REDWOOD TRUST INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 27, 2020

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Exhibit 99.1

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REDWOOD TRUST REPORTS FOURTH QUARTER 2019 FINANCIAL RESULTS

MILL VALLEY, CA – Thursday, February 27, 2020 – Redwood Trust, Inc. (NYSE:RWT), a leading innovator in housing credit investing, today reported its financial results for the quarter ended December 31, 2019 and selected financial results for the full year ended December 31, 2019.
Key Financial Results
•
GAAP net income was $49 million, or $0.38 per diluted common share
•
Non-GAAP core earnings(1) were $61 million, or $0.45 per diluted common share
•
GAAP return on equity was 10.9% for the fourth quarter; 10.6% for the year
•
Non-GAAP core return on equity was 13.6% for the fourth quarter; 11.6% for the year
•
Book value per common share was $15.98 at December 31, 2019
•
Economic return on book value(2) of 2.3% for the fourth quarter; 8.1% for the year
•
Recourse leverage ratio(3) of 3.1x at December 31, 2019
•
Paid a regular quarterly cash dividend of $0.30 per common share for the fourth quarter; $1.20 per common share for the year
Business Highlights
•
Completed our acquisition of CoreVest for $492 million in October
•
Originated $750 million of business purpose residential loans
•
Purchased $1.8 billion of jumbo loans as volumes improved from the third quarter
•
Closed two Select securitizations totaling $776 million and our first single-family rental (SFR) securitization totaling $395 million; sold $1.4 billion of jumbo whole loans
•
Deployed $634 million of capital into new investments in the fourth quarter of 2019, bringing full year 2019 deployment to a record $1.09 billion
•
In November, retired $201 million of 5.625% exchangeable debt at maturity
•
In February, announced a 6.7% dividend increase to $0.32 per share for the first quarter of 2020

“The fourth quarter capped a historic year for Redwood. We made significant progress executing on our strategic initiatives; optimizing our portfolio, expanding our reach into multifamily and business purpose lending and implementing operational efficiencies. We are now one of the largest originators of business purpose residential loans and have two of the largest and most highly regarded issuance platforms in the private-label securitization market,” said Chris Abate, Chief Executive Officer of Redwood Trust. “Our hard work is reflected in our fourth quarter and full year results, which culminated in today's announcement of a 6.7% dividend increase to $0.32 per share for the first quarter of 2020.”

Abate concluded, “We are committed to serving our mission to help make quality housing accessible to all Americans, whether it's rented or owned, and generating solid risk-adjusted returns that can sustainably grow our dividend over time for our shareholders.”
_____________________
(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 leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $10.7 billion of consolidated securitization debt (ABS issued and servicer advance financing) that is non-recourse to Redwood and tangible stockholders' equity excludes $161 million of goodwill and intangible assets.

1

Fourth Quarter 2019 Redwood Review Available Online
A further discussion of Redwood's business, financial results, core earnings and taxable income is included in the fourth quarter 2019 Redwood Review, which is available on the Company’s website at www.redwoodtrust.com.

2

REDWOOD TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Performance
 
Three Months Ended
 
 
Year Ended
($ in millions, except per share data)
 
12/31/2019
 
9/30/2019
 
 
12/31/2019
 
 
 
 
 
 
 
 
GAAP net income
 
$
49

 
$
34

 
 
$
169

GAAP net income per diluted common share
 
$
0.38

 
$
0.31

 
 
$
1.46

 
 
 
 
 
 
 
 
Non-GAAP core earnings
 
$
61

 
$
43

 
 
$
186

Non-GAAP core earnings per diluted common share
 
$
0.45

 
$
0.37

 
 
$
1.58

 
 
 
 
 
 
 
 
GAAP return on equity
 
10.9
%
 
8.6
%
 
 
10.6
%
Non-GAAP return on equity
 
13.6
%
 
10.9
%
 
 
11.6
%
 
 
 
 
 
 
 
 
REIT taxable income (estimated)
 
$
44

 
$
39

 
 
