | ||||||||||||||||
Investment fair value changes, net | (4,537 | ) | (870,832 | ) | 866,295 | 4,307 | 35,500 | (31,193 | ) | ||||||||||||||||
General and administrative expenses | (31,220 | ) | (32,668 | ) | 1,448 | (109,737 | ) | (118,672 | ) | 8,935 | |||||||||||||||
Other income | 7,407 | 2,437 | 4,970 | 23,397 | 19,257 | 4,140 | |||||||||||||||||||
Realized gains, net | — | 3,852 | (3,852 | ) | 62,613 | 23,821 | 38,792 | ||||||||||||||||||
Other expenses | (1,364 | ) | (91,415 | ) | 90,051 | (3,351 | ) | (13,022 | ) | 9,671 | |||||||||||||||
(Provision for) benefit from income taxes | (216 | ) | 22,229 | (22,445 | ) | (866 | ) | (7,440 | ) | 6,574 | |||||||||||||||
(Loss) income | $ | (9,962 | ) | $ | (943,398 | ) | $ | 933,436 | $ | 192,905 | $ | 169,183 | $ | 23,722 | |||||||||||
REIT taxable income | $ | 37,527 | $ | 136,255 | |||||||||||||||||||||
Taxable (loss) income at taxable subsidiaries | (47,489 | ) | 56,650 | ||||||||||||||||||||||
Taxable (loss) income | $ | (9,962 | ) | $ | 192,905 | ||||||||||||||||||||
Shares used for taxable EPS calculation | 114,838 | 114,353 | |||||||||||||||||||||||
REIT taxable income per share | $ | 0.33 | $ | 1.28 | |||||||||||||||||||||
Taxable (loss) income per share at taxable subsidiaries | $ | (0.41 | ) | $ | 0.54 | ||||||||||||||||||||
Taxable (loss) income per share (3) | $ | (0.08 | ) | $ | 1.82 | ||||||||||||||||||||
Dividends | |||||||||||||||||||||||||
Dividends declared | $ | 36,741 | $ | 126,139 | |||||||||||||||||||||
Dividends per share (4) | $ | 0.32 | $ | 1.20 |
(1) | Taxable income for 2020 and 2019 are estimates until we file our tax returns for these years. To the extent we expect to pay tax at the corporate level (generally as a result of activity at our TRS), we are required to record a tax provision for GAAP reporting purposes. Any tax provision (or benefit) is not necessarily the actual amount of tax currently due (or receivable as a refund) as a portion of our provision (or benefit) is deferred in nature. It is our intention to retain any excess inclusion income generated in 2020 at our TRS and not pass it through to our shareholders. |
(2) | Reconciliation of GAAP income to taxable income (loss) for prior quarters is provided in the respective Redwood Reviews for those quarters. |
(3) | Taxable income (loss) per share is based on the number of shares outstanding at the end of each quarter. The annual taxable income (loss) per share is the sum of the quarterly per share estimates. |
(4) | Dividends in 2019 are expected to be characterized as 73% ordinary dividend income (or $92 million) and 27% long-term capital gain dividend income (or $34 million). |
THE REDWOOD REVIEW I 1ST QUARTER 2020 | Table 4: Taxable and GAAP Income Differences and Dividends 29 |
Table 5: Financial Ratios and Book Value ($ in thousands, except per share data) | |||||||||||||||||||||||||
2020 Q1 | 2019 Q4 | 2019 Q3 | 2019 Q2 | 2019 Q1 | Twelve Months 2019 | ||||||||||||||||||||
Financial performance ratios | |||||||||||||||||||||||||
Net interest income | $ | 51,410 | $ | 44,873 | $ | 33,513 | $ | 32,322 | $ | 31,765 | $ | 142,473 | |||||||||||||
Corporate general and administrative expenses | $ | (10,915 | ) | $ | (15,436 | ) | $ | (12,727 | ) | $ | (12,448 | ) | $ | (12,394 | ) | $ | (53,005 | ) | |||||||
Total general and administrative expenses | $ | (32,668 | ) | $ | (42,443 | ) | $ | (26,815 | ) | $ | (26,255 | ) | $ | (23,159 | ) | $ | (118,672 | ) | |||||||
GAAP net income (loss) | $ | (943,398 | ) | $ | 49,143 | $ | 34,310 | $ | 31,266 | $ | 54,464 | $ | 169,183 | ||||||||||||
Average total assets | $ | 17,838,481 | $ | 17,551,586 | $ | 14,017,627 | $ | 13,596,337 | $ | 11,795,343 | $ | 14,255,384 | |||||||||||||
Average total equity | $ | 1,613,920 | $ | 1,800,390 | $ | 1,591,792 | $ | 1,556,850 | $ | 1,452,282 | $ | 1,601,259 | |||||||||||||
Corporate general and administrative expenses / average total equity | 2.71 | % | 3.43 | % | 3.20 | % | 3.20 | % | 3.41 | % | 3.31 | % | |||||||||||||
Total general and administrative expenses / average total equity | 8.10 | % | 9.43 | % | 6.74 | % | 6.75 | % | 6.38 | % | 7.41 | % | |||||||||||||
GAAP net income / average equity (GAAP ROE) | N/A | 10.92 | % | 8.62 | % | 8.03 | % | 15.00 | % | 10.57 | % | ||||||||||||||
Leverage ratios and book value per share | |||||||||||||||||||||||||
Short-term debt | $ | 2,082,717 | $ | 2,176,591 | $ | 1,789,827 | $ | 2,227,183 | $ | 1,914,514 | |||||||||||||||
