Maryland | 001-13759 | 68-0329422 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition; |
Item 7.01. | Regulation FD Disclosure. |
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits | |
Exhibit 99.1 | Press Release dated August 5, 2015 | |
Exhibit 99.2 | The Redwood Review – 2nd Quarter 2015 | |
Exhibit 99.3 | Press Release dated August 5, 2015 |
Date: August 5, 2015 | REDWOOD TRUST, INC. | ||||
By: | /s/ Christopher J. Abate | ||||
Christopher J. Abate | |||||
Chief Financial Officer |
Exhibit No. | Exhibit Title | ||
Exhibit 99.1 | Press Release dated August 5, 2015 | ||
Exhibit 99.2 | The Redwood Review – 2nd Quarter 2015 | ||
Exhibit 99.3 | Press Release dated August 5, 2015 | ||
FOR IMMEDIATE RELEASE | CONTACTS: Christopher Abate |
REDWOOD TRUST, INC. | ||||||||||||||||||||
Consolidated Income Statements (1) | Second | First | Fourth | Third | Second | |||||||||||||||
($ in millions, except share and per share data) | Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
2015 | 2015 | 2014 | 2014 | 2014 | ||||||||||||||||
Interest income | $ | 63 | $ | 64 | $ | 65 | $ | 63 | $ | 58 | ||||||||||
Interest expense | (23 | ) | (24 | ) | (24 | ) | (23 | ) | (21 | ) | ||||||||||
Net interest income | 40 | 40 | 41 | 40 | 37 | |||||||||||||||
(Provision for) reversal of provision for loan losses | — | — | (2 | ) | 2 | — | ||||||||||||||
Net interest income after provision | 40 | 40 | 40 | 42 | 37 | |||||||||||||||
Non-interest income | ||||||||||||||||||||
Mortgage banking and investment activities, net | 6 | 1 | 15 | 14 | 2 | |||||||||||||||
MSR income (loss), net | 1 | (11 | ) | (9 | ) | 6 | (2 | ) | ||||||||||||
Other income | 1 | 1 | — | 2 | — | |||||||||||||||
Realized gains, net | 6 | 4 | 5 | 9 | 1 | |||||||||||||||
Total non-interest income (loss) | 14 | (5 | ) | 11 | 31 | 1 | ||||||||||||||
Operating expenses | (25 | ) | (25 | ) | (26 | ) | (21 | ) | (22 | ) | ||||||||||
(Provision for) benefit from income taxes | (2 | ) | 5 | 3 | (5 | ) | — | |||||||||||||
Net income | $ | 27 | $ | 15 | $ | 27 | $ | 45 | $ | 16 | ||||||||||
Weighted average diluted shares (thousands) | 94,950 | 85,622 | 85,384 | 96,956 | 85,033 | |||||||||||||||
Diluted earnings per share | $ | 0.31 | $ | 0.16 | $ | 0.31 | $ | 0.50 | $ | 0.18 | ||||||||||
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 | ||||||||||||||||||||
REDWOOD TRUST, INC. | ||||||||
Consolidated Income Statements (1) | ||||||||
($ in millions, except share and per share data) | Six Months Ended June 30, | |||||||
2015 | 2014 | |||||||
Interest income | $ | 127 | $ | 113 | ||||
Interest expense | (47 | ) | (40 | ) | ||||
Net interest income | 80 | 73 | ||||||
Provision for loan losses | — | (1 | ) | |||||
Net interest income after provision | 80 | 72 | ||||||
Non-interest income | ||||||||
Mortgage banking and investment activities, net | 6 | (4 | ) | |||||
MSR income (loss), net | (10 | ) | (1 | ) | ||||
Other income | 2 | — | ||||||
Realized gains, net | 11 | 2 | ||||||
Total non-interest income (loss) | 9 | (3 | ) | |||||
Operating expenses | (50 | ) | (42 | ) | ||||
Benefit from income taxes | 3 | 2 | ||||||
Net income | $ | 42 | $ | 28 | ||||
Weighted average diluted shares (thousands) | 85,474 | 84,944 | ||||||
Diluted earnings per share | $ | 0.47 | $ | 0.32 | ||||
Regular dividends declared per common share | $ | 0.56 | $ | 0.56 | ||||
(1) Certain totals may not foot due to rounding | ||||||||
REDWOOD TRUST, INC. | |||||||||||||||||||||
Consolidated Balance Sheets (1) | 30-Jun | 31-Mar | 31-Dec | 30-Sep | 30-Jun | ||||||||||||||||
($ in millions, except share and per share data) | 2015 | 2015 | 2014 | 2014 | 2014 | ||||||||||||||||
Residential loans | $ | 3,286 | $ | 3,400 | $ | 3,399 | $ | 3,288 | $ | 2,724 | |||||||||||
Commercial loans | 551 | 460 | 567 | 498 | 469 | ||||||||||||||||
Real estate securities | 1,158 | 1,285 | 1,379 | 1,395 | 1,845 | ||||||||||||||||
Mortgage servicing rights | 168 | 120 | 139 | 135 | 71 | ||||||||||||||||
Cash and cash equivalents | 226 | 304 | 270 | 150 | 157 | ||||||||||||||||
Other assets | 206 | 247 | 165 | 146 | 112 | ||||||||||||||||
Total Assets | $ | 5,596 | $ | 5,816 | $ | 5,919 | $ | 5,612 | $ | 5,379 | |||||||||||
Short-term debt | $ | 1,367 | $ | 1,502 | $ | 1,794 | $ | 1,888 | $ | 1,718 | |||||||||||
Other liabilities | 123 | 153 | 129 | 104 | 97 | ||||||||||||||||
Asset-backed securities issued | 1,262 | 1,353 | 1,545 | 1,656 | 1,768 | ||||||||||||||||
Long-term debt | 1,579 | 1,551 | 1,195 | 697 | 547 | ||||||||||||||||
Total liabilities | 4,331 | 4,559 | 4,663 | 4,345 | 4,130 | ||||||||||||||||
Stockholders' equity | 1,265 | 1,257 | 1,256 | 1,267 | 1,249 | ||||||||||||||||
Total Liabilities and Equity | $ | 5,596 | $ | 5,816 | $ | 5,919 | $ | 5,612 | $ | 5,379 | |||||||||||
Shares outstanding at period end (thousands) | 84,552 | 83,749 | 83,443 | 83,284 | 83,080 | ||||||||||||||||
GAAP book value per share | $ | 14.96 | $ | 15.01 | $ | 15.05 | $ | 15.21 | 0.50 | $ | 15.03 | ||||||||||
(1) Certain totals may not foot due to rounding |
REDWOOD TRUST |
T A B L E O F C O N T E N T S |
Introduction | |
Shareholder Letter | |
Quarterly Overview | |
Ñ Second Quarter 2015 Highlights | |
Ñ GAAP Earnings | |
Ñ GAAP Book Value | |
Ñ Quarterly Investment Activity | |
Ñ Analysis of GAAP Results by Business Segment | |
Ñ Capital and Liquidity | |
Financial Insights | |
Ñ Balance Sheet | |
Ñ Residential Loans | |
Ñ Real Estate Securities | |
Ñ Commercial Loans | |
Ñ MSRs | |
Ñ Corporate Long-term Debt | |
Appendix | |
Ñ Changes to Financial Statement Presentation | |
Ñ Redwood’s Business Overview | |
Ñ Dividend Policy | |
Ñ Glossary | |
Ñ Financial Tables |
THE REDWOOD REVIEW I 2ND QUARTER 2015 1 |
REDWOOD TRUST |
C A U T I O N A R Y S T A T E M E N T |
THE REDWOOD REVIEW I 2ND QUARTER 2015 2 |
REDWOOD TRUST |
C A U T I O N A R Y S T A T E M E N T |
THE REDWOOD REVIEW I 2ND QUARTER 2015 3 |
REDWOOD TRUST |
C A U T I O N A R Y S T A T E M E N T |
THE REDWOOD REVIEW I 2ND QUARTER 2015 4 |
REDWOOD TRUST |
I N T R O D U C T I O N |
Selected Financial Highlights | |||||||||||
Quarter:Year | GAAP Income per Share | REIT Taxable Income per Share (1) | Annualized GAAP Return on Equity | GAAP Book Value per Share | Dividends per Share | ||||||
Q215 | $0.31 | $0.21 | 9% | $14.96 | $0.28 | ||||||
Q115 | $0.16 | $0.18 | 5% | $15.01 | $0.28 | ||||||
Q414 | $0.31 | $0.19 | 9% | $15.05 | $0.28 | ||||||
Q314 | $0.50 | $0.21 | 14% | $15.21 | $0.28 | ||||||
Q214 | $0.18 | $0.17 | 5% | $15.03 | $0.28 | ||||||
Q114 | $0.14 | $0.19 | 4% | $15.14 | $0.28 | ||||||
Q413 | $0.29 | $0.20 | 8% | $15.10 | $0.28 | ||||||
Q313 | $0.25 | $0.24 | 7% | $14.65 | $0.28 | ||||||
Q213 | $0.71 | $0.25 | 22% | $14.69 | $0.28 |
THE REDWOOD REVIEW I 2ND QUARTER 2015 5 |
REDWOOD TRUST |
S H A R E H O L D E R L E T T E R |
THE REDWOOD REVIEW I 2ND QUARTER 2015 6 |
REDWOOD TRUST |
S H A R E H O L D E R L E T T E R |
Ñ | In July, we entered into a risk-sharing arrangement with Freddie Mac. Under this arrangement Redwood, through a special-purpose entity, commits to absorb the first 1% of credit losses on up to $1 billion of new conforming loans we expect to deliver to Freddie Mac during the third quarter of 2015. Through this risk-sharing arrangement, we create attractive credit investments for Redwood which, in concept, are similar to investing in the subordinate RMBS we retain through our Sequoia securitization transactions. This transaction follows on the risk-sharing transaction we entered into with Fannie Mae last year, making Redwood the first to execute proprietary risk sharing arrangements with both GSEs. |
Ñ | We also completed two jumbo Sequoia securitizations during the second quarter. Although RMBS spreads remain volatile, we continue to believe that private-label securitization will play a key role in housing finance over the long-term and plan to remain an active participant and leader in this market. We continue to introduce new enhancements into our Sequoia transactions, with the goal of attracting more institutional investors and increasing liquidity for triple-A rated RMBS. |
Ñ | Finally, we continued making progress with the MPF DirectTM initiative we have with the FHLB-Chicago, adding MPF DirectTM loan sellers in the FHLB-Chicago district and beginning to add sellers in the FHLB-Boston district. In addition, four other FHLB districts received regulatory approval to offer the MPF DirectTM product to their members. Although production from this channel grows incrementally, it is not yet substantial. Over the coming months, we expect that the rollout of the initiative to additional FHLB districts, coupled with the recently announced increase in the loan size limit for MPF DirectTM from $729,500 to $1.5 million, will accelerate the pace of adding new MPF DirectTM loan sellers and result in more substantial volumes towards the end of 2015. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 7 |
REDWOOD TRUST |
S H A R E H O L D E R L E T T E R |
THE REDWOOD REVIEW I 2ND QUARTER 2015 8 |
REDWOOD TRUST |
S H A R E H O L D E R L E T T E R |
THE REDWOOD REVIEW I 2ND QUARTER 2015 9 |
REDWOOD TRUST |
S H A R E H O L D E R L E T T E R |
![]() | ![]() | |
Marty Hughes | Brett D. Nicholas | |
CEO | President |
THE REDWOOD REVIEW I 2ND QUARTER 2015 10 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
![]() |
Christopher J. Abate |
CFO |
THE REDWOOD REVIEW I 2ND QUARTER 2015 11 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Ñ | We earned $0.31 per share for the second quarter of 2015, as compared to $0.16 per share for the first quarter of 2015. GAAP earnings increased from the prior quarter primarily due to higher margins on residential jumbo loans and commercial loans, and an increase in the value of our MSR portfolio as a result of higher benchmark interest rates. |
Ñ | Our GAAP book value at June 30, 2015, was $14.96 per share, as compared to $15.01 per share at March 31, 2015. |
Ñ | We deployed $92 million of capital in the second quarter toward new investments, and $225 million year to date. Over two-thirds of the capital deployed year to date was into investments created through our residential and commercial mortgage-banking operations. |
Ñ | We sold $177 million of predominantly lower yielding RMBS during the second quarter. These sales freed up approximately $57 million of capital for reinvestment. |
Ñ | Our combined residential jumbo and conforming loan purchase volume was $2.8 billion for the second quarter, an increase of 15% from the first quarter of 2015. At June 30, 2015, our pipeline of residential loans identified for purchase was $1.6 billion and included $1.2 billion of jumbo loans and $0.5 billion of conforming loans, unadjusted for fallout expectations. |
Ñ | We completed two Sequoia securitizations totaling $712 million during the second quarter (SEMT 2015-2 and SEMT 2015-3), and created $16 million of new investments for our portfolio, including $10 million of subordinate securities and $6 million of MSRs. In addition, we sold $708 million of jumbo loans to third parties during the second quarter. |
Ñ | At June 30, 2015, we had 212 loan sellers, up from 180 at the end of the first quarter. The majority of the increase was from the addition of 21 MPF Direct sellers from the Chicago and Boston FHLB districts. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 12 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Consolidated Statements of Income | ||||||||
