RWT - Earnings call transcript Q4 2017

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Operator

Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] I’d now like to turn the conference over to Ms. Kristin Brown, Vice President of Investor Relations. Please go ahead, ma’am.

Kristin Brown

Tom. you, Thank thank Trust’s and joining to us Good quarter you XXXX Redwood fourth earnings review afternoon, for report.

financial with Before we statements to constitute presentation certain you remind performance future forward-looking respect statements. begin, I made wanted during to or may business that management’s

performance and or to on information redwoodtrust.com. Thursday, contains undertakes note reflect The performance Also management today, reconciliation update non-GAAP duty GAAP. available website does measures XXXX. that one of included and based the in differ is risks our non-GAAP as a expressed that materially. will company’s results in you read events aid that information to that investors quarter as to insight statements We in may financial are and of annual performance. Redwood’s financial measures that measures. company’s intend time-sensitive call actual to company’s of company not we the differ be On They understanding have could some could and impact to measures of statements. be refer may is call, this the The utilized XX, Form of provides in with this the financial to current further considered this and encourage into performance subsequent description fourth non-GAAP that on Forward-looking could our earnings XX-Q, report the or cause content forecasts Redwood conference should in isolation ways Review, are forward-looking will between a and cause accordance accurate expectations, assumptions GAAP no provided that A involve the analyzes and prepared and circumstances. uncertainties from provide which be for to February, GAAP which release provided material on results actual to substitute also financial factors a press on not those both of the only

later call opening will Hughes, being turn be call will website the remarks today. I recorded for the company’s Executive Marty introduction. and today’s Finally, now Officer to is and Redwood’s Chief available on over

Marty Hughes

everyone. afternoon, Call. XXXX in Earnings you Quarter Fourth Redwood’s Good Thank participating for

are Dash Executive Joining and Redwood’s the Robinson, Cochrane, Abate, Chris Redwood’s our President; Collin Vice call me President; on CFO.

I’m borrowers. in we the Redwood. and is on quarter is We profitably these almost recently what our have under my lines has in from operating any pressure gentlemen, my intentionally the around going businesses. fundamentals reducing of brief, more control are will have two the a new for on you We bring and standards all volatility giving plan, have higher the can would important housing and financial historical progress more that say this on lot to rule. the through remained have balance daily trended the and still been shareholders in letter to We their do attractive all March our credit Q&A. on mortgage This net Long-term additional our the in and of and businesses can a we building go too uninterrupted After XX-year – is believe is changed. we Chris initiatives. a the There norm. clarity currently focus but our core the address the and talk and It’s topics thing a homebuyers only positive we Dash by the Equities of liquidity positive keep questions will very comments where have strategic by touch these in investing for markets, regulation Redwood also but in seemingly more know can lot lenders and our which year – higher interpreting businesses numbers, mortgage a we they you in so hear lot put quiet rates more mortgage on rates recent market for grip can shareholder remain and may this during be the on a higher believe presentations. transparency the strong. for mortgage tax for well

note what year. are spreads. billion this that outcomes pressure brought organically is to is and in issuers XXXX as more investors companies billion important investors measure Issuance more to have remained the $X has and first XXXX, the in non-agency the core, Redwood traction the volatility new RMBS has about insurance Another in would tight, investments. recently of in issuance RMBS this we development two through quarters. into not credit both and and for credit the year, in volume positive credit continuing XX% was banks years, Redwood create been markets. entered $X now billion and of earnings liquidity RMBS the and market $XX distribution despite who We including remain securitization. has the our market volume months equity the who patient spreads tightened long-term been source At have There almost

management Chris I Our strengths ability to to marketplace. XXXX it highlights. the the recap will risk, to in where been. Abate that, way turn of With over have sourcing capital, In and and always analyzing execute continue they prudent credit our

Chris Abate

And you, Thank good Marty. everyone. afternoon,

and few to offer progress As the in we in I’ll start And financial XXXX. company, the a highlights. a we off just positive XXXX. made you of are strong tactical

particularly, three completed months This increased First, completing new now with first total compares four to securitizations and includes Choice Choice Choice the Select second capturing $XXX up Select freeing first new spreads completed half or up million in the In in tightened five our transactions XXXX. million in loan of were securitizations. conforming our in $XXX versus We This capital new sold With capital XXXX. also million million XXXX more of including $XXX investment we $X.X ended respect we’ve of of to transactions billion. XXXX. priced our one we lower and two active over XXXX, in $XXX XXXX remainder Sequoia notably, nine MSR XXXX, noncore deployed in Perhaps, of yielding deployment, two gains in to of We Redwood our for as portfolio, total, securities transaction. redeployment. capital mostly XXX% the volume and securitizations. portfolio, optimizing