Long-term debt | 2,470,928 | 2,970,415 | 2,971,552 | 2,584,499 | 2,584,499 | ||||||||||||||||||||
Total debt at Redwood | $ | 4,553,645 | $ | 5,147,006 | $ | 4,761,379 | $ | 4,811,682 | $ | 4,499,013 | |||||||||||||||
At consolidated securitization entities | |||||||||||||||||||||||||
ABS issued | 6,461,864 | 10,515,475 | 8,346,051 | 6,913,129 | 5,637,644 | ||||||||||||||||||||
Non-recourse short-term debt | 259,876 | 153,696 | 191,556 | 237,363 | 251,875 | ||||||||||||||||||||
Total ABS issued and non-recourse short-term debt | $ | 6,721,740 | $ | 10,669,171 | $ | 8,537,607 | $ | 7,150,492 | $ | 5,889,519 | |||||||||||||||
Consolidated debt (1) | $ | 11,275,385 | $ | 15,816,177 | $ | 13,298,986 | $ | 11,962,174 | $ | 10,388,532 | |||||||||||||||
Tangible stockholders' equity - non-GAAP (2) | $ | 656,719 | $ | 1,665,767 | $ | 1,735,938 | $ | 1,513,033 | $ | 1,497,032 | |||||||||||||||
Total stockholders' equity | $ | 725,202 | $ | 1,827,231 | $ | 1,785,059 | $ | 1,564,032 | $ | 1,549,927 | |||||||||||||||
Total capital (3) | $ | 1,495,700 | $ | 2,596,984 | $ | 2,554,118 | $ | 2,337,442 | $ | 2,322,515 | |||||||||||||||
Recourse leverage ratio (recourse debt at Redwood to tangible stockholders' equity)(4) | 6.9x | 3.1x | 2.7x | 3.2x | 3.0x | ||||||||||||||||||||
Consolidated debt to tangible stockholders' equity | 17.2x | 9.5x | 7.7x | 7.9x | 6.9x | ||||||||||||||||||||
Shares outstanding at period end (in thousands) | 114,838 | 114,353 | 112,102 | 97,715 | 96,866 | ||||||||||||||||||||
Book value per share | $ | 6.32 | $ | 15.98 | $ | 15.92 | $ | 16.01 | $ | 16.00 | |||||||||||||||
(1) | Amounts presented in Consolidated debt above do not include deferred issuance costs or debt discounts. |
(2) | At March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019, tangible stockholders' equity excluded $68 million, $161 million, $49 million, $51 million, and $53 million, respectively, of goodwill and intangible assets. |
(3) | Our total capital of $1.5 billion at March 31, 2020 included $0.7 billion of equity capital and $0.8 billion of unsecured corporate debt. |
(4) | Excludes ABS issued and non-recourse debt at consolidated entities. See Table 6 for additional detail on our ABS issued and short-term debt at consolidated entities. |
THE REDWOOD REVIEW I 1ST QUARTER 2020 | Table 5: Financial Ratios and Book Value 30 |
Table 6: Consolidating Balance Sheet ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated VIEs (1) | Consolidated VIEs (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At Redwood (1) | Sequoia Choice | Freddie Mac SLST | Freddie Mac K-Series | CAFL | Other (2) | Redwood Consolidated | At Redwood (1) | Sequoia Choice | Freddie Mac SLST | Freddie Mac K-Series | CAFL | Other (2) | Redwood Consolidated | ||||||||||||||||||||||||||||||||||||||||||||
Residential loans | $ | 2,330,669 | $ | 1,932,658 | $ | 2,131,125 | $ | — | $ | — | $ | 316,677 | $ | 6,711,129 | $ | 2,648,282 | $ | 2,291,463 | $ | 2,367,215 | $ | — | $ | — | $ | 407,890 | $ | 7,714,850 | |||||||||||||||||||||||||||||
Business purpose residential loans | 1,215,077 | — | — | — | 2,248,665 | — | 3,463,742 | 1,314,191 | — | — | — | 2,192,552 | — | 3,506,743 | |||||||||||||||||||||||||||||||||||||||||||
Multifamily loans | — | — | — | 470,484 | — | — | 470,484 | — | — | — | 4,408,524 | — | — | 4,408,524 | |||||||||||||||||||||||||||||||||||||||||||
Real estate securities | 293,462 | — | — | — | — | — | 293,462 | 1,099,874 | — | — | — | — | — | 1,099,874 | |||||||||||||||||||||||||||||||||||||||||||
Other investments | 131,826 | — | — | — | 314,394 | 446,220 | 173,328 | — | — | — | 184,802 | 358,130 | |||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 375,347 | — | — | — | — | 2,886 | 378,233 | 187,951 | — | — | — | — | 9,015 | 196,966 | |||||||||||||||||||||||||||||||||||||||||||
Other assets (3) | 483,703 | 8,589 | 8,234 | 1,390 | 16,552 | 19,052 | 537,520 | 639,945 | 9,851 | 7,758 | 13,539 | 11,367 | 27,893 | 710,353 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 4,830,084 | $ | 1,941,247 | $ | 2,139,359 | $ | 471,874 | $ | 2,265,217 | $ | 653,009 | $ | 12,300,790 | $ | 6,063,571 | $ | 2,301,314 | $ | 2,374,973 | $ | 4,422,063 | $ | 2,203,919 | $ | 629,600 | $ | 17,995,440 | |||||||||||||||||||||||||||||