($ in millions, except per share data) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Interest income | $ | 63 | $ | 64 | ||||
Interest expense | (23 | ) | (24 | ) | ||||
Net interest income | 40 | 40 | ||||||
Provision for loan losses | — | — | ||||||
Non-interest income | ||||||||
Mortgage banking and investment activities, net (1) | 6 | 1 | ||||||
MSR income (loss), net (2) | 1 | (11 | ) | |||||
Other income | 1 | 1 | ||||||
Realized gains, net | 6 | 4 | ||||||
Total non-interest income, net | 14 | (5 | ) | |||||
Operating expenses | (25 | ) | (25 | ) | ||||
(Provision for) benefit from income taxes | (2 | ) | 5 | |||||
Net income | $ | 27 | $ | 15 | ||||
Net income per diluted common share | $ | 0.31 | $ | 0.16 |
(1) | Mortgage banking and investment activities, net, now includes mortgage banking activities at both our residential and commercial mortgage banking operations in addition to investment activities, which includes market valuation changes on our Sequoia IO securities and other fair value securities, loans held-for-investment, and related derivatives. For additional information on this line item please refer to the Analysis of GAAP Results by Business Segment section of this Redwood Review. |
(2) | During the second quarter of 2015 we began to include market valuation changes of derivatives associated with our MSRs in MSR income (loss), net. Amounts presented in this line for the first quarter of 2015 do not include the effects of hedges. See the Changes to Financial Statement Presentation section of the Appendix to this Redwood Review for additional information on the change in the MSR Income (loss), net line item. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 13 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Ñ | Net interest income was $40 million for the second quarter of 2015, unchanged from the first quarter of 2015. During the second quarter, we received $2 million of non-recurring yield maintenance interest relating to the prepayment of three commercial mezzanine loans. This was offset by lower net interest income received on residential loans held for sale due to increased sale and securitization activity. |
Ñ | MSR income (loss), net improved during the second quarter of 2015, as the value of our MSR portfolio increased due to higher benchmark interest rates. This increase was offset by higher derivative expenses as a result of significant interest rate volatility during the quarter. See the Analysis of GAAP Results by Business Segments - Residential Investments section that follows for the detailed components of MSR income (loss), net for the second quarter. |
Ñ | Mortgage banking and investment activities, net, increased to $6 million for the second quarter of 2015, as compared to $1 million for the first quarter of 2015, primarily as a result of higher loan sale margins for both our residential and commercial loans. |
Ñ | Operating expenses were $25 million for the second quarter of 2015, unchanged from the first quarter of 2015. We do not currently anticipate significant changes to operating expenses in the second half of 2015. |
Ñ | We recorded a tax provision of $2 million for the second quarter of 2015, as compared to a tax benefit of $5 million for the first quarter of 2015. The provision was primarily due to changes in GAAP income at our taxable REIT subsidiaries during the second quarter. A reconciliation of GAAP and taxable income is set forth in Table 3 of the Financial Tables Appendix of this Review. |
Ñ | Additional details on our earnings are included in the Analysis of GAAP Results by Business Segment section that follows. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 14 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Changes in GAAP Book Value Per Share | ||||||||
($ in per share) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Beginning book value | $ | 15.01 | $ | 15.05 | ||||
Earnings | 0.31 | 0.16 | ||||||
Changes in unrealized gains on securities, net: | ||||||||
Mezzanine RMBS used for hedging | (0.06 | ) | 0.10 | |||||
Other securities | (0.06 | ) | (0.05 | ) | ||||
Total change in unrealized gains on securities, net | (0.12 | ) | 0.05 | |||||
Other, net | 0.05 | 0.02 | ||||||
Dividends | (0.28 | ) | (0.28 | ) | ||||
Equity award distributions | (0.19 | ) | — | |||||
Changes in derivatives used to hedge long-term debt | 0.18 | (0.10 | ) | |||||
Impact of new accounting standard | — | 0.11 | ||||||
Ending book value | $ | 14.96 | $ | 15.01 |
Ñ | During the second quarter, our GAAP book value per share declined $0.05 to $14.96. Although earnings exceeded our dividend payment, annual equity award distributions - which have historically occurred in May of each year - reduced book value per share. The decline was mostly offset by an increase in the value of derivatives designated as hedges of our long-term debt. |
Ñ | Included in our book value per share was $6 million, or $0.06 per share, of negative market valuation adjustments on mezzanine RMBS used in part for hedging our enterprise-wide exposure to changes in interest rates. These securities, which are classified as available-for-sale, had an aggregate market value of $257 million at June 30, 2015. Unlike most of our assets and derivatives that we use to manage our interest rate exposure, market valuation adjustments on these investments are not recorded to our income statement based on the accounting elections we apply. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 15 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Quarterly Investment Activity | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Residential | ||||||||
Sequoia RMBS | $ | 10 | $ | 6 | ||||
Third-party RMBS | 22 | 27 | ||||||
Less: Short-term debt/Other liabilities | (11 | ) | (9 | ) | ||||
Total RMBS, net | 21 | 24 | ||||||
Loans, net – FHLBC (1) | 37 | 82 | ||||||
MSR investments | 32 | 19 | ||||||
Total residential | 90 | 125 | ||||||
Commercial | ||||||||
Mezzanine loans | 2 | 8 | ||||||
Capital invested | $ | 92 | $ | 133 |
(1) | Includes loans transferred to our FHLBC member subsidiary and FHLBC stock acquired, less secured borrowings. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 16 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Segment Results Summary (1) | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Segment contribution from: | ||||||||
Residential mortgage banking | 1 | 3 | ||||||
Residential investments | 34 | 24 | ||||||
Commercial mortgage banking and investments | 9 | 4 | ||||||
Corporate/Other | (17 | ) | (17 | ) | ||||
Net income | $ | 27 | $ | 15 |
(1) | See Table 2 of the Financial Tables section of the Appendix to this Redwood Review for a more comprehensive presentation of our segment results. |
Segment Results - Residential Mortgage Banking | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Net interest income | ||||||||
Loans | $ | 7 | $ | 8 | ||||
Sequoia IO Securities (1) | — | 4 | ||||||
Total net interest income | 7 | 12 | ||||||
Non-interest income | ||||||||
Mortgage banking activities, net | 5 | 2 | ||||||
Total non-interest income | 5 | 2 | ||||||
Direct operating expenses | (11 | ) | (11 | ) | ||||
Tax benefit | 1 | — | ||||||
Segment contribution | $ | 1 | $ | 3 |
(1) | On April 1, 2015, $62 million of Sequoia IO securities were permanently transferred from the Residential Mortgage Banking segment to the Residential Investments segment. These securities generated $3 million of net interest income during the second quarter of 2015. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 17 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Ñ | Excluding a one-time transfer of IO securities to our Residential Investments segment (noted in the table above), our Residential Mortgage Banking results improved from the first quarter of 2015, primarily due to higher loan sale profit margins. |
Ñ | Loan purchase commitments (LPCs), adjusted for fallout expectations, were $2.7 billion during the second quarter and generated mortgage banking activity income of $5 million. This compared to $2.8 billion of LPCs during the first quarter of 2015 that generated $2 million of mortgage banking activity income. |
Ñ | Our Residential Mortgage Banking operations created $76 million of investments for our investment portfolio during the second quarter, and $181 million year to date. |
Ñ | Net interest income at our Residential Mortgage Banking segment includes interest income on loans held for sale or securitization and the associated interest expense on warehouse facilities utilized to fund these loans while they are held on our balance sheet. Net interest income declined during the second quarter due to the average balance of loans held-for-sale decreasing 16% to $1.1 billion, as we experienced faster turnover of loans during the second quarter. |
Ñ | Direct operating expenses in the second quarter were unchanged from the first quarter of 2015. These expenses primarily include costs associated with the purchase, underwriting and sale of residential loans. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 18 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Segment Results - Residential Investments | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Net interest income | ||||||||
Residential securities | $ | 19 | $ | 21 | ||||
Residential loans | 9 | 6 | ||||||
Sequoia IO securities (1) | 3 | — | ||||||
Total net interest income | 32 | 27 | ||||||
Non-interest income | ||||||||
Investment activities, net | (1 | ) | — | |||||
MSR income (loss), net (2) | 1 | (11 | ) | |||||
Other income | 1 | 1 | ||||||
Realized gains, net | 6 | 4 | ||||||
Total non-interest income (loss) | 7 | (6 | ) | |||||
Direct operating expenses | (1 | ) | (1 | ) | ||||
Tax (provision) benefit | (4 | ) | 4 | |||||
Segment contribution | $ | 34 | $ | 24 |
(1) | On April 1, 2015, $62 million of Sequoia IO securities were permanently transferred to the Residential Investments segment from the Residential Mortgage Banking segment. These securities generated $4 million of net interest income during the first quarter of 2015. |
Ñ | Our results from Residential Investments improved during the second quarter, primarily due to a higher valuation of our MSR investments resulting from rising benchmark interest rates during the second quarter. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 19 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Components of MSR Income (Loss), net | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Net fee income | $ | 7 | $ | 9 | ||||
Changes in fair value of MSRs due to: | ||||||||
Change in basis (1) | (3 | ) | (5 | ) | ||||
Change in interest rates (2) | 19 | (14 | ) | |||||
Associated derivatives (3) | (22 | ) | — | |||||
MSR income (loss), net | $ | 1 | $ | (11 | ) |
(1) | Represents changes due to the receipt of expected cash flows. |
(2) | Primarily reflects changes in prepayment assumptions due to changes in benchmark interest rates. |
(3) | Beginning in the second quarter of 2015, we began to include the change in value of derivatives used to hedge our exposure to changes in market interest rates. See the Changes to Financial Statement Presentation section located in the Appendix of this Redwood Review for additional information on this change. |