$
136

REIT taxable income per share (estimated)
 
$
0.39

 
$
0.34

 
 
$
1.28

 
 
 
 
 
 
 
 
GAAP book value per share
 
$
15.98

 
$
15.92

 
 
$
15.98

Dividends per common share
 
$
0.30

 
$
0.30

 
 
$
1.20

Economic return on book value
 
2.3
%
 
1.3
%
 
 
8.1
%
Recourse leverage ratio (1)
 
3.1x

 
2.7x

 
 
3.1x

 
 
 
 
 
 
 
 
Capital deployment
 
$
634

 
$
152

 
 
$
1,086

Jumbo loans purchased
 
$
1,835

 
$
1,483

 
 
$
5,902

Jumbo loans securitized or sold
 
$
2,200

 
$
1,574

 
 
$
5,132

(1)
Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes $10.7 billion and $8.5 billion of consolidated securitization debt (ABS issued and servicer advance financing) that is non-recourse to Redwood at December 31, 2019 and September 30, 2019, respectively. Tangible stockholder's equity excludes $161 million and $49 million of goodwill and intangible assets at December 31, 2019 and September 30, 2019, respectively.
Conference Call and Webcast
Redwood will host an earnings call today, February 27, 2020, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its fourth 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 #13697992. A replay of the call will be available through midnight on March 12, 2020, 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 #13697992.
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 Annual Report on Form 10-K with the Securities and Exchange Commission by Monday, March 2, 2020, 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 Annual Report on Form 10-K. 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.

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REDWOOD TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Income Statements (1)
 
Three Months Ended
($ in millions, except share and per share data)
 
12/31/19
 
9/30/19
 
6/30/19
 
3/31/19
 
12/31/18
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
193

 
$
150

 
$
149

 
$
131

 
$
120

Interest expense
 
(148
)
 
(117
)
 
(116
)
 
(99
)
 
(85
)
Net interest income
 
45

 
34

 
32

 
32

 
35

Non-interest income (loss)
 
 
 
 
 
 
 
 
 
 
Mortgage banking activities, net
 
46

 
10

 
19

 
12

 
11

Investment fair value changes, net
 
1

 
11

 
3

 
20

 
(39
)
Other income
 
5

 
4

 
5

 
5

 
4

Realized gains, net
 
6

 
5

 
3

 
11

 
6

Total non-interest income (loss), net
 
58

 
30

 
30

 
48

 
(18
)
General and administrative expenses
 
(42
)
 
(27
)
 
(26
)
 
(23
)
 
(19
)
Other expenses
 
(7
)
 
(3
)
 
(2
)
 
(1
)
 
—

(Provision for) benefit from income taxes
 
(4
)
 
—

 
(2
)
 
(1
)
 
1

Net income (loss)
 
$
49

 
$
34

 
$
31

 
$
54

 
$
(1
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average diluted shares (thousands) (2)
 
152,983

 
136,523

 
130,697

 
126,278

 
83,217

Diluted earnings (loss) per common share
 
$
0.38

 
$
0.31

 
$
0.30

 
$
0.49

 
$
(0.02
)
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.
(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 December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018 were 114,353, 112,102, 97,715, 96,866, and 84,884, respectively.











4


 
 
 
 
 
REDWOOD TRUST, INC.
 
 
 
 
 
 
 
 
 
Consolidated Income Statements (1)
 
Years Ended December 31,
($ in millions, except share and per share data)
 
2019
 
2018
 
 
 
 
 
Interest income
 
$
622

 
$
379

Interest expense
 
(480
)
 
(239
)
Net interest income
 
142

 
140

Non-interest income
 
 
 
 
Mortgage banking activities, net
 
87

 
60

Investment fair value changes, net
 
36

 
(26
)
Other income
 
19

 
13

Realized gains, net
 
24

 
27

Total non-interest income
 
166

 
74

General and administrative expenses
 
(119
)
 
(83
)
Other expenses
 
(13
)
 
—

Provision for income taxes
 
(7
)
 
(11
)
Net income
 
$
169

 
$
120

 
 
 
 
 
Weighted average diluted shares (thousands)
 
136,781

 
110,028

Diluted earnings per common share
 
$
1.46

 
$
1.34

Regular dividends declared per common share
 
$
1.20

 
$
1.18

 
 
 
 
 
(1)
Certain totals may not foot due to rounding.


















