Redwood Trust Reports Second Quarter 2019 Financial Results

REDWOOD TRUST, INC.

Financial Performance

Three Months Ended

($ in millions, except per share data)

6/30/2019

3/31/2019

6/30/2018

GAAP net income

$

31

$

54

$

33

GAAP net income per diluted common share

$

0.30

$

0.49

$

0.38

Non-GAAP core earnings

$

43

$

38

$

37

Non-GAAP core earnings per diluted common share

$

0.39

$

0.36

$

0.42

REIT taxable income (estimated)

$

25

$

29

$

27

REIT taxable income per share (estimated)

$

0.25

$

0.30

$

0.35

GAAP book value per share

$

16.01

$

16.00

$

16.23

Dividends per common share

$

0.30

$

0.30

$

0.30

Economic return on book value

1.9

%

2.6

%

2.5

%

Recourse debt-to-equity leverage ratio ⁽¹⁾

3.1x

2.9x

3.4x

Capital deployment

$

136

$

163

$

186

Jumbo loans purchased

$

1,562

$

1,022

$

1,952

Jumbo loans securitized or sold

$

1,252

$

833

$

1,408

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Three Months Ended

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

6/30/19

3/31/19

12/31/18

9/30/18

6/30/18

Interest income

$

149

$

131

$

120

$

99

$

83

Interest expense

(116)

(99)

(85)

(64)

(48)

Net interest income

32

32

35

35

35

Non-interest income

Mortgage banking activities, net

19

12

11

11

11

Investment fair value changes, net

3

20

(39)

10

1

Other income, net

2

4

4

3

3

Realized gains, net

3

11

6

7

5

Total non-interest income (loss), net

28

47

(18)

32

20

Operating expenses

(26)

(23)

(19)

(21)

(19)

(Provision for) benefit from income taxes

(2)

(1)

1

(5)

(3)

Net income (loss)

$

31

$

54

$

(1)

$

41

$

33

Weighted average diluted shares (thousands) ⁽²⁾

130,697

126,278

83,217

114,683

100,432

Diluted earnings (loss) per common share

$

0.30

$

0.49

$

(0.02)

$

0.42

$

0.38

Regular dividends declared per common share

$

0.30

$

0.30

$

0.30

$

0.30

$

0.30

REDWOOD TRUST, INC.

Consolidated Income Statements ⁽¹⁾

Six Months Ended June 30,

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

2019

2018

Interest income

$

280

$

160

Interest expense

(215)

(90)

Net interest income

64

70

Non-interest income

Mortgage banking activities, net

31

37

Investment fair value changes, net

23

2

Other income, net

6

5

Realized gains, net

14

14

Total non-interest income

74

59

Operating expenses

(49)

(42)

Provision for income taxes

(3)

(7)

Net income

$

86

$

80

Weighted average diluted shares (thousands)

128,499

104,291

Diluted earnings per common share

$

0.78

$

0.88

Regular dividends declared per common share

$

0.60

$

0.58

REDWOOD TRUST, INC.

Reconciliation of GAAP Net Income to 

Non-GAAP Core Earnings ^{(1) (2)}

Three Months Ended

($ in millions, except per share data)

6/30/19

3/31/19

6/30/18

GAAP net income

$

31

$

54

$

33

Adjustments:

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

(2)

(16)

(3)

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

13

1

7

Eliminate purchase accounting adjustments ⁽⁵⁾

2

(2)

—

Income taxes associated with core earnings adjustments ⁽⁶⁾

(2)

(1)

—

Total adjustments

12

(16)

5

Non-GAAP core earnings

$

43

$

38

$

37

GAAP net income per diluted common share

$

0.30

$

0.49

$

0.38

Non-GAAP core earnings per diluted common share ⁽⁷⁾

$

0.39

$

0.36

$

0.42

(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 acquisition of 5 Arches (as described in footnote 5 below) and (iv) include the hypothetical income taxes associated with core earnings adjustments.

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

(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 acquisition of 5 Arches. 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, as well as ongoing adjustments to exclude amortization of intangible assets and, beginning in the second quarter of 2019, changes in fair value of the contingent consideration liability related to the remaining purchase consideration for the platform. Additional information regarding this adjustment is included in the Appendix to the second 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)

6/30/19

3/31/19

12/31/18

9/30/18

6/30/18

Residential loans

$

7,283

$

7,274

$

7,255

$

5,922

$

5,491

Business purpose loans

251

161

141

116

—

Multifamily loans

3,750

2,176

2,145

942

—

Real estate securities

1,477

1,543

1,452

1,470

1,454

Other investments

372

414

439

114

117

Cash and cash equivalents

218

201

176

174

185

Other assets

500

424

330

402

266

Total assets

$

13,852

$

12,193

$

11,937

$

9,140

$

7,513

Short-term debt

$

2,463

$

2,163

$

2,400

$

1,424

$

1,426

Other liabilities

338

270

206

176

157

Asset-backed securities issued

6,913

5,638

5,410

3,407

1,930

Long-term debt, net

2,573

2,573

2,572

2,771

2,770

Total liabilities

12,288

10,643

10,589

7,778

6,284

Stockholders' equity

1,564

1,550

1,349

1,361

1,229

Total liabilities and equity

$

13,852

$

12,193

$

11,937

$

9,140

$

7,513

Shares outstanding at period end (thousands)

97,715

96,866

84,884

82,930

75,743

GAAP book value per share

$

16.01

$

16.00

$

15.89

$

16.42

$

16.23

(1)

Certain totals may not foot due to rounding.

CONTACTS

Lisa M. Hartman

SVP, Head of Investor Relations

Phone: 866-269-4976

Email: [email protected]