Ñ | In aggregate, we currently expect our MSR investments to generate an investment return of 7% - 9% on an annualized basis, or approximately $3 million to $4 million per quarter, based on our portfolio held at June 30, 2015. While MSR valuations improved during the second quarter due to higher benchmark interest rates, the high level of interest rate volatility increased our cost to hedge this exposure. The resulting derivative expense for the second quarter reduced our MSR return below our long-term expectation. |
Ñ | Excluding the one-time transfer of IO securities from our Residential Mortgage Banking segment, net interest income increased $1 million, as the average balance of residential loans held-for-investment increased 53% to $1.0 billion. This increase was partially offset by lower net interest income from our securities portfolio, as principal paydowns and sales of lower yielding securities exceeded new investments during the quarter. |
Ñ | During the second quarter, we invested $90 million of capital in our Residential Investments segment, including $21 million into securities, $32 million into MSR investments and $37 million related to residential loans held-for-investment. |
Ñ | During the second quarter, we sold $177 million of securities, including $133 million of mezzanine securities and $44 million of Sequoia senior securities, realizing a gain on sale of $6 million. After the repayment of the associated short-term debt, these security sales freed up $57 million of capital for reinvestment. A portion of the proceeds from these security sales was used to fund our investment in residential loans held-for-investment, which we expect in aggregate to generate a higher return on capital than the securities we sold. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 20 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Ñ | As of June 30, 2015, we had $2.5 billion of investments in our Residential Investments segment, including $1.2 billion of securities, $1.2 billion of residential loans held-for-investment, and $168 million of MSR investments. The credit performance of our portfolio remains strong, with no credit losses incurred to date and minimal delinquencies. |
Components of Investment Activities, net | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Market valuation changes on: | ||||||||
Sequoia IO securities (1) | $ | 8 | $ | — | ||||
Other real estate securities | (2 | ) | — | |||||
Residential loans held-for-investment | (6 | ) | 2 | |||||
Other investments | — | (1 | ) | |||||
Derivatives and hedging allocation | (2 | ) | (1 | ) | ||||
Total investment activities, net | $ | (1 | ) | $ | — |
(1) | The $8 million in the second quarter of 2015 represents the change in value of our Sequoia IO securities that were transferred into this segment on April 1, 2015. We recorded negative $14 million of fair value changes on Sequoia IO securities in the first quarter of 2015 that were recorded in our Residential Mortgage Banking segment. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 21 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Segment Results - Commercial Mortgage Banking and Investments | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Net interest income | ||||||||
Mezzanine loans | $ | 9 | $ | 7 | ||||
Senior loans | 1 | 1 | ||||||
Total net interest income | 9 | 7 | ||||||
Provision for loan losses | — | — | ||||||
Non-interest income | ||||||||
Mortgage banking activities, net | 3 | — | ||||||
Total non-interest income | 3 | — | ||||||
Operating expenses | (3 | ) | (3 | ) | ||||
Tax benefit | — | 1 | ||||||
Segment contribution | $ | 9 | $ | 4 |
Ñ | Our results from Commercial Mortgage Banking and Investments improved in the second quarter as a result of higher net interest income, higher origination volume, and improved gain on sale margins from senior loans. |
Ñ | Net interest income increased $2 million in the second quarter, primarily from the one-time receipt of $2 million of non-recurring yield maintenance interest from the prepayment of three mezzanine loans. |
Ñ | Total senior loan originations were $258 million for the second quarter, and generated $3 million of mortgage banking activity income. This represented an increase from $93 million of senior loan originations for the first quarter of 2015 that generated a loss of less than $1 million. |
Ñ | At June 30, 2015, we had $320 million of commercial mezzanine and subordinate loans held-for-investment with a weighted average yield of approximately 10% and a weighted average maturity of over four years. The credit quality of our mezzanine loan portfolio remains strong and we do not currently anticipate any material credit issues on maturing loans. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 22 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
THE REDWOOD REVIEW I 2ND QUARTER 2015 23 |
REDWOOD TRUST |
Q U A R T E R L Y O V E R V I E W |
Financing Summary | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||
Secured Debt by Collateral Type | ||||||||||||||||||||||
Residential Loans Held-for Sale | Residential Loans Held-for-Investment | Residential Securities | Commercial Loans Held-for-Sale | Commercial Loans Held-for-Investment | TruPS and Convertible Debt | Total | ||||||||||||||||
Collateral securing debt | $ | 860 | $ | 1,000 | $ | 615 | $ | 60 | $ | 83 | NA | |||||||||||
Short-term debt | $ | 777 | $ | — | $ | 493 | $ | 45 | $ | 52 | $ | — | $ | 1,367 | ||||||||
Long-term debt | — | 882 | — | — | — | 632 | 1,514 | |||||||||||||||
Debt (1) | $ | 777 | $ | 882 | $ | 493 | $ | 45 | $ | 52 | $ | 632 | $ | 2,881 | ||||||||
Financing Summary | ||||||||||||||||||||||
Cost of funds | 1.73 | % | 0.27 | % | 1.43 | % | 2.44 | % | 5.19 | % | 6.11 | % | ||||||||||
Total borrowing capacity (2) | $ | 1,800 | $ | 1,000 | NA | $ | 300 | $ | 150 | NA | ||||||||||||
(1) | Excludes ABS issued and commercial secured borrowings. See Table 4 in the Financial Tables section of the Appendix to this Redwood Review for additional information on our consolidated debt. |
(2) | Represents our total uncommitted borrowing capacity for residential and commercial warehouse facilities. Subsequent to June 30, 2015, our financing capacity for residential loans held-for-investment with the FHLBC was increased to $1.4 billion. In July, we elected not to renew one warehouse facility for residential loans held-for-sale, with a borrowing capacity of $500 million. As a result, at July 31, 2015 our total uncommitted borrowing capacity under our four remaining residential warehouse facilities was $1.3 billion. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 24 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Consolidated Balance Sheets (1) | ||||||||
($ in millions) | ||||||||
6/30/2015 | 3/31/2015 | |||||||
Residential loans | $ | 3,286 | $ | 3,400 | ||||
Real estate securities | 1,158 | 1,285 | ||||||
Commercial loans | 551 | 460 | ||||||
Mortgage servicing rights | 168 | 120 | ||||||
Cash and cash equivalents | 226 | 304 | ||||||
Total earning assets | 5,390 | 5,569 | ||||||
Other assets | 206 | 247 | ||||||
Total assets | $ | 5,596 | $ | 5,816 | ||||
Short-term debt | ||||||||
Mortgage loan warehouse debt | $ | 874 | $ | 896 | ||||
Security repurchase facilities | 493 | 606 | ||||||
Other liabilities | 123 | 153 | ||||||
Asset-backed securities issued | 1,262 | 1,353 | ||||||
Long-term debt | 1,579 | 1,551 | ||||||
Total liabilities | 4,331 | 4,559 | ||||||
Stockholders’ equity | 1,265 | 1,257 | ||||||
Total liabilities and equity | $ | 5,596 | $ | 5,816 |
(1) | Our consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations of these VIEs and liabilities of consolidated VIEs for which creditors do not have recourse to the primary beneficiary (Redwood Trust, Inc.). At June 30, 2015 and March 31, 2015, assets of consolidated VIEs totaled $1,623 and $1,717, respectively, and liabilities of consolidated VIEs totaled $1,263 and $1,354, respectively. See Table 8 in the Financial Tables section of the Appendix to this Redwood Review for additional detail on consolidated VIEs. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 25 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Residential Loans | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Conforming Held-for-Sale | Jumbo Held-for- Sale | Jumbo Held-for-Investment | Consolidated Sequoia Entities | Total | ||||||||||||||||
Fair value at December 31, 2014 | $ | 245 | $ | 1,098 | $ | 582 | $ | 1,474 | $ | 3,399 | ||||||||||
Accounting adoption (1) | — | — | — | (104 | ) | (104 | ) | |||||||||||||
Acquisitions | 1,365 | 1,112 | — | — | 2,477 | |||||||||||||||
Sales | (1,408 | ) | (858 | ) | — | — | (2,266 | ) | ||||||||||||
Transfers between portfolios (2) | — | (447 | ) | 447 | — | — | ||||||||||||||
Principal payments | — | (15 | ) | (30 | ) | (67 | ) | (112 | ) | |||||||||||
Change in fair value, net | (1 | ) | 3 | 2 | 3 | 7 | ||||||||||||||
Other, net | — | — | — | (2 | ) | (2 | ) | |||||||||||||
Fair value at March 31, 2015 | $ | 201 | $ | 894 | $ | 1,000 | $ | 1,304 | $ | 3,400 | ||||||||||
Acquisitions | 1,440 | 1,407 | — | — | 2,847 | |||||||||||||||
Sales | (1,396 | ) | (1,420 | ) | — | — | (2,816 | ) | ||||||||||||
Transfers between portfolios (2) | — | (216 | ) | 216 | — | — | ||||||||||||||
Principal payments | — | (14 | ) | (53 | ) | (69 | ) | (136 | ) | |||||||||||
Change in fair value, net | 4 | (7 | ) | (6 | ) | 3 | (6 | ) | ||||||||||||
Other, net | — | — | — | (1 | ) | (1 | ) | |||||||||||||
Ending fair value at June 30, 2015 | $ | 248 | $ | 642 | $ | 1,157 | $ | 1,237 | $ | 3,286 |
(1) | On January 1, 2015, we adopted FASB Accounting Standard Update 2014-13 (ASU 2014-13). The amount in the Accounting adoption line item represents the adjustment to switch from amortized cost to fair value accounting for these loans. |
(2) | Represents transfers of loans to our Residential Investments segment from our Residential Mortgage Banking segment. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 26 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
THE REDWOOD REVIEW I 2ND QUARTER 2015 27 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Real Estate Securities | ||||||||
($ in millions) | ||||||||
Three Months Ended | ||||||||
6/30/15 | 3/31/2015 | |||||||
Beginning fair value | $ | 1,285 | $ | 1,379 | ||||
Acquisitions | ||||||||
Sequoia securities (1) | 43 | 6 | ||||||
Third-party securities | 31 | 27 | ||||||
Sales | ||||||||
Sequoia securities | (147 | ) | (98 | ) | ||||
Third-party securities | (30 | ) | (7 | ) | ||||
Gain on sale/calls, net | 6 | 4 | ||||||
Effect of principal payments | (33 | ) | (25 | ) | ||||
Change in fair value, net | 3 | (2 | ) | |||||
Ending fair value (2) | $ | 1,158 | $ | 1,285 |
(1) | Sequoia securities represent interests we have retained in Sequoia securitizations we sponsored and that were not consolidated for GAAP purposes. |
(2) | During the second quarter of 2015, we transferred $62 million of Sequoia IO securities from our Residential Mortgage Banking segment to our Residential Investments segment. As of June 30, 2015, all of our real estate securities are held in our Residential Investments segment. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 28 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Real Estate Securities - Vintage and Category | |||||||||||||||||||||||