5


REDWOOD TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of GAAP Net Income to
Non-GAAP Core Earnings (1) (2)
Three Months Ended
 
 
Year Ended
($ in millions, except per share data)
12/31/19
 
9/30/19
 
 
12/31/19
 
 
 
 
 
 
 
GAAP net income
$
49

 
$
34

 
 
169

Adjustments:
 
 
 
 
 
 
Eliminate mark-to-market changes on long-term investments and associated derivatives (3)
(11
)
 
(14
)
 
 
(42
)
Include cumulative gain on long-term investments sold, net (4)
17

 
20

 
 
52

Eliminate purchase accounting adjustments (5)
7

 
2

 
 
9

Eliminate corporate acquisition and related expenses (5)
1

 
2

 
 
3

Income taxes associated with core earnings adjustments (6)
(2
)
 
(1
)
 
 
(5
)
Total adjustments
12

 
9

 
 
17

Non-GAAP core earnings
$
61

 
$
43

 
 
$
186

 
 
 
 
 
 
 
GAAP net income per diluted common share
$
0.38

 
$
0.31

 
 
$
1.46

Non-GAAP core earnings per diluted common share (7)
$
0.45

 
$
0.37

 
 
$
1.58

 
 
 
 
 
 
 
(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.
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 fourth 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 fourth 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)
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; changes in fair value of the contingent consideration liability related to the remaining purchase consideration for the 5 Arches platform; and exclusion of certain transaction expenses associated with our acquisition of CoreVest. Additional information regarding this adjustment is included in the Appendix to the fourth 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.

6


REDWOOD TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets (1)
 
 
 
 
 
 
 
 
 
 
 
($ in millions, except share and per share data)
 
12/31/19
 
9/30/19
 
6/30/19
 
3/31/19
 
12/31/18
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential loans
 
$
7,715

 
$
8,682

 
$
7,283

 
$
7,274

 
$
7,255

 
Business purpose residential loans
 
3,507

 
336

 
251

 
161

 
141

 
Multifamily loans
 
4,409

 
3,792

 
3,750

 
2,176

 
2,145

 
Real estate securities
 
1,100

 
1,285

 
1,477

 
1,543

 
1,452

 
Other investments
 
358

 
348

 
372

 
414

 
439

 
Cash and cash equivalents
 
197

 
395

 
218

 
201

 
176

 
Other assets
 
710

 
639

 
501

 
424

 
330

 
Total assets
 
$
17,995

 
$
15,476

 
$
13,852

 
$
12,193

 
$
11,937

 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
 
$
2,329

 
$
1,981

 
$
2,463

 
$
2,163

 
$
2,400

 
Other liabilities
 
370

 
411

 
338

 
270

 
206

 
Asset-backed securities issued
 
10,515

 
8,346

 
6,913

 
5,638

 
5,410

 
Long-term debt, net
 
2,953

 
2,954

 
2,573

 
2,573

 
2,572

 
Total liabilities
 
16,168

 
13,691

 
12,288

 
10,643

 
10,589

 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
1,827

 
1,785

 
1,564

 
1,550

 
1,349

 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
 
$
17,995

 
$
15,476

 
$
13,852

 
$
12,193

 
$
11,937

 
 
 
 
 
 
 
 
 
 
 
 
 
Shares outstanding at period end (thousands)
 
114,353

 
112,102

 
97,715

 
96,866

 
84,884

 
GAAP book value per share
 
$
15.98

 
$
15.92

 
$
16.01

 
$
16.00

 
$
15.89

 
 
 
 
 
 
 
 
 
 
 
 
 
(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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