Redwood Trust Reports First Quarter 2024 Financial Results
Key Q1 2024 Financial Results and Metrics
-
GAAP book value per common share was
$8.78 atMarch 31, 2024 , a 1.6% increase from$8.64 per share atDecember 31, 2023 - Quarterly economic return on book value was 3.5%(1)
-
GAAP net income available to common stockholders of
$29 million or$0.21 per diluted common share -
Non-GAAP Earnings Available for Distribution ("EAD") of
$11 million or$0.08 per basic common share(2) -
Recourse leverage ratio of 1.9x at
March 31, 2024 , compared to 2.2x atDecember 31, 2023 (3) -
Declared and paid a regular quarterly dividend of
$0.16 per common share
Operational Business Highlights
Residential Consumer Mortgage Banking
-
Locked
$1.8 billion of jumbo loans,(4) up 53% from$1.2 billion in the fourth quarter of 2023- Q1'24 flow lock volume was up 31% relative to Q4'23
- Q1'24 total independent mortgage banker ("IMB") lock volume and Q1'24 total bulk volume each doubled relative to Q4'23
- We are actively engaged with 74 depository institutions, relative to 68 in Q4'23
- Achieved gross margins of 107bps, above our historical target range of 75bps to 100bps
-
Distributed
$1.4 billion of jumbo loans through three securitizations ($1.2 billion ) and whole loan sales ($202 million ) - Closed first directly originated home equity investment ("HEI") and launched closed-end second ("CES") lien product to Residential Consumer Seller network
Residential Investor Mortgage Banking
-
Funded
$326 million of residential investor loans in the first quarter of 2024 (64% bridge and 36% term), compared to$343 million in the fourth quarter of 2023- Average February and March funding volumes up 20% from January levels as pipeline builds into the start of second quarter
-
Distributed
$59 million of loans through whole loan sales and sales to joint ventures ("JVs")
Investment Portfolio
-
Deployed approximately
$115 million of capital into internally sourced and third-party investments, the largest single quarter deployment since Q3'22 -
RPL and jumbo securities saw stability in 90 day+ delinquency rates at 8.1% and 0.2%, respectively; 90 day+ delinquency rates for our combined CAFL securities and bridge loan portfolio were 5.0%, as compared to 4.7% at
December 31, 2023 (5) -
Secured recourse leverage ratio of 0.9x at
March 31, 2024 (6)
Financing Highlights
-
Unrestricted cash and cash equivalents of
$275 million and unencumbered assets of approximately$370 million atMarch 31, 2024 -
Grew excess warehouse financing capacity to
$2.7 billion atMarch 31, 2024 -
Successfully renewed or established three loan financing facilities with key counterparties for
$750 million , including$250 million secured revolver with CPP Investments
-
Successfully renewed or established three loan financing facilities with key counterparties for
-
Repurchased
$31 million of Redwood's convertible debt (at a discount to par) across outstanding 2024 and 2027 maturities -
Issued
$60 million of senior unsecured notes due 2029
Corporate Highlights
-
Completed strategic capital partnership with CPP Investments, inclusive of a joint venture with up to
$4 billion of loan capacity and a financing line with up to$250 million of capacity(7)- Provides accretive financing capacity to support growth of Redwood’s market-leading operating platforms
-
Completed cost reduction efforts which are expected to result in run-rate annual savings of approximately
$8 million (8)
Q2 2024 Highlights to Date (9)
-
Closed a SEMT jumbo securitization in
mid-April 2024 , backed by approximately$402 million of jumbo loans -
Completed initial draw of
$100 million under the recently established$250 million CPP Investments financing facility
"Our first quarter results reflect the power of our platform and the impact of recent initiatives in driving earnings and book value higher," said
Abate continued, "Overall, our first quarter results are reflective of tangible, positive financial momentum, substantiating the impact of our strategies. As we communicated at our Investor Day in March, we believe the embedded option value of our franchise is significant and we remain confident that there is no one better positioned than Redwood to support the evolving housing finance landscape."