Short-term debt | $ | 2,082,717 | $ | — | $ | — | $ | — | $ | — | $ | 258,931 | $ | 2,341,648 | $ | 2,176,591 | $ | — | $ | — | $ | — | $ | — | $ | 152,554 | $ | 2,329,145 | |||||||||||||||||||||||||||||
Other liabilities | 279,850 | 6,935 | 5,251 | 1,230 | 8,188 | 16,861 | 318,315 | 321,274 | 7,759 | 5,374 | 12,887 | 7,485 | 15,538 | 370,317 | |||||||||||||||||||||||||||||||||||||||||||
ABS issued | — | 1,790,094 | 1,825,000 | 447,699 | 2,086,870 | 312,201 | 6,461,864 | — | 2,037,198 | 1,918,322 | 4,156,239 | 2,001,251 | 402,465 | 10,515,475 | |||||||||||||||||||||||||||||||||||||||||||
Long-term debt, net | 2,453,761 | — | — | — | — | — | 2,453,761 | 2,953,272 | — | — | — | — | — | 2,953,272 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 4,816,328 | 1,797,029 | 1,830,251 | 448,929 | 2,095,058 | 587,993 | 11,575,588 | 5,451,137 | 2,044,957 | 1,923,696 | 4,169,126 | 2,008,736 | 570,557 | 16,168,209 | |||||||||||||||||||||||||||||||||||||||||||
Equity | 13,756 | 144,218 | 309,108 | 22,945 | 170,159 | 65,016 | 725,202 | 612,434 | 256,357 | 451,277 | 252,937 | 195,183 | 59,043 | 1,827,231 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 4,830,084 | $ | 1,941,247 | $ | 2,139,359 | $ | 471,874 | $ | 2,265,217 | $ | 653,009 | $ | 12,300,790 | $ | 6,063,571 | $ | 2,301,314 | $ | 2,374,973 | $ | 4,422,063 | $ | 2,203,919 | $ | 629,600 | $ | 17,995,440 | |||||||||||||||||||||||||||||
(1) | The format of this consolidating balance sheet is provided to more clearly delineate between the assets and liabilities belonging to securitization entities (Consolidated VIEs) that we are required to consolidate on our balance sheet in accordance with GAAP, and the assets that are legally ours and the liabilities of ours for which there is recourse to us. Each of these entities is independent of Redwood and of each other and the assets and liabilities of these entities are not owned by and are not legal obligations of ours. Our exposure to these entities is primarily through the financial interests we have retained or acquired in these entities (generally subordinate securities), the fair value of which is represented by our equity in each entity, as presented in this table. |
(2) | Includes our consolidated Legacy Sequoia and Servicing Investment entities. At March 31, 2020, our equity in the Legacy Sequoia and Servicing Investment entities was $6 million and $59 million, respectively. At December 31, 2019, our equity in the Legacy Sequoia and Servicing Investment entities was $6 million and $53 million, respectively. |
(3) | At both March 31, 2020 and December 31, 2019, other assets at Redwood included a total of $33 million of assets held by third-party custodians and pledged as collateral to the GSEs in connection with credit risk-sharing arrangements. These pledged assets can only be used to settle obligations to the GSEs under these risk-sharing arrangements. |
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S E G M E N T O V E R V I E W |
Detailed endnotes are included at the end of this Redwood Review. |
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D I V I D E N D S A N D T A X A B L E I N C O M E |
Detailed endnotes are included at the end of this Redwood Review. |
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F O R W A R D - L O O K I N G S T A T E M E N T S |
Detailed endnotes are included at the end of this Redwood Review. |
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F O R W A R D - L O O K I N G S T A T E M E N T S |
• | the pace at which we redeploy our available capital into new investments and initiatives; |
• | our ability to scale our platform and systems, particularly with respect to our new initiatives; |
• | interest rate volatility, changes in credit spreads, and changes in liquidity in the market for real estate securities and loans; |
• | changes in the demand from investors for residential mortgages and investments, and our ability to distribute residential mortgages through our whole-loan distribution channel; |
• | our ability to finance our investments in securities and our acquisition of residential mortgages with short-term debt; |
• | changes in the values of assets we own; |
• | general economic trends, the performance of the housing, real estate, mortgage, credit, and broader financial markets, and their effects on the prices of earning assets and the credit status of borrowers; |