June 30, 2015 | |||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||
Sequoia Securities 2012-2015 | Third-party Securities | ||||||||||||||||||||||
2012-2015 | 2006-2008 | <=2005 | Total Securities | % of Total Securities | |||||||||||||||||||
Seniors | |||||||||||||||||||||||
Prime | $ | 62 | $ | — | $ | 57 | $ | 222 | $ | 341 | 29 | % | |||||||||||
Non-prime (1) | — | — | 4 | 169 | 173 | 15 | % | ||||||||||||||||
Total seniors | 62 | — | 61 | 391 | 514 | 44 | % | ||||||||||||||||
Re-REMIC | — | — | 110 | 59 | 169 | 15 | % | ||||||||||||||||
Prime subordinates (2) | |||||||||||||||||||||||
Mezzanine | 202 | 88 | — | — | 290 | 25 | % | ||||||||||||||||
Subordinate | 102 | 33 | 1 | 48 | 184 | 16 | % | ||||||||||||||||
Prime subordinates | 304 | 121 | 1 | 48 | 474 | 41 | % | ||||||||||||||||
Total real estate securities | $ | 366 | $ | 121 | $ | 172 | $ | 498 | $ | 1,158 | 100 | % |
(1) | Non-prime residential senior securities consist of Alt-A senior securities. |
(2) | Prime mezzanine includes securities initially rated AA, A, and BBB- and issued in 2012 or later. |
Real Estate Securities - Carrying Values | ||||||||||||||||||||||||
June 30, 2015 | ||||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Senior | Subordinate | |||||||||||||||||||||||
Prime | Non- prime | Re-REMIC | Mezzanine | Subordinate | Total | |||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||
Current face | $ | 283 | $ | 183 | $ | 193 | $ | 267 | $ | 269 | $ | 1,194 | ||||||||||||
Credit reserve | (3 | ) | (9 | ) | (13 | ) | — | (37 | ) | (62 | ) | |||||||||||||
Net unamortized discount | (30 | ) | (28 | ) | (76 | ) | (26 | ) | (114 | ) | (273 | ) | ||||||||||||
Amortized cost | 250 | 146 | 104 | 241 | 118 | 860 | ||||||||||||||||||
Unrealized gains | 31 | 21 | 65 | 17 | 52 | 185 | ||||||||||||||||||
Unrealized losses | (2 | ) | — | — | — | — | (3 | ) | ||||||||||||||||
Carrying Value | 279 | 166 | 169 | 257 | 170 | 1,041 | ||||||||||||||||||
Trading securities | 62 | 7 | — | 33 | 14 | 116 | ||||||||||||||||||
Fair value of residential securities | $ | 341 | $ | 173 | $ | 169 | $ | 290 | $ | 184 | $ | 1,158 |
THE REDWOOD REVIEW I 2ND QUARTER 2015 29 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
THE REDWOOD REVIEW I 2ND QUARTER 2015 30 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Commercial Loans | ||||||||||||||||||||
($ in millions) | ||||||||||||||||||||
Senior Held-for-Sale | Held-for-Investment | |||||||||||||||||||
A-Notes (1) | Unsecuritized Mezzanine | Securitized Mezzanine | Total | |||||||||||||||||
Carrying value December 31, 2014 | $ | 166 | $ | 67 | $ | 138 | $ | 195 | $ | 567 | ||||||||||
Originations | 93 | 8 | 100 | |||||||||||||||||
Sales | (210 | ) | — | — | — | (210 | ) | |||||||||||||
Principal payments/amortization | — | — | — | (4 | ) | (4 | ) | |||||||||||||
Change in fair value, net | 6 | 1 | — | — | 7 | |||||||||||||||
Change in allowance for loan losses | — | — | — | — | — | |||||||||||||||
Carrying value at March 31, 2015 | $ | 54 | $ | 68 | $ | 146 | $ | 192 | $ | 460 | ||||||||||
Originations | 258 | — | 2 | — | 259 | |||||||||||||||
Sales | (147 | ) | — | — | — | (147 | ) | |||||||||||||
Principal payments/amortization | — | — | (10 | ) | (10 | ) | (20 | ) | ||||||||||||
Change in fair value, net | 1 | (3 | ) | — | — | (2 | ) | |||||||||||||
Change in allowance for loan losses | — | — | — | — | — | |||||||||||||||
Carrying value at June 30, 2015 | $ | 166 | $ | 65 | $ | 138 | $ | 182 | $ | 551 |
(1) | A-notes presented above were previously sold to third-parties but did not meet the sale criteria under GAAP, and remain on our balance sheet, carried at fair value. As such, we recorded the transfer of loans as secured borrowings, which are also carried at a fair value of $65 million as of June 30, 2015. Our investment in the B-note portions of these loans was $5 million at June 30, 2015 and is included in the Unsecuritized Mezzanine column presented above. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 31 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
Commercial Loans Held-for-Investment | ||||||||||||
June 30, 2015 | ||||||||||||
Property Type | Number of Loans | Original Weighted Average DSCR (1) | Original Weighted Average LTV (2) | Average Loan Size ($ in millions) | ||||||||
Multifamily | 26 | 1.34x | 79 | % | 4 | |||||||
Hospitality | 11 | 1.39x | 66 | % | 8 | |||||||
Office | 11 | 1.22x | 76 | % | 8 | |||||||
Retail | 9 | 1.18x | 77 | % | 6 | |||||||
Self Storage | 3 | 1.39x | 75 | % | 6 | |||||||
Industrial | 3 | 1.52x | 73 | % | 2 | |||||||
Total portfolio | 63 | 1.30x | 74 | % | $ | 6 |
(1) | The debt service coverage ratio (DSCR) is defined as the property’s annual net operating income divided by the annual principal and interest payments. The weighted average DSCRs in this table are based on the ratios at the time the loans were originated and are not based on subsequent time periods during which there may have been increases or decreases in each property’s operating income. |
(2) | The loan-to-value (LTV) calculation is defined as the sum of the senior and all subordinate loan amounts divided by the value of the property at the time the loan was originated. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 32 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
THE REDWOOD REVIEW I 2ND QUARTER 2015 33 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
MSRs | ||||||||||||||||
($ in millions) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
6/30/2015 | 3/31/2015 | |||||||||||||||
Fair Value | Associated Principal | Fair Value | Associated Principal | |||||||||||||
Beginning fair value | $ | 120 | $ | 12,653 | $ | 139 | $ | 13,668 | ||||||||
Additions | 32 | 2,998 | 19 | 1,909 | ||||||||||||
Sales | — | — | (18 | ) | (2,166 | ) | ||||||||||
Change in fair value due to: | ||||||||||||||||
Changes in assumptions | 19 | — | (14 | ) | — | |||||||||||
Other changes (1) | (3 | ) | (585 | ) | (6 | ) | (758 | ) | ||||||||
Ending fair value | $ | 168 | $ | 15,066 | $ | 120 | $ | 12,653 |
(1) | Primarily represents changes in the basis of our investment from the receipt of expected fees during the quarter. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 34 |
REDWOOD TRUST |
F I N A N C I A L I N S I G H T S |
THE REDWOOD REVIEW I 2ND QUARTER 2015 35 |
REDWOOD TRUST |
C H A N G E S T O F I N A N C I A L S T A T E M E N T P R E S E N T A T I O N |
THE REDWOOD REVIEW I 2ND QUARTER 2015 37 |
REDWOOD TRUST |
C H A N G E S T O F I N A N C I A L S T A T E M E N T P R E S E N T A T I O N |
GAAP Income | ||||||||||||
($ in millions) | ||||||||||||
Q2 2015 | Q1 2015 | |||||||||||
New Format | Previous Format | Previous Format | ||||||||||
Interest income | $ | 63 | $ | 63 | $ | 64 | ||||||
Interest expense | (23 | ) | (23 | ) | (24 | ) | ||||||
Net interest income | 40 | 40 | 40 | |||||||||
Provision for loan losses | — | — | — | |||||||||
Non-interest income | ||||||||||||
Mortgage banking and investment activities, net (1) | 6 | — | — | |||||||||
Mortgage banking activities (1) | — | 7 | 2 | |||||||||
MSR income (loss), net | 1 | 23 | (11 | ) | ||||||||
Other market valuation adjustments (1) | — | (24 | ) | (1 | ) | |||||||
Other income | 1 | 1 | 1 | |||||||||
Realized gains, net | 6 | 6 | 4 | |||||||||
Total non-interest income, net | 14 | 14 | (5 | ) | ||||||||
Operating expenses | (25 | ) | (25 | ) | (25 | ) | ||||||
(Provision for) benefit from income taxes | (2 | ) | (2 | ) | 5 | |||||||
Net Income | $ | 27 | $ | 27 | $ | 15 |
(1) | Mortgage banking activities and Other market valuation adjustments utilized in our previous format were combined into Mortgage banking and investment activities, net in our new format. |
THE REDWOOD REVIEW I 2ND QUARTER 2015 38 |
REDWOOD TRUST |
R E D W O O D' S B U S I N E S S O V E R V I E W |
THE REDWOOD REVIEW I 2ND QUARTER 2015 39 |
REDWOOD TRUST |
R E D W O O D' S B U S I N E S S O V E R V I E W |
THE REDWOOD REVIEW I 2ND QUARTER 2015 40 |
REDWOOD TRUST |
D I V I D E N D P O L I C Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 41 |
REDWOOD TRUST |
D I V I D E N D P O L I C Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 42 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 43 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 44 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 45 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 46 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 47 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 48 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 49 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 50 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 51 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 52 |
REDWOOD TRUST |
G L O S S A R Y |
THE REDWOOD REVIEW I 2ND QUARTER 2015 53 |
![]() | Table 1: GAAP Earnings (in thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||
2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2013 Q4 | 2013 Q3 | 2013 Q2 | Six Months 2015 | Six Months 2014 | ||||||||||||||||||||||||||||||||||
Interest income | $ | 53,857 | $ | 53,713 | $ | 56,029 | $ | 53,323 | $ | 48,347 | $ | 45,145 | $ | 48,331 | $ | 50,139 | $ | 51,195 | $ | 107,570 | $ | 93,492 | ||||||||||||||||||||||
Discount amortization on securities, net | 9,324 | 9,838 | 10,061 | 10,890 | 10,586 | 11,298 | 10,311 | 8,785 | 8,153 | 19,162 | 21,884 | |||||||||||||||||||||||||||||||||
Discount (premium) amortization on loans, net | 192 | 195 | (839 | ) | (863 | ) | (940 | ) | (967 | ) | (1,150 | ) | (1,504 | ) | (1,629 | ) | 387 | (1,907 | ) | |||||||||||||||||||||||||
Total interest income | 63,373 | 63,746 | 65,251 | 63,350 | 57,993 | 55,476 | 57,492 | 57,420 | 57,719 | 127,119 | 113,469 | |||||||||||||||||||||||||||||||||
Interest expense on short-term debt | (6,527 | ) | (7,224 | ) | (8,581 | ) | (8,440 | ) | (5,142 | ) | (3,827 | ) | (3,715 | ) | (5,227 | ) | (4,686 | ) | (13,751 | ) | (8,969 | ) | ||||||||||||||||||||||
Interest expense on ABS issued from consolidated trusts | (5,645 | ) | (6,202 | ) | (6,765 | ) | (7,838 | ) | (8,183 | ) | (8,441 | ) | (8,903 | ) | (9,604 | ) | (10,250 | ) | (11,847 | ) | (16,624 | ) | ||||||||||||||||||||||
Interest expense on long-term debt | (10,836 | ) | (10,535 | ) | (8,557 | ) | (7,071 | ) | (7,826 | ) | (6,792 | ) | (6,910 | ) | (6,894 | ) | (6,480 | ) | (21,371 | ) | (14,618 | ) | ||||||||||||||||||||||
Total interest expense | (23,008 | ) | (23,961 | ) | (23,903 | ) | (23,349 | ) | (21,151 | ) | (19,060 | ) | (19,528 | ) | (21,725 | ) | (21,416 | ) | (46,969 | ) | (40,211 | ) | ||||||||||||||||||||||
Net interest income | 40,365 | 39,785 | 41,348 | 40,001 | 36,842 | 36,416 | 37,964 | 35,695 | 36,303 | 80,150 | 73,258 | |||||||||||||||||||||||||||||||||
(Provision for) reversal of provision for loan losses – Residential | — | — | (1,562 | ) | 708 | 604 | (627 | ) | (3,374 | ) | (883 | ) | 4,163 | — | (23 | ) | ||||||||||||||||||||||||||||
(Provision for) reversal of provision for loan losses – Commercial | 261 | (206 | ) | (27 | ) | 889 | (289 | ) | (655 | ) | (869 | ) | (844 | ) | (891 | ) | 55 | (944 | ) | |||||||||||||||||||||||||
Net interest income after provision | 40,626 | 39,579 | 39,759 | 41,598 | 37,157 | 35,132 | 33,721 | 33,968 | 39,575 | 80,205 | 72,291 | |||||||||||||||||||||||||||||||||