_____________________
(1) |
|
Economic return on book value is based on the period change in GAAP book value per common share plus dividends declared per common share in the period. |
(2) |
|
Earnings available for distribution is a non-GAAP measure. See Non-GAAP Disclosures section that follows for additional information on this measure. |
(3) |
|
Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. Recourse debt excludes |
(4) |
|
Lock volume represents loans identified for purchase from loan sellers. Lock volume does not account for potential fallout from pipeline that typically occurs through the lending process. |
(5) |
|
Re-performing loan ("RPL") and jumbo securities delinquency rate calculations were updated in Q4'23 to be weighted by notional balances of loans collateralizing each of our securities investments (prior periods presented were conformed to updated calculation). Bridge loan and CAFL securities delinquency rates are calculated as BPL term loans in our consolidated CAFL securitizations, our portion of loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale with a delinquent payment greater than 90 days, divided by the total notional balance of loans in consolidated CAFL securitizations, our portion of loans held at JVs, unsecuritized bridge loans held for investment, and bridge and term loans held for sale. |
(6) |
|
Secured recourse leverage ratio for our Investment Portfolio is defined as secured recourse debt financing our investment portfolio assets divided by capital allocated to our investment portfolio. |
(7) |
|
To promote long-term strategic alignment, CPP Investments received warrants exercisable for 1,974,905 share of RWT common stock, with a second tranche of warrants exercisable for 4,608,112 shares of RWT common stock that will vest if certain JV deployment targets are achieved. The warrants were struck at |
(8) |
|
Annual run-rate savings exclude organizational restructuring charges recorded in Q1'24. |
(9) |
|
Represents Q2'24 activity through |
First Quarter 2024 Redwood Review and Supplemental Tables Available Online
A further discussion of Redwood's business and financial results is included in the first quarter 2024 Shareholder Letter and Redwood Review which are available under "Financial Info" within the Investor Relations section of the Company’s website at redwoodtrust.com/investor-relations. Additional supplemental financial tables can also be found within this section of the Company's website.
Conference Call and Webcast
Redwood will host an earnings call today,
The conference call will be webcast live in listen-only mode through the News & Events section of Redwood’s Investor Relations website at https://www.redwoodtrust.com/investor-relations/news-events/events. 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 Annual Report on Form 10-Q with the
About Redwood
Cautionary Statement; 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 the total levered purchasing capacity of our JV with CPP Investments, and the expected timing for the filing of Redwood's Quarterly Report on Form 10-
|
|||||||
($ in millions, except per share data) |
Three Months Ended |
||||||
|
|
|
|
||||
Financial Performance |
|
|
|
||||
Net income per diluted common share |
$ |
0.21 |
|
|
$ |
0.15 |
|
Net income per basic common share |
$ |
0.21 |
|
|
$ |
0.15 |
|
EAD per basic common share (non-GAAP) |
$ |
0.08 |
|
|
$ |
0.05 |
|
|
|
|
|
||||
Return on Common Equity ("ROE") (annualized) |
|
10.0 |
% |
|
|
7.3 |
% |
EAD Return on Common Equity (" |
|
3.9 |
% |
|
|
2.7 |
% |
|
|
|
|
||||
Book Value per Common Share |
$ |
8.78 |
|
|
$ |
8.64 |
|
Dividend per Common Share |
$ |
0.16 |
|
|
$ |
0.16 |
|
Economic Return on Book Value (1) |
|
3.5 |
% |
|
|
0.3 |
% |
|
|
|
|
||||
Recourse Leverage Ratio (2) |
1.9x |
|
2.2x |
||||
Operating Metrics |
|||||||
Business Purpose Loans |
|
|
|
||||
Term fundings |
$ |
117 |
|
|
$ |
117 |
|
Bridge fundings |
|
209 |
|
|
|
226 |
|
Bridge securitized |
|
— |
|
|
|
250 |
|
Term sold |
|
6 |
|
|
|
48 |
|
Bridge sold |
|
53 |
|
|
|
63 |
|
Residential Jumbo Loans |
|
|
|
||||
Locks |
$ |
1,784 |
|
|
$ |
1,165 |
|
Purchases |
|
1,006 |
|
|
|
1,004 |
|
Securitized |
|
1,188 |
|
|
|
708 |
|
Sold |