book, We far shares later in quarter the shares an in back at the today, common of attractive XXXX. million stock also fourth XXXX. Redwood levels year And invested in of during thus million Redwood buying months of of $X the through $XX additional below

reflect changes, today, the increase in we an that off million XXXX of core our capital million. very as we initial well share board $XX And longer-term during play secular in to included We market housing in secured see This footprint $XXX perspective, investing strategic continue in repurchase our find representing with stock our trading securities securities, of single-family quarter. our price strengths. to as million fourth our $XXX authorization rental investments Redwood multifamily happening a the in to expanded attractive. From the

family secured significant start commercial In coming as single- known rental quarters. to the investing an we area by framework ours finalized loans. XXXX, PACE of improvement in in to focus expect We loans only energy be properties, investment also commercial a also products

We begin soon. investing expect to

of ended Dash and the the fully with seated Finally, Collin. we executive a year team addition with

book end $XX.XX financial terms value increased XXXX end biggest of results, the the at share annual XXXX at This from GAAP $X.XX our In of value per is to increase XXX. in of XXXX. book our our $XX.XX since

our ROE XXXX, and per $X.XX, increase from an earnings improved XX.X% share were XX.X% in from $X.XX GAAP Our XXXX. from in XXXX in slightly

our good success spread XXXX, in tight feel in capital, So of terms about in environment. particularly, progress despite we summary, in deploying a our

going as our as performance program the We We of strong our initiatives our underlying to investment operating are in feel activity some platform our that we’ve scale also growth the of well to Sequoia We new XXXX. forward. encouraged by augment our of momentum can strategic positioned portfolio. Choice in profitably credit

like York Finally, Day, City. inaugural investors I on our it to of be March will over X, Dash, all personally before invite I’d to New in our turn Investor which to

noticed, have meetings, a at slide you on As our recent in of lot decks things may going Redwood. our very exciting there’s outreach

about form Redwood more as banking, our out On to managers Judgments include reach securitization well. executives and within a Brown to to forward. investment Kristin Dash platforms. Vice We’ll as also you have I’ll registration the Please and will a dedicated guest plans now our Robinson, great Executive few President. details. senior call going Investor for as Day, learn we’ll speakers well over for Redwood’s company the mortgage provide the turn

Dash Robinson

that more points start Thanks, of of everyone. out banking prices normalized end. afternoon, in mortgage straight XX Chris, banking I’d quarter. by With year fourth were After loan XXX into margins team softened below returns, the basis size on off long-term as and the like experienced to quarters three mortgage our good to activity. earnings expectation our touching heading

to often in In around worth they transactions, to, traditional including selling transactions just one quarter year-end. Select $X of million issuance at are recent approximately of followed funding the market created deals in and active the two that all do, as capital, whole including fourth transaction. rebounded loans advantage, to Choice one This Mortgage and, a Marty three transaction profitability executions at was included in we $XXX took in million two these and our was five retained, portfolio Sequoia three two billion Choice. inaugural buyers. transactions and issuance that credit The closely second completing these of face and volatility more pricing the importantly, $XX of January our that Together, times in uptick over in alluded of Sequoia as However, priced of transactions banking loans. well, one and select $XX September. better utilizing full million we January conditions February Select Choice and relative securities Choice overall

quarter. XXXX, expect of larger purchase over since quarter XX% we total Total pace Given Choice current XX% $X XX% in the our Choice purchases, third volume. was the billion volume transactions fourth over lock the third $XXX crisis increase purchase of fourth from purchase forward. quarter quarterly million over jumbo the or increased going volume and volume issue quarter highest a to of the to

of our of purchase the an year XX% XX% during the full capital operations $X XXXX increased guidance increases billion volume to a key increase out Also anticipated in Our higher $XXX volume to set our the over volume. to year February from our our million banking $X mortgage we lock in to growth. accommodate and we allocated from quarter, investors was driver purchase XXXX. of and in of full year loan end of million Choice billion, billion fourth year-over-year $XXX our to total an almost represented was $X.X at last volume