Non-interest income | ||||||||||||||||||||||||||||||||||||||||||||
Mortgage banking and investment activities, net | ||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage banking | 4,833 | 2,217 | 9,850 | 11,429 | 1,342 | (1,067 | ) | 10,114 | (12,236 | ) | 42,290 | 7,050 | 275 | |||||||||||||||||||||||||||||||
Commercial mortgage banking | 2,613 | (292 | ) | 1,140 | 6,486 | 4,981 | 833 | 6,818 | 3,538 | 6,433 | 2,321 | 5,814 | ||||||||||||||||||||||||||||||||
Investments | (1,787 | ) | (1,147 | ) | 3,817 | (3,750 | ) | (4,134 | ) | (6,136 | ) | 390 | 462 | (6,258 | ) | (2,934 | ) | (10,270 | ) | |||||||||||||||||||||||||
Mortgage servicing rights income (loss), net | ||||||||||||||||||||||||||||||||||||||||||||
MSR servicing fee income | 7,292 | 8,487 | 6,281 | 4,153 | 3,776 | 3,318 | 3,261 | 2,653 | 1,720 | 15,779 | 7,094 | |||||||||||||||||||||||||||||||||
MSR market valuation adjustments | 15,352 | (19,411 | ) | (15,192 | ) | 1,668 | (5,553 | ) | (2,712 | ) | 2,367 | 460 | 8,827 | (4,059 | ) | (8,265 | ) | |||||||||||||||||||||||||||
MSR derivatives (1) | (21,814 | ) | — | — | — | — | — | — | — | — | (21,814 | ) | — | |||||||||||||||||||||||||||||||
Realized gains, net | 6,316 | 4,306 | 4,790 | 8,533 | 1,063 | 1,092 | 1,968 | 10,469 | 556 | 10,622 | 2,155 | |||||||||||||||||||||||||||||||||
Other income | 1,299 | 809 | 181 | 1,600 | — | — | — | — | — | 2,108 | — | |||||||||||||||||||||||||||||||||
Total non-interest income (loss), net | 14,104 | (5,031 | ) | 10,867 | 30,119 | 1,475 | (4,671 | ) | 24,918 | 5,346 | 53,568 | 9,073 | (3,197 | ) | ||||||||||||||||||||||||||||||
Fixed compensation expense | (9,286 | ) | (9,155 | ) | (7,948 | ) | (7,445 | ) | (6,872 | ) | (6,792 | ) | (5,750 | ) | (5,808 | ) | (6,080 | ) | (18,441 | ) | (13,664 | ) | ||||||||||||||||||||||
Variable compensation expense | (3,578 | ) | (3,991 | ) | (6,462 | ) | (2,418 | ) | (3,021 | ) | (2,731 | ) | (3,908 | ) | (5,621 | ) | (3,961 | ) | (7,569 | ) | (5,752 | ) | ||||||||||||||||||||||
Equity compensation expense | (3,539 | ) | (2,738 | ) | (2,335 | ) | (2,261 | ) | (2,824 | ) | (2,330 | ) | (2,196 | ) | (1,997 | ) | (3,396 | ) | (6,277 | ) | (5,154 | ) | ||||||||||||||||||||||
Severance expense | — | — | (5 | ) | (4 | ) | (222 | ) | — | — | (445 | ) | (3,366 | ) | — | (222 | ) | |||||||||||||||||||||||||||
Other operating expense | (8,815 | ) | (9,179 | ) | (9,712 | ) | (9,280 | ) | (9,343 | ) | (8,119 | ) | (7,816 | ) | (8,449 | ) | (7,627 | ) | (17,994 | ) | (17,462 | ) | ||||||||||||||||||||||
Total operating expenses | (25,218 | ) | (25,063 | ) | (26,462 | ) | (21,408 | ) | (22,282 | ) | (19,971 | ) | (19,670 | ) | (22,320 | ) | (24,430 | ) | (50,281 | ) | (42,254 | ) | ||||||||||||||||||||||
Other expense | — | — | — | — | — | — | (12,000 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||
Benefit from (provision for) income taxes | (2,448 | ) | 5,316 | 2,959 | (5,213 | ) | (333 | ) | 1,843 | (1,835 | ) | 4,935 | (3,140 | ) | 2,868 | 1,510 | ||||||||||||||||||||||||||||
Net income | $ | 27,064 | $ | 14,801 | $ | 27,123 | $ | 45,096 | $ | 16,017 | $ | 12,333 | $ | 25,134 | $ | 21,929 | $ | 65,573 | $ | 41,865 | $ | 28,350 | ||||||||||||||||||||||
Diluted average shares | 94,950 | 85,622 | 85,384 | 96,956 | 85,033 | 84,941 | 84,395 | 84,422 | 96,172 | 85,474 | 84,994 | |||||||||||||||||||||||||||||||||
Net income per share | $ | 0.31 | $ | 0.16 | $ | 0.31 | $ | 0.50 | $ | 0.18 | $ | 0.14 | $ | 0.29 | $ | 0.25 | $ | 0.71 | $ | 0.47 | $ | 0.32 |
(1) | During the second quarter of 2015 we began to include market valuation changes of derivatives associated with our MSRs, in MSR income (loss), net. See the Changes to Financial Statement Presentation section of the Appendix to this Redwood Review for additional information on the change in the MSR Income (loss), net line item. |
![]() | Table 2: Segment Results (in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2015 | Three Months Ended March 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||
Residential Mortgage Banking | Residential Investments | Commercial Mortgage Banking and Investments | Corporate/ Other | Total | Residential Mortgage Banking | Residential Investments | Commercial Mortgage Banking and Investments | Corporate/ Other | Total | ||||||||||||||||||||||||||||||||||
Interest income | $ | 9,976 | $ | 34,249 | $ | 12,679 | $ | 6,469 | $ | 63,373 | $ | 15,795 | $ | 30,012 | $ | 10,914 | $ | 7,025 | $ | 63,746 | |||||||||||||||||||||||
Interest expense | (3,298 | ) | (2,660 | ) | (3,497 | ) | (13,553 | ) | (23,008 | ) | (3,778 | ) | (2,810 | ) | (3,489 | ) | (13,884 | ) | (23,961 | ) | |||||||||||||||||||||||
Net interest income (loss) | 6,678 | 31,589 | 9,182 | (7,084 | ) | 40,365 | 12,017 | 27,202 | 7,425 | (6,859 | ) | 39,785 | |||||||||||||||||||||||||||||||
Reversal of (provision for) loan losses | — | — | 261 | — | 261 | — | — | (206 | ) | — | (206 | ) | |||||||||||||||||||||||||||||||
Net interest income (loss) after provision | 6,678 | 31,589 | 9,443 | (7,084 | ) | 40,626 | 12,017 | 27,202 | 7,219 | (6,859 | ) | 39,579 | |||||||||||||||||||||||||||||||
Non-interest income | |||||||||||||||||||||||||||||||||||||||||||
Mortgage banking and investment activities, net | 4,833 | (1,104 | ) | 2,614 | (684 | ) | 5,659 | 2,217 | (19 | ) | (292 | ) | (1,128 | ) | 778 | ||||||||||||||||||||||||||||
MSR income (loss), net (1) | — | 830 | — | — | 830 | — | (10,924 | ) | — | — | (10,924 | ) | |||||||||||||||||||||||||||||||
Other income | — | 1,299 | — | — | 1,299 | — | 809 | — | — | 809 | |||||||||||||||||||||||||||||||||
Realized gains, net | — | 6,316 | — | — | 6,316 | — | 4,306 | — | — | 4,306 | |||||||||||||||||||||||||||||||||
Total non-interest income (loss) | 4,833 | 7,341 | 2,614 | (684 | ) | 14,104 | 2,217 | (5,828 | ) | (292 | ) | (1,128 | ) | (5,031 | ) | ||||||||||||||||||||||||||||
Operating expenses | (11,033 | ) | (1,171 | ) | (3,020 | ) | (9,994 | ) | (25,218 | ) | (10,903 | ) | (1,118 | ) | (3,482 | ) | (9,560 | ) | (25,063 | ) | |||||||||||||||||||||||
Benefit from (provision for) income taxes | 865 | (3,768 | ) | (143 | ) | 598 | (2,448 | ) | 8 | 3,510 | 853 | 945 | 5,316 | ||||||||||||||||||||||||||||||
Segment contribution | $ | 1,343 | $ | 33,991 | $ | 8,894 | $ | (17,164 | ) | $ | 3,339 | $ | 23,766 | $ | 4,298 | $ | (16,602 | ) | |||||||||||||||||||||||||
Net income | $ | 27,064 | $ | 14,801 | |||||||||||||||||||||||||||||||||||||||
Additional information: | |||||||||||||||||||||||||||||||||||||||||||
Residential loans | $ | 892,081 | $ | 1,157,285 | $ | — | $ | 1,237,114 | $ | 3,286,480 | $ | 1,094,885 | $ | 1,000,444 | $ | — | $ | 1,304,426 | $ | 3,399,755 | |||||||||||||||||||||||
Commercial loans | — | — | 551,331 | — | 551,331 | — | — | 460,342 | — | 460,342 | |||||||||||||||||||||||||||||||||
Real estate securities | — | 1,157,599 | — | — | 1,157,599 | 65,809 | 1,219,434 | — | — | 1,285,243 | |||||||||||||||||||||||||||||||||
Mortgage servicing rights | — | 168,462 | — | — | 168,462 | — | 120,324 | — | — | 120,324 | |||||||||||||||||||||||||||||||||
Total Assets | 938,720 | 2,559,481 | 560,956 | 1,536,727 | 5,595,884 | 1,204,055 | 2,446,100 | 467,200 | 1,698,664 | 5,816,019 | |||||||||||||||||||||||||||||||||
(1) | During the second quarter of 2015 we began to include market valuation changes of derivatives associated with our MSRs, in MSR income (loss), net. Amounts presented in this line for the first quarter of 2015 do not include the effects of hedges. See the Changes to Financial Statement Presentation section of the Appendix to this Redwood Review for additional information on the change in the MSR Income (loss), net line item. |
![]() | Table 3: Taxable and GAAP Income (1) Differences and Dividends (in thousands, except for share data) | |||||||||||||||||||||||||||||||||||
Estimated Six Months 2015 | Estimated Twelve Months 2014 (2) | Actual Twelve Months 2013 (2) | ||||||||||||||||||||||||||||||||||
Taxable Income | GAAP Income | Differences | Taxable Income | GAAP Income | Differences | Taxable Income | GAAP Income | Differences | ||||||||||||||||||||||||||||
Taxable and GAAP Income Differences | ||||||||||||||||||||||||||||||||||||
Interest income | $ | 108,657 | $ | 127,119 | $ | (18,462 | ) | $ | 206,147 | $ | 242,070 | $ | (35,923 | ) | $ | 209,317 | $ | 226,156 | $ | (16,839 | ) | |||||||||||||||
Interest expense | (38,365 | ) | (46,969 | ) | 8,604 | (67,259 | ) | (87,463 | ) | 20,204 | (55,099 | ) | (80,971 | ) | 25,872 | |||||||||||||||||||||
Net interest income | 70,292 | 80,150 | (9,858 | ) | 138,888 | 154,607 | (15,719 | ) | 154,218 | 145,185 | 9,033 | |||||||||||||||||||||||||
Reversal of provision (provision for) loan losses | — | 55 | (55 | ) | — | (961 | ) | 961 | — | (4,737 | ) | 4,737 | ||||||||||||||||||||||||
Realized credit losses | (3,825 | ) | — | (3,825 | ) | (6,930 | ) | — | (6,930 | ) | (12,911 | ) | — | (12,911 | ) | |||||||||||||||||||||
Mortgage banking and investment activities, net | (17,836 | ) | 6,437 | (24,273 | ) | 3,784 | 24,792 | (21,008 | ) | 19,526 | 96,785 | (77,259 | ) | |||||||||||||||||||||||
MSR income (loss), net | 9,476 | (10,094 | ) | 19,570 | 15,763 | (4,261 | ) | 20,024 | 8,218 | 20,309 | (12,091 | ) | ||||||||||||||||||||||||
Operating expenses | (55,891 | ) | (50,281 | ) | (5,610 | ) | (97,583 | ) | (90,123 | ) | (7,460 | ) | (79,361 | ) | (86,607 | ) | 7,246 | |||||||||||||||||||
Other income (expense), net | 1,053 | 2,108 | (1,055 | ) | (8,219 | ) | 1,781 | (10,000 | ) | — | (12,000 | ) | 12,000 | |||||||||||||||||||||||
Realized gains, net | — | 10,622 | (10,622 | ) | — | 15,478 | (15,478 | ) | — | 25,259 | (25,259 | ) | ||||||||||||||||||||||||
(Provision for) benefit from income taxes | (7 | ) | 2,868 | (2,875 | ) | (132 | ) | (744 | ) | 612 | (283 | ) | (10,948 | ) | 10,665 | |||||||||||||||||||||
Income | $ | 3,262 | $ | 41,865 | $ | (38,603 | ) | $ | 45,571 | $ | 100,569 | $ | (54,998 | ) | $ | 89,407 | $ | 173,246 | $ | (83,839 | ) | |||||||||||||||
REIT taxable income | $ | 32,723 | $ | 63,578 | $ | 72,429 | ||||||||||||||||||||||||||||||
Taxable (loss) income at taxable subsidiaries | (29,461 | ) | (18,007 | ) | 16,978 | |||||||||||||||||||||||||||||||
Taxable income | $ | 3,262 | $ | 45,571 | $ | 89,407 | ||||||||||||||||||||||||||||||
Shares used for taxable EPS calculation | 84,552 | 83,443 | 82,505 | |||||||||||||||||||||||||||||||||
REIT taxable income per share (3) | $ | 0.39 | $ | 0.76 | $ | 0.88 | ||||||||||||||||||||||||||||||
Taxable income (loss) per share at taxable subsidiaries | $ | (0.35 | ) | $ | (0.22 | ) | $ | 0.21 | ||||||||||||||||||||||||||||
Taxable income per share (3) | $ | 0.04 | $ | 0.55 | $ | 1.09 | ||||||||||||||||||||||||||||||
Dividends | ||||||||||||||||||||||||||||||||||||
Dividends declared | $ | 47,004 | $ | 92,935 | $ | 92,005 | ||||||||||||||||||||||||||||||
Dividends per share (4) | $ | 0.56 | $ | 1.12 | $ | 1.12 |