|
202 |
|
|
|
35 |
|
(1) |
|
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. |
(2) |
|
Recourse leverage ratio is defined as recourse debt at Redwood divided by tangible stockholders' equity. At |
|
||||||||||||||||||||
Consolidated Income Statements (1) |
|
Three Months Ended |
||||||||||||||||||
($ in millions, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest income |
|
$ |
205 |
|
|
$ |
190 |
|
|
$ |
177 |
|
|
$ |
179 |
|
|
$ |
179 |
|
Interest expense |
|
|
(181 |
) |
|
|
(170 |
) |
|
|
(157 |
) |
|
|
(153 |
) |
|
|
(152 |
) |
Net interest income |
|
|
24 |
|
|
|
20 |
|
|
|
20 |
|
|
|
26 |
|
|
|
26 |
|
Non-interest income (loss) |
|
|
|
|
|
|
|
|
|
|
||||||||||
Residential consumer mortgage banking activities, net |
|
|
8 |
|
|
|
8 |
|
|
|
9 |
|
|
|
7 |
|
|
|
3 |
|
Residential investor mortgage banking activities, net |
|
|
7 |
|
|
|
6 |
|
|
|
10 |
|
|
|
9 |
|
|
|
13 |
|
Investment fair value changes, net |
|
|
22 |
|
|
|
15 |
|
|
|
(42 |
) |
|
|
(14 |
) |
|
|
(4 |
) |
HEI income, net |
|
|
9 |
|
|
|
12 |
|
|
|
10 |
|
|
|
9 |
|
|
|
4 |
|
Other income, net |
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
5 |
|
Realized gains, net |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
Total non-interest income (loss), net |
|
|
50 |
|
|
|
44 |
|
|
|
(10 |
) |
|
|
17 |
|
|
|
21 |
|
General and administrative expenses |
|
|
(35 |
) |
|
|
(32 |
) |
|
|
(30 |
) |
|
|
(31 |
) |
|
|
(36 |
) |
Portfolio management costs |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(4 |
) |
Loan acquisition costs |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Other expenses |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
(Provision for) benefit from income taxes |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
1 |
|
Net income (loss) |
|
$ |
30 |
|
|
$ |
21 |
|
|
$ |
(31 |
) |
|
$ |
3 |
|
|
$ |
5 |
|
Dividends on preferred stock |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
Net income (loss) available (related) to common stockholders |
|
$ |
29 |
|
|
$ |
19 |
|
|
$ |
(33 |
) |
|
$ |
1 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average basic common shares (thousands) |
|
|
131,570 |
|
|
|
121,927 |
|
|
|
115,466 |
|
|
|
114,051 |
|
|
|
113,679 |
|
Weighted average diluted common shares (thousands) (2) |
|
|
131,570 |
|
|
|
122,474 |
|
|
|
115,466 |
|
|
|
114,445 |
|
|
|
114,135 |
|
Earnings (loss) per basic common share |
|
$ |
0.21 |
|
|
$ |
0.15 |
|
|
$ |
(0.29 |
) |
|
$ |
— |
|
|
$ |
0.02 |
|
Earnings (loss) per diluted common share |
|
$ |
0.21 |
|
|
$ |
0.15 |
|
|
$ |
(0.29 |
) |
|
$ |
— |
|
|
$ |
0.02 |
|
Regular dividends declared per common share |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.23 |
(1) |
Certain totals may not foot due to rounding. |
|||
(2) |
Actual shares outstanding (in thousands) at |
Analysis of Income Statement - Changes from Fourth Quarter 2023 to First Quarter 2024
- Net interest income increased from the fourth quarter as a result of accretive capital deployment and improved interest income on bridge loans in part due to a recovery of delinquent interest.
- Income from Residential Consumer Mortgage Banking improved from the fourth quarter driven by higher volumes and consistent margins.
- Income from Residential Investor Mortgage Banking increased from the fourth quarter, driven by improved securitization economics. Overall volumes were effectively flat quarter over quarter.
- Net positive fair value changes on our Investment Portfolio in the first quarter primarily reflected tightening of credit spreads across our securities portfolio and improved valuations on our bridge loans as credit performance stabilized.
- HEI income, net decreased in the first quarter, as actual and projected trends in prepayments slowed, offset in part by market improvement in HPA forecasts.
- Realized gains in the first quarter reflect gains on extinguishment of corporate convertible debt and securitized debt that we repurchased during the quarter.
- General and administrative expenses increased from the fourth quarter primarily as a result of organizational restructuring costs from a reduction in force in the first quarter, which are not reflected in Earnings Available for Distribution.