Select in forward, speed, Looking through deepening to position our sellers. be while our growing Choice our on maintaining focus our with continues reliability volume and competitive relationships

we investments year for new the XX% capital banking $XXX to the of as And investment the Turning deployed fourth $XXX organically with portfolio, of Chris new full million quarter. toward million investments through activities. created our mortgage noted, in

optimize high-yielding collateral requirement alternatives. We and to portfolio CRT Home with associated our in that to borrowing. mezzanine Also to Federal additional we during selling redeploying into facility continue an our allocated increase lower-yielding capital securities capital due Loan quarter, by the that Bank Agency the in

fourth $X at $XX.XX share common deployed also share. And of at per million have price average million $XX repurchases Our capital price quarter average share. deployment towards an included an of year-to-date, additional $XX.XX an repurchases we share per of

back $XXX authorization mentioned, repurchase the original has approved approved the XXXX. to As renewing Board Chris up share million also in our

our turn it to our Collin financial I’ll Cochrane, CFO. recap to over Now results,

Collin Cochrane

quarter, Dash. compared everyone. earnings share per for core third were results financial afternoon, with $X.XX and with share GAAP $X.XX quarter, the Thanks, our were earnings good consistent in summarize our third To the $X.XX the quarter. And per fourth

a reflect tax fourth to passed a lower in end. mentioned, in quarter impact loan part pullback tax driven income reform. decrease This the benefit GAAP as pricing offset from to banking by which, partially recently temporary Our results was was the Dash at by year- mortgage related margins

our and increase to increases per spreads available- of $XX.XX through continued are dividend saw investment for-sale bit. spread at from fair seen December $XX.XX XX, But primarily flat currently, XX portfolio. most value around earnings they Subsequent by at to value the move Our a have our securities tighter exceeding quarterly fair a share as or in driven GAAP increased per September tightening on slightly share – this our portfolio. to we with book year-end we year-end,

seen hedging we’ve been as benefit the cost increased mostly However, rate volatility. spread to tightening from by due recent the any interest offset

interest interest of hedge credit changes As We exposure, interest rates. rate other to swaps, rate TBAs Though in have and FHLB to a through more portfolio. do exposure credit investments our and we investor, do a fully are combination instruments. seek our some generally changes our particularly, sensitive in spreads on

the to end ratio quarter. and of end to leverage fourth the the fourth higher- third the balance the debt-to-equity X.Xx at balance warehouse to at the recourse Turning of than-usual held-for-sale was at end increase X.X quarter. sheet, The was of our times with the debt primarily finance quarter compared the of loans related

As continued which quarter ratio this $XXX capital and capital sufficient have back to maturity through capital we quarter we already additional loans were convertible year-end first bring upcoming optimization. our April. have generated sold mentioned, a the significant we maturity, repay this at regard in Consequently, these amount down. will available had In to debt million of this portfolio of during

impact these be no the benefit with EPS our our subsequent subject will going notes dilutive forward. should EPS of outlook XXXX. which repayment, GAAP we reminder, I’ll a As for close to their to longer

the recent our priorities exceed of grow per annual are capital generate dividends deployment for our strong volume XXXX that to share, trends. purchase $X.XX Our of earnings remainder GAAP and residential maintain historical loan our

our volumes $X expectations purchase billion of XXX basis within loan For XXXX. And we gross $X.X for billion are in margins points. $X versus targeting to long-term to XXXX business, banking our XX of mortgage billion

Choice of growth our purchase expect double Redwood initiatives, in As our XXXX. part to we volume

direct capital portfolio, second XX%. hedging housing targeting expenses in XXXX, include These investment sectors. the the of realized of an in we between amount estimate income, quarter deploy Beginning new increasing For initiatives we interest investment our taxes. defective and towards X% net of to principal and are pay-downs, an gains, returns cost, and expect single-family returns operating multifamily

we with $XX Finally, million of I’ll commensurate we $XX don’t the anticipate variable to baseline conclude start Operator, performance. why remarks. million that, with corporate prepared Q&A? expenses our company And compensation operating with

Operator

Instructions] George Thank first question KBW. Our with Bose from you. [Operator comes

Bose George

good guys, Hey afternoon.

the is then, does Redwood your of you Choice? And the for The Redwood XXXX. And just Choice What total for in can trends discuss you what first question volume that of the you noted part end production double – as imply to are the XXXX? landscape competitive the there? wanted by there that

Chris Abate

the say competitive prior the is it’s would Bose, I Chris. quarter. with landscape fairly consistent

we’ve to through you’ve notwithstanding seen, basis. on annual Choice volume quarter-over-quarter As successfully continued basis, grow

lack hope though, I to looking in Originators well But that do there is that a will market I the to think Choice that in a to better the trying than XXXX, that. plays as landscape. have that. – origination are – to supplement visibility that’s do in that doubling continues activity. are refis a say, the drift we towards Choice to the we of today, with of softness areas volume way purchase some

achieve with softening goals. encouraged, we’ll some even able XXXX our in we’re market to the So that be

to the through on so number we’re update up. we we better. as a that like As expect trend a We’ll volume one-third that as see far of of percentage we our put have as quarters. to few I’d continue better to I Choice, get a on to say maybe had it, total If Choice