• | federal and state legislative and regulatory developments, and the actions of governmental authorities, including the new U.S. presidential administration, and in particular those affecting the mortgage industry or our business (including, but not limited to, the Federal Housing Finance Agency’s rules relating to FHLB membership requirements and the implications for our captive insurance subsidiary’s membership in the FHLB); |
• | strategic business and capital deployment decisions we make; |
• | developments related to the fixed income and mortgage finance markets and the Federal Reserve’s statements regarding its future open market activity and monetary policy; |
• | our exposure to credit risk and the timing of credit losses within our portfolio; |
• | the concentration of the credit risks we are exposed to, including due to the structure of assets we hold and the geographical concentration of real estate underlying assets we own; |
• | our exposure to adjustable-rate mortgage loans; |
• | the efficacy and expense of our efforts to manage or hedge credit risk, interest rate risk, and other financial and operational risks; |
Detailed endnotes are included at the end of this Redwood Review. |
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• | changes in credit ratings on assets we own and changes in the rating agencies’ credit rating methodologies; |
• | changes in interest rates; |
• | changes in mortgage prepayment rates; |
• | changes in liquidity in the market for real estate securities and loans; |
• | our ability to finance the acquisition of real estate-related assets with short-term debt; |
• | the ability of counterparties to satisfy their obligations to us; |
• | our involvement in securitization transactions, the profitability of those transactions, and the risks we are exposed to in engaging in securitization transactions; |
• | exposure to claims and litigation, including litigation arising from our involvement in securitization transactions; |
• | ongoing litigation against various trustees of RMBS transactions; |
• | whether we have sufficient liquid assets to meet short-term needs; |
• | our ability to successfully compete and retain or attract key personnel; |
• | our ability to adapt our business model and strategies to changing circumstances; |
• | changes in our investment, financing, and hedging strategies and new risks we may be exposed to if we expand our business activities; |
• | our exposure to a disruption or breach of the security of our technology infrastructure and systems; |
• | exposure to environmental liabilities; |
• | our failure to comply with applicable laws and regulations; |
• | our failure to maintain appropriate internal controls over financial reporting and disclosure controls and procedures; |
• | the impact on our reputation that could result from our actions or omissions or from those of others; changes in accounting principles and tax rules; |
• | our ability to maintain our status as a REIT for tax purposes; |
• | limitations imposed on our business due to our REIT status and our status as exempt from registration under the Investment Company Act of 1940; |
• | decisions about raising, managing, and distributing capital; and |
• | other factors not presently identified. |
Detailed endnotes are included at the end of this Redwood Review. |
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E N D N O T E S |
(1) | Refer to Pro Forma Note above. |
(1) | Our preliminary estimate of GAAP book value per common share as of April 30, 2020 reflects management’s preliminary estimate with respect to such information, based on information currently available to management, and may vary from the Company’s actual GAAP book value per common share as of such date. Further, this preliminary estimate is not a comprehensive statement or estimate of Redwood’s financial results or financial condition as of April 30, 2020. This preliminary estimate should not be viewed as a substitute for full interim financial statements prepared in accordance with GAAP and is not necessarily indicative of the results to be achieved in any future period. Accordingly, you should not place undue reliance on this preliminary estimate. |
(1) | Refer to Pro Forma Note above. |
(2) | Refer to Pro Forma Note and Non-GAAP Tangible Book Value Note above. Our recourse leverage ratio represents the ratio of our non-GAAP tangible book value divided by our total recourse debt. |