- Our provision for income taxes in the first quarter reflected net income earned at our taxable REIT subsidiary, driven by higher mortgage banking income and fair value increases on certain servicing investments.
|
||||||||||
Consolidated Balance Sheets (1) |
|
|
|
|
|
|
|
|
|
|
($ in millions, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans |
|
|
|
|
|
|
|
|
|
|
Business purpose loans |
|
5,182 |
|
5,220 |
|
5,249 |
|
5,227 |
|
5,365 |
|
|
423 |
|
425 |
|
421 |
|
420 |
|
427 |
Real estate securities |
|
212 |
|
128 |
|
129 |
|
167 |
|
243 |
Home equity investments (HEI) |
|
561 |
|
550 |
|
431 |
|
427 |
|
417 |
Other investments |
|
337 |
|
344 |
|
340 |
|
356 |
|
382 |
Cash and cash equivalents |
|
275 |
|
293 |
|
204 |
|
357 |
|
404 |
Other assets |
|
451 |
|
493 |
|
399 |
|
387 |
|
391 |
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt, net |
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
247 |
|
251 |
|
217 |
|
230 |
|
187 |
Asset-backed securities issued, net |
|
10,628 |
|
9,812 |
|
8,392 |
|
8,183 |
|
8,447 |
Long-term debt, net |
|
1,707 |
|
1,681 |
|
1,830 |
|
1,802 |
|
1,733 |
Total liabilities |
|
13,834 |
|
13,302 |
|
11,915 |
|
11,673 |
|
11,984 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
1,224 |
|
1,203 |
|
1,106 |
|
1,124 |
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at period end (thousands) |
|
131,871 |
|
131,486 |
|
118,504 |
|
114,178 |
|
113,864 |
GAAP book value per common share |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain totals may not foot due to rounding. |
Non-GAAP Disclosures
Reconciliation of GAAP Net Income (Loss) Available (Related) to Common Stockholders to non-GAAP Earnings Available for Distribution (1)(2)(3) |
|
Three Months Ended |
||||||
($ in millions, except share and per share data) |
|
|
|
|
||||
|
|
|
|
|
||||
GAAP Net income (loss) available (related) to common stockholders |
|
$ |
29 |
|
|
$ |
19 |
|
|
|
|
|
|
||||
Adjustments: |
|
|
|
|
||||
Investment fair value changes, net(4) |
|
|
(22 |
) |
|
|
(15 |
) |
Realized (gains)/losses, net(5) |
|
|
— |
|
|
|
(1 |
) |
Acquisition related expenses(6) |
|
|
3 |
|
|
|
3 |
|
Organizational restructuring charges(7) |
|
|
3 |
|
|
|
— |
|
Tax effect of adjustments(8) |
|
|
(1 |
) |
|
|
— |
|
|
|
|
|
|
||||
Earnings Available for Distribution (non-GAAP) |
|
$ |
11 |
|
|
$ |
7 |
|
|
|
|
|
|
||||
Earnings (loss) per basic common share |
|
$ |
0.21 |
|
|
$ |
0.15 |
|
EAD per basic common share (non-GAAP) |
|
$ |
0.08 |
|
|
$ |
0.05 |
|
|
|
|
|
|
||||
GAAP Return on Common Equity (annualized) |
|
|
10.0 |
% |
|
|
7.3 |
% |
EAD Return on Common Equity (non-GAAP, annualized)(9) |
|
|
3.9 |
% |
|
|
2.7 |
% |
(1) |
|
Certain totals may not foot due to rounding. |
(2) |
|
In the fourth quarter of 2023, we changed our calculation of EAD and conformed all prior period amounts presented in the table above and throughout this earnings release. This change consisted of removing the previously presented line item titled "Change in economic basis of investments". Additionally, during the fourth quarter of 2023, we changed our consolidated income statements to include a new line item titled "HEI income, net". This line item includes all amounts related to our HEI investments that were previously presented within the "Investment fair value changes, net" line item. As such, our adjustment for "Investment fair value changes, net" in our current calculation of EAD does not include fair value changes related to our HEI investments. |
(3) |
|
EAD and |
(4) |
|
Investment fair value changes, net includes all amounts within that same line item on our consolidated statements of income, which primarily represents both realized and unrealized gains and losses on our investments (excluding HEI) and associated hedges. As noted above, realized and unrealized gains and losses on our HEI investments are reflected in a new line item on our consolidated income statements titled "HEI income, net". |
(5) |
|
Realized (gains)/losses, net includes all amounts within that line item on our consolidated statements of income. |
(6) |
|
Acquisition related expenses include transaction costs paid to third parties, as applicable, and the ongoing amortization of intangible assets related to the Riverbend, CoreVest and 5Arches acquisitions. |
(7) |
|
Organizational restructuring charges for the first quarter of 2024 represent costs associated with employee severance and related transition expenses. |
(8) |
|
Tax effect of adjustments represents the hypothetical income taxes associated with all adjustments used to calculate EAD. |
(9) |
|
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20240430478341/en/
Investor Relations
MD, Head of Investor Relations
Phone: 866-269-4976
Email: investorrelations@redwoodtrust.com
Source: