Redwood Trust Reports Third Quarter 2017 Results

News provided by

Redwood Trust, Inc.

Nov 06, 2017, 15:15 ET

MILL VALLEY, Calif., Nov. 6, 2017 /PRNewswire/ -- Redwood Trust, Inc. (NYSE:RWT) today reported net income for the third quarter of 2017 of $36 million, or $0.41 per fully diluted share. This compares with net income of $36 million, or $0.43 per fully diluted share, for the second quarter of 2017 and net income of $53 million, or $0.58 per fully diluted share, for the third quarter of 2016. Redwood also reported non-GAAP core earnings for the third quarter of 2017 of $30 million, or $0.35 per fully diluted share. This compares with non-GAAP core earnings of $29 million, or $0.35 per fully diluted share, for the second quarter of 2017.

A reconciliation of GAAP net income to non-GAAP core earnings, along with additional information about Redwood's core earnings measure, is included in the tables that follow. A further discussion of Redwood's business, financial results, core earnings and taxable income, as well as a discussion of management's 2017 outlook, is included in the third quarter Redwood Review, which is available on the company's website at www.redwoodtrust.com.

Redwood also reported estimated REIT taxable income of $20 million, or $0.26 per share, for the third quarter of 2017. This compares to estimated REIT taxable income of $19 million, or $0.25 per share, for the second quarter of 2017 and estimated REIT taxable income of $26 million, or $0.34 per share, for the third quarter of 2016. 

At September 30, 2017, Redwood reported GAAP book value per share of $15.67, as compared with $15.29 at June 30, 2017, and $14.74 at September 30, 2016.

Redwood will host an earnings call today, November 6, 2017, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its third quarter 2017 financial results. The number to dial in order to listen to the conference call is 1-888-417-8516 in the U.S. and Canada. International callers must dial 1-719-325-4783. Callers should reference call ID #1824889. A replay of the call will be available through midnight on November 20, 2017, 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 #1824889.

The live conference call will also be webcast in listen-only mode in the Newsroom section of Redwood's website under "Events & Presentations."  To listen to the webcast, please go to Redwood's website at least 15 minutes before the call to register and to 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 Thursday, November 9, 2017, and also make it available on Redwood's website.

Cautionary Statement:  This press release and the related conference call contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to estimates of 2017 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 and subsequent Quarterly Reports on Form 10-Q under the caption "Risk Factors." Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

REDWOOD TRUST, INC.











Consolidated Income Statements (1)

Third

Second

First

Fourth

Third

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

Quarter

Quarter

Quarter

Quarter

Quarter


2017

2017

2017

2016

2016











Interest income

$

63

$

59

$

55

$

56

$

61

Interest expense

(27)

(24)

(21)

(21)

(22)

Net interest income

35

35

34

36

39

Reversal of provision for loan losses

—

—

—

—

1

Net interest income after provision

35

35

34

36

40

Non-interest income









Mortgage banking activities, net

21

12

18

14

10

MSR income, net

2

3

2

2

4

Investment fair value changes, net

—

8

2

(10)

12

Other income

1

1

1

2

2

Realized gains, net

2

1

6

2

7

Total non-interest income, net

26

25

28

10

34

Operating expenses

(20)

(19)

(18)

(18)

(20)

Provision for income taxes

(5)

(5)

(6)

(2)

(1)

Net income

$

36

$

36

$

37

$

25

$

53











Weighted average diluted shares (thousands) (2)

102,703

97,494

97,946

85,838

97,832

Diluted earnings per share

$

0.41

$

0.43

$

0.43

$

0.31

$

0.58

Regular dividends declared per common share

$

0.28

$

0.28

$

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, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016 were 77,123, 77,117, 77,039, 76,835, and 76,682, respectively.

REDWOOD TRUST, INC.





Consolidated Income Statements (1)

Nine Months Ended September 30,

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

2017

2016





Interest income

$

177

$

190

Interest expense

(73)

(68)

Net interest income

104

122

Reversal of provision for loan losses

—

7

Net interest income after provision

104

129

Non-interest income



Mortgage banking activities, net

51

25

MSR income, net

6

13

Investment fair value changes, net

10

(19)

Other income

3

4

Realized gains, net

9

26

Total non-interest income

79

49

Operating expenses

(57)

(71)

Provision for income taxes

(17)

(1)

Net income

$

109

$

106





Weighted average diluted shares (thousands)

99,398

97,992

Diluted earnings per share

$

1.26

$

1.23

Regular dividends declared per common share

$

0.84

$

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, 2017

June 30, 2017





GAAP net income

$

36

$

36

Adjustments:



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

(6)

(14)

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

1

4

Income taxes associated with core earnings adjustments (5)

(1)

2

Total adjustments

(6)

(8)

Non-GAAP core earnings

$

30

$

29





GAAP net income per diluted common share

$

0.41

$

0.43

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

$

0.35

$

0.35







(1)

Certain totals may not foot due to rounding.


(2)

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



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


(3)

Adjustments eliminate the mark-to-market changes on the fair value of loans held-for-investment, trading securities, other investments, and associated derivatives that are primarily related to changes in benchmark interest rates and credit spreads. Details on the components of investment fair value changes, net, are included in the Financial Insights section of the third quarter 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)

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)

Consistent with the calculation of net income per diluted common share for GAAP purposes, non-GAAP core earnings per diluted common share is calculated following the "two-class" method. Additional information on the calculation of core earnings using the "two-class" method can be found in Table 2 in the Financial Tables section of the Appendix to the third quarter Redwood Review.

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)

2017

2017

2017

2016

2016
























Residential loans

$

4,185

$

3,905

$

3,472

$

3,888

$

4,311

Real estate securities

1,356

1,219

1,166

1,018

937

Commercial loans

—

—

3

3

30

Mortgage servicing rights

63

64

111

119

106

Cash and cash equivalents

258

217

222

213

221

Other assets

269

251

241

243

267

Total assets

$

6,131

$

5,655

$

5,214

$

5,483

$

5,873













Short-term debt

$

1,238

$

1,295

$

564

$

792

$

1,117

Other liabilities

166

152

135

148

185

Asset-backed securities issued

944

693

728

773

820

Long-term debt, net

2,574

2,336

2,621

2,621

2,620

Total liabilities

4,922

4,476

4,049

4,334

4,742













Stockholders' equity

1,209

1,179

1,166

1,149

1,130













Total liabilities and equity

$

6,131

$

5,655

$

5,214

$

5,483

$

5,873













Shares outstanding at period end (thousands)

77,123

77,117

77,039

76,835

76,682

GAAP book value per share

$

15.67

$

15.29

$

15.13

$

14.96

$

14.74













(1)

Certain totals may not foot due to rounding.

SOURCE Redwood Trust, Inc.