(1) | "Q1 2020 Fair Value Changes" presented within this table represent fair value changes recorded in the first quarter of 2020 for assets we held at March 31, 2020. These changes in fair value were recorded both through our "Investment fair value changes" line item on our income statement and our "Accumulated other comprehensive income" line item on our balance sheet. These losses represent the decline in price of the related assets from December 31, 2019 (or their purchase date, if purchased after December 31, 2019) to March 31, 2020. |
(2) | "Held-for-sale" amounts presented in this column are associated with assets we held at March 31, 2020 and as of April 30, 2020, had either sold, entered into agreements to sell or that we have the intent to sell in the near-term. |
(3) | "Income Statement" amounts presented in these columns represent net losses recorded within the "Investment fair value changes" line item of our income statement, except for MSRs, for which their changes in fair value were recorded through the "Other Income" line item of our income statement. |
(4) | "Balance Sheet" amounts presented in this column represent net losses recorded within the "Accumulated other comprehensive income" line item of our balance sheet. |
(5) | Q1 2020 fair value changes for our Residential loans, Residential mortgage banking (loans), and SFR loans held in inventory at our Business Purpose Lending segment are presented in the "Held-for-sale" column as we have either sold, entered into agreements to sell, or had the intent to sell in the near-term, as of April 30, 2020. |
(1) | "Q1 2020 fair value changes on assets held at March 31, 2020", represents investment fair value changes associated with assets we continued to hold at March 31, 2020 and that we generally have the intention to hold for longer-term investment. |
(2) | "Other Q1 2020 investment fair value changes" represents investment fair value changes on assets we sold and hedges we settled during the first quarter of 2020, and assets that we had either entered into agreements to sell or that we have the intent to sell in the near-term. |
(3) | Refer to Non-GAAP Tangible Book Value note above. |
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(1) | Refer to Pro Forma Note above. |
(2) | Other assets and liabilities are presented on a net basis within this column. |
(3) | In addition to the impact from the Pro Forma asset sales and debt repayments, cash at March 31, 2020 on a pro forma basis has been adjusted for the Dividend we expect to pay on May 8, 2020. |
(1) | Debt balances presented in this table are adjusted on a pro forma basis for certain items as described in the Pro Forma Note above. Adjusted amounts assume proceeds from sales transactions are used to fully repay debt balances outstanding at March 31, 2020 associated with such items. |
(1) | Pro forma financial data reflect our estimates with respect to such information, based on information currently available to management and a number of assumptions, and may vary from our actual results. The pro forma financial information is not necessarily indicative of the expected financial position or results of Redwood's operations for the first quarter of 2020, the second quarter of 2020, or any future period. |
(2) | Refer to Pro Forma Note and Non-GAAP Tangible Book Value Note above. Our recourse leverage ratio represents the ratio of our non-GAAP tangible book value divided by our total recourse debt. |
(1) | HPI updated LTV is calculated based on the current loan balance and an updated property value amount that is formulaically adjusted from value at origination based on the FHFA home price index (HPI). |
(1) | Average current debt service coverage ratio (or DSCR) is the ratio by which net operating income of a property exceeds it fixed debt costs. |
(2) | Average loan to value (or LTV) (at origination) is calculated based on the original loan amount and the property value at the time the loan was originated. |
(1) | “Scheduled/scheduled” remittance type refers to a requirement for the servicer to remit to a securitization entity scheduled interest, whether collected or not, and scheduled principal, whether collected or not, for mortgages serviced, in addition to any prepayments of principal. |
(1) | Excludes MSRs owned by Redwood associated with unsecuritized loans, where there is no advancing obligation. |
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