(1) | Taxable income for 2015 and 2014 are estimates until we file our tax returns for those years. To the extent we expect to pay tax at the corporate level (generally as a result of activity at our taxable REIT subsidiaries), we are required to record a tax provision for GAAP reporting purposes. Any tax provision (or benefit) is not intended to reflect the actual amount we expect to pay (or receive as an income tax refund) as it is expected to be utilized in future periods, as GAAP income is earned at our TRS. We do not expect to generate excess inclusion income in 2015, but in the event we do, it is our intention to retain it 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) | REIT taxable income per share and taxable income (loss) per share are based on the number of shares outstanding at the end of each quarter. The annual REIT taxable income per share and taxable income (loss) per share are the sum of the four quarterly per share estimates. |
(4) | Dividends in 2014 were characterized as 90% ordinary income (or $84 million), and 10% return of capital (or $9 million). Dividends in 2013 were characterized as 89% ordinary income (or $82 million), and 11% return of capital (or $10 million). The portion of Redwood's dividends characterized as a return of capital is not taxable to a shareholder and reduces a shareholder's basis for shares held at each quarterly distribution date, but not to below $0. |
![]() | Table 4: Financial Ratios and Book Value ($ in thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||
2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2013 Q4 | 2013 Q3 | 2013 Q2 | Six Months 2015 | Six Months 2014 | ||||||||||||||||||||||||||||||||||
Financial performance ratios | ||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 40,365 | $ | 39,785 | $ | 41,348 | $ | 40,001 | $ | 36,842 | $ | 36,416 | $ | 37,964 | $ | 35,695 | $ | 36,303 | $ | 80,150 | $ | 73,258 | ||||||||||||||||||||||
Operating expenses | $ | (25,218 | ) | $ | (25,063 | ) | $ | (26,462 | ) | $ | (21,408 | ) | $ | (22,282 | ) | $ | (19,971 | ) | $ | (19,670 | ) | $ | (22,320 | ) | $ | (24,430 | ) | $ | (50,281 | ) | $ | (42,254 | ) | |||||||||||
GAAP net income | $ | 27,064 | $ | 14,801 | $ | 27,123 | $ | 45,096 | $ | 16,017 | $ | 12,333 | $ | 25,134 | $ | 21,929 | $ | 65,573 | $ | 41,865 | $ | 28,350 | ||||||||||||||||||||||
Average total assets | $ | 5,730,268 | $ | 5,866,851 | $ | 5,848,856 | $ | 5,631,421 | $ | 5,140,932 | $ | 4,791,512 | $ | 4,681,988 | $ | 5,010,779 | $ | 5,103,812 | $ | 5,798,182 | $ | 4,967,187 | ||||||||||||||||||||||
Average total equity | $ | 1,265,647 | $ | 1,262,883 | $ | 1,259,581 | $ | 1,254,352 | $ | 1,245,346 | $ | 1,243,006 | $ | 1,217,273 | $ | 1,217,418 | $ | 1,204,807 | $ | 1,264,273 | $ | 1,244,182 | ||||||||||||||||||||||
Operating expenses / average total assets | 1.76 | % | 1.71 | % | 1.81 | % | 1.52 | % | 1.73 | % | 1.67 | % | 1.68 | % | 1.78 | % | 1.91 | % | 1.73 | % | 1.70 | % | ||||||||||||||||||||||
Operating expenses / average total equity | 7.97 | % | 7.94 | % | 8.40 | % | 6.83 | % | 7.16 | % | 6.43 | % | 6.46 | % | 7.33 | % | 8.11 | % | 7.95 | % | 6.79 | % | ||||||||||||||||||||||
GAAP net income / average total assets | 1.89 | % | 1.01 | % | 1.85 | % | 3.20 | % | 1.25 | % | 1.03 | % | 2.15 | % | 1.75 | % | 5.14 | % | 1.44 | % | 1.14 | % | ||||||||||||||||||||||
GAAP net income / average equity (GAAP ROE) | 8.55 | % | 4.69 | % | 8.61 | % | 14.38 | % | 5.14 | % | 3.97 | % | 8.26 | % | 7.21 | % | 21.77 | % | 6.62 | % | 4.56 | % | ||||||||||||||||||||||
Leverage ratios and book value per share | ||||||||||||||||||||||||||||||||||||||||||||
Short-term debt | $ | 1,367,062 | $ | 1,502,164 | $ | 1,793,825 | $ | 1,887,688 | $ | 1,718,430 | $ | 1,288,761 | $ | 862,763 | $ | 838,299 | $ | 1,445,961 | ||||||||||||||||||||||||||
Long-term debt – Commercial secured borrowing | 65,232 | 68,077 | 66,707 | 66,146 | 66,692 | 34,774 | — | — | — | |||||||||||||||||||||||||||||||||||
Long-term debt – Other | 1,514,122 | 1,482,792 | 1,127,860 | 630,756 | 479,916 | 478,458 | 476,467 | 471,605 | 443,591 | |||||||||||||||||||||||||||||||||||
Total debt at Redwood | $ | 2,946,416 | $ | 3,053,033 | $ | 2,988,392 | $ | 2,584,590 | $ | 2,265,038 | $ | 1,801,993 | $ | 1,339,230 | $ | 1,309,904 | $ | 1,889,552 | ||||||||||||||||||||||||||
ABS issued at consolidated entities | ||||||||||||||||||||||||||||||||||||||||||||
Residential Resecuritization ABS issued | 18,872 | 34,280 | 45,044 | 56,508 | 69,709 | 82,179 | 94,934 | 112,179 | 134,156 | |||||||||||||||||||||||||||||||||||
Commercial Securitization ABS issued | 69,914 | 79,676 | 83,313 | 114,943 | 144,700 | 147,574 | 153,693 | 158,799 | 159,526 | |||||||||||||||||||||||||||||||||||
Legacy Sequoia entities ABS issued | 1,173,336 | 1,239,065 | 1,416,762 | 1,484,751 | 1,553,669 | 1,624,591 | 1,694,335 | 1,790,687 | 1,920,614 | |||||||||||||||||||||||||||||||||||
Total ABS issued | 1,262,122 | 1,353,021 | 1,545,119 | 1,656,202 | 1,768,078 | 1,854,344 | 1,942,962 | 2,061,665 | 2,214,296 | |||||||||||||||||||||||||||||||||||
Consolidated GAAP Debt | $ | 4,208,538 | $ | 4,406,054 | $ | 4,533,511 | $ | 4,240,792 | $ | 4,033,116 | $ | 3,656,337 | $ | 3,282,192 | $ | 3,371,569 | $ | 4,103,848 | ||||||||||||||||||||||||||
Stockholders' equity | $ | 1,264,785 | $ | 1,257,210 | $ | 1,256,142 | $ | 1,266,678 | $ | 1,248,904 | $ | 1,250,887 | $ | 1,245,783 | $ | 1,207,170 | $ | 1,209,313 | ||||||||||||||||||||||||||
Debt at Redwood to stockholders' equity (1) | 2.3x | 2.4x | 2.3x | 2.0x | 1.8x | 1.4x | 1.1x | 1.1x | 1.6x | |||||||||||||||||||||||||||||||||||
Consolidated GAAP debt to stockholders' equity | 3.3x | 3.5x | 3.6x | 3.4x | 3.2x | 2.9x | 2.6x | 2.8x | 3.4x | |||||||||||||||||||||||||||||||||||
Shares outstanding at period end (in thousands) | 84,552 | 83,749 | 83,443 | 83,284 | 83,080 | 82,620 | 82,505 | 82,389 | 82,332 | |||||||||||||||||||||||||||||||||||
Book value per share | $ | 14.96 | $ | 15.01 | $ | 15.05 | $ | 15.21 | $ | 15.03 | $ | 15.14 | $ | 15.10 | $ | 14.65 | $ | 14.69 |
(1) | Excludes obligations of consolidated securitization entities, including legacy Sequoia securitizations completed prior to 2012, the residential resecuritization completed in 2011, and the commercial securitization completed in 2012. Also excludes commercial secured borrowings associated with commercial A-notes that were sold, but treated as secured borrowings under GAAP. |
![]() | Table 5: Average Balance Sheet ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||
2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2013 Q4 | 2013 Q3 | 2013 Q2 | Six Months 2015 | Six Months 2014 | ||||||||||||||||||||||||||||||||||
Real estate assets | ||||||||||||||||||||||||||||||||||||||||||||
Residential loans, held-for-sale | $ | 1,080,448 | $ | 1,292,153 | $ | 1,433,059 | $ | 1,268,231 | $ | 739,934 | $ | 518,054 | $ | 554,467 | $ | 860,923 | $ | 1,060,347 | $ | 1,185,716 | $ | 629,606 | ||||||||||||||||||||||
Residential loans, held-for-investment at Sequoias (1) | 1,259,923 | 1,362,612 | 1,496,685 | 1,570,425 | 1,642,410 | 1,711,438 | 1,793,535 | 1,910,814 | 2,043,820 | 1,310,984 | 1,676,734 | |||||||||||||||||||||||||||||||||
Residential loans, held-for-investment at Redwood | 1,017,835 | 667,543 | 370,886 | 100,409 | — | — | — | — | — | 843,657 | — | |||||||||||||||||||||||||||||||||
Commercial loans, held-for-sale | 107,025 | 137,977 | 214,110 | 170,156 | 75,449 | 68,169 | 73,204 | 67,999 | 50,366 | 122,416 | 71,829 | |||||||||||||||||||||||||||||||||
Commercial loans, held-for-investment, at fair value | 72,524 | 71,224 | 70,663 | 71,205 | 69,565 | 20,626 | — | — | — | 71,877 | 45,231 | |||||||||||||||||||||||||||||||||
Commercial loans, held-for-investment, at amortized cost | 328,193 | 336,258 | 322,723 | 349,288 | 343,815 | 343,705 | 346,333 | 347,633 | 332,113 | 332,203 | 343,760 | |||||||||||||||||||||||||||||||||
Senior residential securities | ||||||||||||||||||||||||||||||||||||||||||||
Prime | 331,394 | 352,583 | 388,577 | 611,211 | 835,987 | 725,551 | 586,675 | 440,616 | 453,230 | 341,930 | 781,074 | |||||||||||||||||||||||||||||||||
Non-prime | 156,383 | 161,163 | 164,940 | 169,741 | 171,033 | 174,811 | 178,994 | 187,724 | 227,295 | 158,760 | 172,912 | |||||||||||||||||||||||||||||||||
Total senior residential securities | 487,777 | 513,746 | 553,517 | 780,952 | 1,007,020 | 900,362 | 765,669 | 628,340 | 680,525 | 500,690 | 953,986 | |||||||||||||||||||||||||||||||||
Residential Re-REMIC securities | 103,384 | 101,238 | 106,433 | 114,433 | 115,746 | 109,753 | 102,836 | 101,808 | 100,824 | 102,317 | 112,766 | |||||||||||||||||||||||||||||||||
Subordinate residential securities | 429,827 | 554,460 | 521,647 | 532,881 | 530,273 | 509,906 | 492,708 | 441,521 | 322,541 | 491,799 | 520,146 | |||||||||||||||||||||||||||||||||
Mortgage servicing rights | 144,472 | 128,001 | 134,438 | 81,968 | 65,705 | 62,943 | 60,822 | 55,622 | 31,318 | 136,282 | 64,332 | |||||||||||||||||||||||||||||||||
Total real estate assets | 5,031,408 | 5,165,212 | 5,224,161 | 5,039,948 | 4,589,917 | 4,244,956 | 4,189,574 | 4,414,660 | 4,621,854 | 5,097,941 | 4,418,390 | |||||||||||||||||||||||||||||||||
Cash and cash equivalents | 222,362 | 232,575 | 182,372 | 151,447 | 131,557 | 159,089 | 167,453 | 274,657 | 96,998 | 227,440 | 145,247 | |||||||||||||||||||||||||||||||||
Earning assets | 5,253,770 | 5,397,787 | 5,406,533 | 5,191,395 | 4,721,474 | 4,404,045 | 4,357,027 | 4,689,317 | 4,718,852 | 5,325,381 | 4,563,637 | |||||||||||||||||||||||||||||||||
Balance sheet mark-to-market adjustments | 139,864 | 138,547 | 151,304 | 162,695 | 162,081 | 153,975 | 125,953 | 119,498 | 139,843 | 139,209 | 158,050 | |||||||||||||||||||||||||||||||||
Earning assets – reported value | 5,393,634 | 5,536,334 | 5,557,837 | 5,354,090 | 4,883,555 | 4,558,020 | 4,482,980 | 4,808,815 | 4,858,695 | 5,464,590 | 4,721,687 | |||||||||||||||||||||||||||||||||
Other assets | 336,634 | 330,517 | 291,019 | 277,331 | 257,377 | 233,492 | 199,008 | 201,964 | 245,117 | 333,592 | 245,500 | |||||||||||||||||||||||||||||||||
Total assets | $ | 5,730,268 | $ | 5,866,851 | $ | 5,848,856 | $ | 5,631,421 | $ | 5,140,932 | $ | 4,791,512 | $ | 4,681,988 | $ | 5,010,779 | $ | 5,103,812 | $ | 5,798,182 | $ | 4,967,187 | ||||||||||||||||||||||
Short-term debt | 1,380,965 | 1,590,179 | 1,868,906 | 1,873,704 | 1,329,568 | 1,006,349 | 893,481 | 1,150,917 | 1,053,610 | 1,484,993 | 1,168,852 | |||||||||||||||||||||||||||||||||
Residential Resecuritization ABS issued | 24,269 | 37,313 | 48,687 | 60,932 | 73,617 | 85,236 | 99,940 | 118,338 | 138,817 | 30,755 | 79,394 | |||||||||||||||||||||||||||||||||
Commercial Securitization ABS issued | 75,283 | 80,637 | 85,089 | 123,012 | 142,400 | 144,936 | 150,716 | 155,661 | 155,812 | 77,945 | 143,661 | |||||||||||||||||||||||||||||||||
Consolidated Sequoia ABS issued | 1,195,749 | 1,295,852 | 1,437,258 | 1,507,998 | 1,577,888 | 1,644,626 | 1,722,583 | 1,835,401 | 1,965,149 | 1,245,525 | 1,611,073 | |||||||||||||||||||||||||||||||||
Other liabilities | 229,994 | 354,375 | 266,368 | 243,917 | 240,977 | 186,997 | 131,277 | 82,748 | 151,927 | 291,841 | 214,136 | |||||||||||||||||||||||||||||||||
Other long-term debt | 1,558,361 | 1,245,612 | 882,967 | 567,506 | 531,136 | 480,362 | 466,718 | 450,296 | 433,690 | 1,402,850 | 505,889 | |||||||||||||||||||||||||||||||||
Total liabilities | 4,464,621 | 4,603,968 | 4,589,275 | 4,377,069 | 3,895,586 | 3,548,506 | 3,464,715 | 3,793,361 | 3,899,005 | 4,533,909 | 3,723,005 | |||||||||||||||||||||||||||||||||
Total equity | 1,265,647 | 1,262,883 | 1,259,581 | 1,254,352 | 1,245,346 | 1,243,006 | 1,217,273 | 1,217,418 | 1,204,807 | 1,264,273 | 1,244,182 | |||||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 5,730,268 | $ | 5,866,851 | $ | 5,848,856 | $ | 5,631,421 | $ | 5,140,932 | $ | 4,791,512 | $ | 4,681,988 | $ | 5,010,779 | $ | 5,103,812 | $ | 5,798,182 | $ | 4,967,187 | ||||||||||||||||||||||
(1) | Residential loans, held-for-investment at Sequoia is comprised of loans held in consolidated Sequoia entities. |
![]() | Table 6: Balance & Yields by Portfolio (1) ($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | ||||||||||||||||||||||||||||||||||||||
Securities – Prime Senior | Securities – Subordinate | ||||||||||||||||||||||||||||||||||||||||||||||||
Principal balance | $ | 305,660 | $ | 305,502 | $ | 317,626 | $ | 366,122 | $ | 772,127 | $ | 703,977 | Principal balance | $ | 596,127 | $ | 693,179 | $ | 763,501 | $ | 705,661 | $ | 733,192 | $ | 712,072 | ||||||||||||||||||||||||
Unamortized discount | (30,713 | ) | (32,612 | ) | (34,833 | ) | (41,242 | ) | (36,853 | ) | (42,255 | ) | Unamortized discount | (153,368 | ) | (155,943 | ) | (162,249 | ) | (154,391 | ) | (151,097 | ) | (147,084 | ) | ||||||||||||||||||||||||
Credit reserve | (2,650 | ) | (2,830 | ) | (3,660 | ) | (4,082 | ) | (5,476 | ) | (6,815 | ) | Credit reserve | (36,804 | ) | (39,060 | ) | (41,561 | ) | (43,346 | ) | (50,315 | ) | (56,658 | ) | ||||||||||||||||||||||||
Unrealized gains, net | 29,090 | 31,301 | 34,682 | 41,307 | 44,329 | 44,879 | Unrealized gains, net | 67,858 | 71,536 | 61,589 | 57,249 | 48,755 | 34,536 | ||||||||||||||||||||||||||||||||||||
Interest-only securities | 40,000 | 62,320 | 87,800 | 97,321 | 96,894 | 106,228 | Interest-only securities | 234 | 283 | 293 | 289 | 279 | 194 | ||||||||||||||||||||||||||||||||||||
Fair value | $ | 341,387 | $ | 363,681 | $ | 401,615 | $ | 459,426 | $ | 871,021 | $ | 806,014 | Fair value | $ | 474,047 | $ | 569,995 | $ | 621,573 | $ | 565,462 | $ | 580,814 | $ | 543,060 | ||||||||||||||||||||||||
Average amortized cost | $ | 331,394 | $ | 352,583 | $ | 388,577 | $ | 611,211 | $ | 835,987 | $ | 725,551 | Mezzanine (2) | ||||||||||||||||||||||||||||||||||||
Interest income | $ | 8,252 | $ | 9,506 | $ | 10,434 | $ | 13,229 | $ | 15,080 | $ | 14,640 | Average amortized cost | $ | 290,927 | $ | 421,731 | $ | 408,600 | $ | 421,111 | $ | 415,418 | $ | 399,134 | ||||||||||||||||||||||||
Annualized yield (3) | 9.96 | % | 10.78 | % | 10.74 | % | 8.66 | % | 7.22 | % | 8.07 | % | Interest income | $ | 3,895 | $ | 5,392 | $ | 5,092 | $ | 5,308 | $ | 5,325 | $ | 5,127 | ||||||||||||||||||||||||
Annualized yield | 5.36 | % | 5.11 | % | 4.98 | % | 5.04 | % | 5.13 | % | 5.14 | % | |||||||||||||||||||||||||||||||||||||
Securities – Non-Prime Senior | |||||||||||||||||||||||||||||||||||||||||||||||||
Principal balance | $ | 182,719 | $ | 190,790 | $ | 196,258 | $ | 202,811 | $ | 209,967 | $ | 212,629 | Subordinate (2) | ||||||||||||||||||||||||||||||||||||
Unamortized discount | (27,533 | ) | (29,791 | ) | (31,491 | ) | (33,675 | ) | (36,387 | ) | (36,867 | ) | Average amortized cost | $ | 138,900 | $ | 132,730 | $ | 113,047 | $ | 111,770 | $ | 114,855 | $ | 110,772 | ||||||||||||||||||||||||
Credit reserve | (9,175 | ) | (9,027 | ) | (9,644 | ) | (9,894 | ) | (9,697 | ) | (11,625 | ) | Interest income | $ | 4,225 | $ | 4,237 | $ | 4,413 | $ | 4,135 | $ | 4,131 | $ | 4,179 | ||||||||||||||||||||||||
Unrealized gains, net | 20,365 | 22,902 | 24,621 | 26,980 | 28,373 | 28,860 | Annualized yield | 12.17 | % | 12.77 | % | 15.61 | % | 14.80 | % | 14.39 | % | 15.09 | % | ||||||||||||||||||||||||||||||
Interest-only securities | 6,705 | 7,454 | 7,951 | 7,758 | 8,380 | 8,729 | |||||||||||||||||||||||||||||||||||||||||||
Fair value | $ | 173,081 | $ | 182,328 | $ | 187,695 | $ | 193,980 | $ | 200,636 | $ | 201,726 | Residential Loans, held-for-investment at Redwood | ||||||||||||||||||||||||||||||||||||
Principal balance | $ | 1,131,844 | $ | 971,541 | $ | 566,371 | $ | 233,142 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
Average amortized cost | $ | 156,383 | $ | 161,163 | $ | 164,940 | $ | 169,741 | $ | 171,033 | $ | 174,811 | Unrealized gains, net | $ | 25,441 | $ | 28,903 | $ | 15,296 | 5,509 | — | — | |||||||||||||||||||||||||||
Interest income | $ | 3,946 | $ | 4,210 | $ | 4,370 | $ | 4,507 | $ | 4,404 | $ | 4,388 | Fair value | $ | 1,157,285 | $ | 1,000,444 | $ | 581,667 | $ | 238,651 | $ | — | $ | — | ||||||||||||||||||||||||
Annualized yield | 10.09 | % | 10.45 | % | 10.60 | % | 10.62 | % | 10.30 | % | 10.04 | % | Average amortized cost | $ | 1,017,835 | $ | 667,543 | $ | 370,886 | $ | 100,409 | $ | — | $ | — | ||||||||||||||||||||||||
Interest income | $ | 9,370 | $ | 6,522 | $ | 3,427 | $ | 1,057 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
Annualized yield | 3.68 | % | 3.91 | % | 3.70 | % | 4.21 | % | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
Securities – Re-REMIC | |||||||||||||||||||||||||||||||||||||||||||||||||
Principal balance | $ | 193,221 | $ | 194,296 | $ | 195,098 | $ | 206,212 | $ | 223,389 | $ | 223,709 | Commercial Loans, held-for-investment at amortized cost | ||||||||||||||||||||||||||||||||||||
Unamortized discount | (75,658 | ) | (79,401 | ) | (79,611 | ) | (80,986 | ) | (89,089 | ) | (87,910 | ) | Principal balance | $ | 332,122 | $ | 350,188 | $ | 346,305 | $ | 336,825 | $ | 361,870 | $ | 359,773 | ||||||||||||||||||||||||
Credit reserve | (13,071 | ) | (12,667 | ) | (15,202 | ) | (16,553 | ) | (17,788 | ) | (20,590 | ) | Unamortized discount | (4,476 | ) | (4,668 | ) | (4,863 | ) | (2,253 | ) | (2,327 | ) | (2,471 | ) | ||||||||||||||||||||||||
Unrealized gains, net | 64,592 | 67,011 | 68,062 | 67,444 | 76,084 | 76,999 | Credit reserve | (7,401 | ) | (7,662 | ) | (7,456 | ) | (7,429 | ) | (8,317 | ) | (8,028 | ) | ||||||||||||||||||||||||||||||
Fair value | $ | 169,084 | $ | 169,239 | $ | 168,347 | $ | 176,117 | $ | 192,596 | $ | 192,208 | Carrying value | $ | 320,245 | $ | 337,858 | $ | 333,986 | $ | 327,143 | $ | 351,226 | $ | 349,274 | ||||||||||||||||||||||||
Average amortized cost | $ | 103,384 | $ | 101,238 | $ | 106,433 | $ | 114,433 | $ | 115,746 | $ | 109,753 | Average amortized cost | $ | 328,193 | $ | 336,258 | $ | 322,723 | $ | 349,288 | $ | 343,815 | $ | 343,705 | ||||||||||||||||||||||||
Interest income | $ | 4,524 | $ | 4,428 | $ | 4,122 | $ | 4,278 | $ | 4,231 | $ | 4,096 | Interest income | $ | 10,551 | $ | 8,855 | $ | 10,071 | $ | 9,663 | $ | 9,360 | $ | 9,248 | ||||||||||||||||||||||||
Annualized yield | 17.50 | % | 17.50 | % | 15.49 | % | 14.95 | % | 14.62 | % | 14.93 | % | Annualized yield | 12.86 | % | 10.53 | % | 12.48 | % | 11.07 | % | 10.89 | % | 10.76 | % |
(1) | Annualized yields for AFS securities portfolios are based on average amortized cost. Cash flows from many of our subordinate securities can be volatile and in certain cases (e.g., when the fair value of certain securities are close to zero) any interest income earned can result in unusually high reported yields that are not sustainable and not necessarily meaningful. |
(2) | Mezzanine and subordinate together comprise our subordinate portfolio of securities. We have shown them separately to present their different yield profiles. |
(3) | Yields for senior securities - prime senior, includes investments in Sequoia IO securities, for which yields are calculated using fair value, as these are trading securities. |
![]() | Table 7: Securities and Loan Portfolio Activity ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2015 Q2 | 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | |||||||||||||||||||||||||||||||||||||
Securities – Prime Senior | Residential Loans, held-for-sale | |||||||||||||||||||||||||||||||||||||||||||||||
Beginning fair value | $ | 363,681 | $ | 401,615 | $ | 459,426 | $ | 871,021 | $ | 806,014 | $ | 772,811 | Beginning carrying value | $ | 1,094,885 | $ | 1,342,520 | $ | 1,502,429 | $ | 1,107,877 | $ | 774,936 | 404,267 | ||||||||||||||||||||||||
Acquisitions | 34,686 | 6,972 | 5,918 | 3,522 | 111,520 | 63,889 | Acquisitions | 2,847,135 | 2,477,644 | 2,755,689 | 3,387,875 | 1,790,909 | 1,092,971 | |||||||||||||||||||||||||||||||||||
Sales | (44,157 | ) | (15,091 | ) | (33,752 | ) | (380,112 | ) | (321 | ) | — | Sales | (2,816,143 | ) | (2,265,449 | ) | (2,567,113 | ) | (2,757,955 | ) | (1,466,955 | ) | (722,403 | ) | ||||||||||||||||||||||||
Effect of principal payments | (20,988 | ) | (14,650 | ) | (16,922 | ) | (34,879 | ) | (41,144 | ) | (29,307 | ) | Principal repayments | (14,794 | ) | (14,098 | ) | (10,407 | ) | (7,687 | ) | (5,006 | ) | (7,025 | ) | |||||||||||||||||||||||
Change in fair value, net | 8,165 | (15,165 | ) | (13,055 | ) | (126 | ) | (5,048 | ) | (1,379 | ) | Transfers to held-for-investment | (215,826 | ) | (447,791 | ) | (354,794 | ) | (241,282 | ) | — | — | ||||||||||||||||||||||||||
Ending fair value | $ | 341,387 | $ | 363,681 | $ | 401,615 | $ | 459,426 | $ | 871,021 | $ | 806,014 | Changes in fair value, net | (3,176 | ) | 2,058 | 16,716 | 13,601 | 13,993 | 7,126 | ||||||||||||||||||||||||||||
Ending fair value | $ | 892,081 | $ | 1,094,884 | $ | 1,342,520 | $ | 1,502,429 | $ | 1,107,877 | 774,936 | |||||||||||||||||||||||||||||||||||||
Securities – Non-Prime Senior | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning fair value | $ | 182,328 | $ | 187,695 | $ | 193,980 | $ | 200,636 | $ | 201,726 | $ | 202,456 | Residential Loans, held-for-investment (excluding consolidated Sequoia Entities) | |||||||||||||||||||||||||||||||||||
Acquisitions | — | — | — | (31 | ) | 3,613 | — | Beginning carrying value | $ | 1,000,444 | $ | 581,667 | $ | 238,651 | $ | — | $ | — | — | |||||||||||||||||||||||||||||
Sales | — | — | — | — | — | — | Acquisitions | — | — | — | 453 | — | — | |||||||||||||||||||||||||||||||||||
Effect of principal payments | (7,300 | ) | (4,992 | ) | (6,066 | ) | (6,495 | ) | (5,593 | ) | (5,294 | ) | Principal repayments | (53,104 | ) | (30,902 | ) | (12,060 | ) | (2,092 | ) | — | — | |||||||||||||||||||||||||
Change in fair value, net | (1,947 | ) | (375 | ) | (219 | ) | (130 | ) | 890 | 4,564 | Transfers from held-for-investment | 215,830 | 447,791 | 354,794 | 241,282 | — | — | |||||||||||||||||||||||||||||||
Ending fair value | $ | 173,081 | $ | 182,328 | $ | 187,695 | $ | 193,980 | $ | 200,636 | $ | 201,726 | Changes in fair value, net | (5,885 | ) | 1,978 | 282 | (992 | ) | — | — | |||||||||||||||||||||||||||
Ending fair value | $ | 1,157,285 | $ | 1,000,444 | $ | 581,667 | $ | 238,651 | $ | — | — | |||||||||||||||||||||||||||||||||||||
Securities – Re-REMIC | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning fair value | $ | 169,239 | $ | 168,347 | $ | 176,117 | $ | 192,596 | $ | 192,208 | $ | 176,376 | Residential Loans, held-for-investment at Consolidated Sequoia Entities | |||||||||||||||||||||||||||||||||||
Acquisitions | — | — | — | — | — | 10,200 | Beginning carrying value | $ | 1,304,426 | $ | 1,474,386 | $ | 1,546,507 | $ | 1,616,504 | $ | 1,689,994 | 1,762,167 | ||||||||||||||||||||||||||||||
Sales | — | — | (10,060 | ) | (9,458 | ) | — | — | Principal repayments | (71,075 | ) | (67,250 | ) | (69,325 | ) | (67,025 | ) | (71,903 | ) | (70,649 | ) | |||||||||||||||||||||||||||
Effect of principal payments | (182 | ) | (126 | ) | (66 | ) | — | — | — | Charge-Offs | — | — | 2,133 | 1,354 | 994 | 484 | ||||||||||||||||||||||||||||||||
Change in fair value, net | 27 | 1,018 | 2,356 | (7,021 | ) | 388 | 5,632 | Transfers to REO | 1,287 | (1,916 | ) | (2,338 | ) | (3,988 | ) | (2,094 | ) | (267 | ) | |||||||||||||||||||||||||||||
Ending fair value | $ | 169,084 | $ | 169,239 | $ | 168,347 | $ | 176,117 | $ | 192,596 | $ | 192,208 | Loan loss (provision) reversal | — | — | (1,562 | ) | 708 | 605 | (628 | ) | |||||||||||||||||||||||||||
Discount amortization, net | — | — | (1,029 | ) | (1,046 | ) | (1,092 | ) | (1,113 | ) | ||||||||||||||||||||||||||||||||||||||
Securities – Subordinate (1) | Adoption of ASU 2014-13 | — | (103,649 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Beginning fair value | $ | 569,995 | $ | 621,573 | $ | 565,462 | $ | 580,814 | $ | 543,060 | $ | 531,218 | Changes in fair value, net | 2,476 | 2,855 | — | — | — | — | |||||||||||||||||||||||||||||
Acquisitions | 39,193 | 25,943 | 54,722 | 39,330 | 26,361 | — | Ending fair value | $ | 1,237,114 | $ | 1,304,426 | $ | 1,474,386 | $ | 1,546,507 | $ | 1,616,504 | 1,689,994 | ||||||||||||||||||||||||||||||
Sales | (127,353 | ) | (85,017 | ) | 0 | (58,273 | ) | — | — | |||||||||||||||||||||||||||||||||||||||
Effect of principal payments | (4,176 | ) | (5,179 | ) | (4,568 | ) | (5,082 | ) | (4,596 | ) | (3,356 | ) | ||||||||||||||||||||||||||||||||||||
Change in fair value, net | (3,612 | ) | 12,675 | 5,957 | 8,673 | 15,989 | 15,198 | Commercial Loans, held-for-sale | ||||||||||||||||||||||||||||||||||||||||
Ending fair value | $ | 474,047 | $ | 569,995 | $ | 621,573 | $ | 565,462 | $ | 580,814 | $ | 543,060 | Beginning carrying value | $ | 54,407 | $ | 166,234 | $ | 104,709 | $ | 50,848 | $ | 77,155 | 89,111 | ||||||||||||||||||||||||
Originations | 257,671 | 92,713 | 325,970 | 340,200 | 148,915 | 88,415 | ||||||||||||||||||||||||||||||||||||||||||
Sales | (147,132 | ) | (210,309 | ) | (271,260 | ) | (290,561 | ) | (180,652 | ) | (65,336 | ) | ||||||||||||||||||||||||||||||||||||
Securities – Mezzanine (1) | Principal repayments | (80 | ) | (88 | ) | (329 | ) | (83 | ) | (83 | ) | (87 | ) | |||||||||||||||||||||||||||||||||||
Beginning fair value | $ | 380,935 | $ | 448,838 | $ | 411,784 | $ | 425,202 | $ | 395,196 | $ | 384,849 | Transfers to HFI | — | — | — | — | — | (37,631 | ) | ||||||||||||||||||||||||||||
Acquisitions | 22,744 | 10,518 | 37,730 | 33,985 | 20,305 | — | Changes in fair value, net | 987 | 5,857 | 7,144 | 4,305 | 5,513 | 2,683 | |||||||||||||||||||||||||||||||||||
Sales | (105,590 | ) | (85,017 | ) | — | (50,961 | ) | — | — | Ending fair value | $ | 165,853 | $ | 54,407 | $ | 166,234 | $ | 104,709 | $ | 50,848 | 77,155 | |||||||||||||||||||||||||||
Effect of principal payments | (2,010 | ) | (2,585 | ) | (2,476 | ) | (2,537 | ) | (2,372 | ) | (2,068 | ) | ||||||||||||||||||||||||||||||||||||
Change in fair value, net | (5,796 | ) | 9,181 | 1,800 | 6,095 | 12,073 | 12,415 | |||||||||||||||||||||||||||||||||||||||||
Ending fair value | $ | 290,283 | $ | 380,935 | $ | 448,838 | $ | 411,784 | $ | 425,202 | $ | 395,196 | Commercial Loans, held-for-investment at amortized cost | |||||||||||||||||||||||||||||||||||
Beginning carrying value | $ | 337,858 | $ | 333,986 | $ | 327,143 | $ | 351,226 | $ | 349,274 | 343,344 | |||||||||||||||||||||||||||||||||||||
Originations | 1,750 | 7,600 | 21,870 | 26,140 | 5,993 | 6,592 | ||||||||||||||||||||||||||||||||||||||||||
Principal repayments | (19,816 | ) | (3,717 | ) | (15,190 | ) | (51,295 | ) | (3,904 | ) | (152 | ) | ||||||||||||||||||||||||||||||||||||
Provision for loan losses | 261 | (206 | ) | (27 | ) | 888 | (289 | ) | (655 | ) | ||||||||||||||||||||||||||||||||||||||
Discount/fee amortization | 192 | 195 | 190 | 184 | 152 | 145 | ||||||||||||||||||||||||||||||||||||||||||
Ending carrying value (2) | $ | 320,245 | 337,858 | $ | 333,986 | $ | 327,143 | $ | 351,226 | 349,274 | ||||||||||||||||||||||||||||||||||||||
Mortgage Servicing Rights | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning carrying value | $ | 120,324 | 139,293 | 135,152 | 71,225 | 64,971 | 64,824 | |||||||||||||||||||||||||||||||||||||||||
Additions | 32,463 | 18,754 | 19,279 | 61,606 | 11,807 | 2,858 | ||||||||||||||||||||||||||||||||||||||||||
Sales | 0 | (18,206 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Changes in fair value, net | 15,675 | (19,517 | ) | (15,138 | ) | 2,321 | (5,553 | ) | (2,711 | ) | ||||||||||||||||||||||||||||||||||||||
Ending fair value | $ | 168,462 | $ | 120,324 | $ | 139,293 | $ | 135,152 | $ | 71,225 | 64,971 | |||||||||||||||||||||||||||||||||||||
(1) | Securities-mezzanine are a component of securities-subordinate. They are broken-out to provide additional detail on this portion of the subordinate securities portfolio. |
(2) | The carrying value of our commercial loans, held-for-investment at amortized cost excludes commercial A-notes, which are carried at fair value. |
![]() | Table 8: Consolidating Balance Sheet ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
As of June 30, 2015 | As of March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||
Consolidated VIEs (1) | Consolidated VIEs (1) | |||||||||||||||||||||||||||||||||||||||||||||||
At Redwood (1) | Commercial Securitization | Residential Resecuritization(2) | Consolidated Sequoia Entities | Total | Redwood Consolidated | At Redwood (1) | Commercial Securitization | Residential Resecuritization | Consolidated Sequoia Entities | Total | Redwood Consolidated | |||||||||||||||||||||||||||||||||||||
Residential loans | $ | 2,049,366 | $ | — | $ | — | $ | 1,237,114 | $ | 1,237,114 | $ | 3,286,480 | $ | 2,095,329 | $ | — | $ | — | $ | 1,304,426 | $ | 1,304,426 | $ | 3,399,755 | ||||||||||||||||||||||||
Commercial loans (2) | 369,147 | 182,184 | — | — | 182,184 | 551,331 | 268,767 | 191,575 | — | — | 191,575 | 460,342 | ||||||||||||||||||||||||||||||||||||
Real estate securities | 962,321 | — | 195,278 | — | 195,278 | 1,157,599 | 1,073,927 | — | 211,316 | — | 211,316 | 1,285,243 | ||||||||||||||||||||||||||||||||||||
Mortgage servicing rights | 168,462 | — | — | — | — | 168,462 | 120,324 | — | — | — | — | 120,324 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 226,426 | — | — | — | — | 226,426 | 303,820 | — | — | — | — | 303,820 | ||||||||||||||||||||||||||||||||||||
Total earning assets | 3,775,722 | 182,184 | 195,278 | 1,237,114 | 1,614,576 | 5,390,298 | 3,862,167 | 191,575 | 211,316 | 1,304,426 | 1,707,317 | 5,569,484 | ||||||||||||||||||||||||||||||||||||
Other assets | 197,526 | 1,506 | 409 | 6,145 | 8,060 | 205,586 | 237,289 | 1,626 | 449 | 7,171 | 9,246 | 246,535 | ||||||||||||||||||||||||||||||||||||
Total assets | $ | 3,973,248 | $ | 183,690 | $ | 195,687 | $ | 1,243,259 | $ | 1,622,636 | $ | 5,595,884 | $ | 4,099,456 | $ | 193,201 | $ | 211,765 | $ | 1,311,597 | $ | 1,716,563 | $ | 5,816,019 | ||||||||||||||||||||||||
Short-term debt | $ | 1,367,062 | $ | — | $ | — | $ | — | $ | — | $ | 1,367,062 | $ | 1,502,164 | $ | — | $ | — | $ | — | $ | — | $ | 1,502,164 | ||||||||||||||||||||||||
Other liabilities | 121,435 | 328 | 2 | 797 | 1,127 | 122,562 | 151,299 | 374 | 189 | 893 | 1,456 | 152,755 | ||||||||||||||||||||||||||||||||||||
ABS issued | — | 69,914 | 18,872 | 1,173,336 | 1,262,122 | 1,262,122 | — | 79,676 | 34,280 | 1,239,065 | 1,353,021 | 1,353,021 | ||||||||||||||||||||||||||||||||||||
Long-term debt (2) | 1,579,354 | — | — | — | — | 1,579,354 | 1,550,869 | — | — | — | — | 1,550,869 | ||||||||||||||||||||||||||||||||||||
Total liabilities | 3,067,851 | 70,242 | 18,874 | 1,174,133 | 1,263,249 | 4,331,100 | 3,204,332 | 80,050 | 34,469 | 1,239,958 | 1,354,477 | 4,558,809 | ||||||||||||||||||||||||||||||||||||
Equity | 905,397 | 113,448 | 176,813 | 69,126 | 359,387 | 1,264,784 | 895,124 | 113,151 | 177,296 | 71,639 | 362,086 | 1,257,210 | ||||||||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 3,973,248 | $ | 183,690 | $ | 195,687 | $ | 1,243,259 | $ | 1,622,636 | $ | 5,595,884 | $ | 4,099,456 | $ | 193,201 | $ | 211,765 | $ | 1,311,597 | $ | 1,716,563 | $ | 5,816,019 | ||||||||||||||||||||||||
(1) | The format of this consolidating balance sheet is provided to more clearly delineate between the assets belonging to certain securitization entities (Consolidated variable interest entities, or VIEs) that we are required to consolidate on our balance sheet in accordance with GAAP, but which are not legally ours, and the liabilities of these consolidated VIEs, which are payable only from the cash flows generated by their assets and are, therefore, nonrecourse to us, and the assets that are legally ours and the liabilities of ours for which there is recourse to us. |
(2) | In accordance with GAAP, we account for the Residential Resecuritization as a financing even though these securities are owned by the resecuritization entity and are legally not ours. We own only the securities and interests that we acquired from the resecuritization entity, which amounted to $170 million at June 30, 2015. As a result, to adjust at June 30, 2015, for the legal and economic interests that resulted from the resecuritization, our total senior securities would be decreased by $195 million to $319 million, prime re-REMIC securities would be increased by $170 million to $339 million, and total real estate securities would be reduced by $25 million to $1.13 billion. |
(3) | Commercial loans at Redwood and long-term debt at Redwood include $65 million of commercial A-notes and $65 million of commercial secured borrowings, respectively. Although these loans were sold, we are required under GAAP to retain the loans on our balance sheet and treat the proceeds as secured borrowings. |
EXECUTIVE OFFICERS | DIRECTORS |
Marty Hughes | Richard D. Baum |
Chief Executive Officer | Chairman of the Board |
Former Chief Deputy Insurance | |
Brett D. Nicholas | Commissioner for the State of California |
President | |
Douglas B. Hansen | |
Fred J. Matera | Vice-Chairman of the Board |
Chief Investment Officer | Private Investor |
Christopher J. Abate | Mariann Byerwalter |
Chief Financial Officer | Chairman, SRI International |
Chairman, JDN Corporate Advisory LLC | |
Andrew P. Stone | |
General Counsel | Marty Hughes |
Chief Executive Officer | |
CORPORATE HEADQUARTERS: | Greg H. Kubicek |
One Belvedere Place, Suite 300 | President, The Holt Group, Inc. |
Mill Valley, California 94941 | |
Telephone: (415) 389-7373 | Karen R. Pallotta |
Owner, KRP Advisory Services, LLC | |
CHICAGO OFFICE: | |
225 W. Washington Street, Suite 1440 | Jeffrey T. Pero |
Chicago, IL 60606 | Retired Partner, Latham & Watkins LLP |
DENVER METRO AREA OFFICE: | Georganne C. Proctor |
8310 South Valley Highway, Suite 425 | Former Chief Financial Officer, TIAA-CREF |
Englewood, Colorado 80112 | |
Charles J. Toeniskoetter | |
NEW YORK OFFICE: | Chairman, Toeniskoetter Development, Inc. |
1114 Avenue of the Americas, Suite 2810 | Chairman & CEO, Toeniskoetter Construction, Inc. |
New York, New York 10036 | |
STOCK LISTING | INVESTOR RELATIONS |
The Company's common stock is traded | Kristin Brown |
on the New York Stock Exchange under | |
the symbol RWT | Investor Relations Hotline: (866) 269-4976 |
Email: investorrelations@redwoodtrust.com | |
TRANSFER AGENT | |
Computershare Trust Company, N.A. | |
2 North LaSalle Street | |
Chicago, IL 60602 | |
For more information about Redwood Trust, visit our website at www.redwoodtrust.com |
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