Bose George

is actually Okay. this expectation you Or the In range. Great, that of like expectation it in item? And helps. the your line terms it income, Last something range, to kind quarter, for $XX million a expectation was – for that? way the was quarter it noted there earnings? reasonable then mortgage XXX above light. XX that frame little what’s Is of reasonable XX for to XXX of to banking a

Chris Abate

of say north I’d that.

the as end so our item. total when that incremental quarter, mark the And year soften, to heavy required impacted we’re in excess of line the then, the things think fourth now confirm, were get quarter, now we of and softening we loans, on book. specifically mentioned, had I Just fourth billion, towards we’ve the securitizations. I five Since as priced pipeline completed $X.X or to

first bit two we’ve of in And As off quite spreads a the tighten the lot the a Dash mentioned, year. taken risk of a table. months did

first in but the of see to $XX a So expect $XX benefit million. in the from million we that certainly quarter, to range

like. the rest might pencils year have sharpen look what the of our We to on

Bose George

Okay, that’s actually, helpful. on last And value. the book one just then

Just book tightening, hedging, stable? in the relatively little based terms about is a offset comments value of it spread on your – quarter since with it ended, is

Chris Abate

much Yes. Very so.

Bose George

you. Thank great. Okay,

Operator

We’ll Steve with take our Securities. Delaney next question JMP from

Steve Delaney

Thanks for taking the question.

I $X.XX things – year-to-date. income, this it’s the way, interesting by in quarter had call. of noticed lot the One on, The going about a jump very averaged taxable it a been REIT

to $X.XX. was see Now it that wondering, light we you us? shed for if up here popped in could quarter, any I on Collin, fourth

Collin Cochrane

that’s We up capital up. the we REIT we the back during freed quarter fourth And move a portfolio down And up something MSR the had TRS TRS. dividend to from because the occasionally. conforming our made which we at opportunity we’ll the that room in at REIT. Yes, the some had do year, sold our some to capital

that’s quarter, portion we So of dividend. in going the you’re to what dividend is that’s the as seeing our jump. correlate a characterized And of a characterization be that to noted fourth where qualified that there,

Steve Delaney

through getting REIT order and is your Okay, came what as in the distribute my RMBS as restructuring, from, in the information expect and looking Choice, curious dividend that see the income the obviously, it of back it We dividend now, were increasing say, kind dividend, as Board the the of five – because the in that to you fact your consider light you you’ve discussed I’m grows, buyback, the that we it rolls momentum think just that’s that particular. almost model. taxable your about just up I at you’ve to I’m and And years, you. gone And or, for future? it into had to helpful. current income new be X.X in Thank and curious, can done qualified. push REIT you to just looking $X.XX

ahead a board So I optimistic, to threw how and that take the frankly, But consider we the would the being it what and in guess. just in little went dialogue $X.XX bump Board for between dividend, kind the dividend? management of goes and a curios raising

Chris Abate

Steve, it’s Chris.

its First for – the Board in intention year. did the full December announce

public is sitting parts. the What we’re $XX few Number a would on NOL at million there’s I that’s REIT. a at say still one, So certainly $X.XX. moving

year, started of that. last to increasing to perspective, that $XXmillion So from down bleeding point at benefit end an was – some the slowly. like at been late think September, so we’ve we’d We – it we from I

I the it is thinks the think more and flow portfolio terms importantly, though, think about income. cash I way, of Board in

as know, you So is our banking basically mortgage revenue taxable.

to So able earnings. retain those tax we’re

focus a on investment So That’s of higher justify we’ll I flow monitor primary something over to growing a time. is think that generating portfolio continue significant would and level the the cash dividend.

Steve Delaney

the right, mortgage helpful. all always at or REIT Okay, worldview. And in the REIT that’s the buybacks least we buyback, applaud world

we’re You see book. generally down them of maybe to XX% when like XX% around more

I of a so on says what things thing look at function think guys Just common stock is, of fine-tune of that trying the other understand, value your the two we was your profile? going one, XX% kind to $XX.XX is order real will, internally return your forward, should of if that see to I think the and value? you encouraging; book capital, you like managing to which quarter-end in me, as equity in

Chris Abate

for of we the Yes. lens buybacks the capital. alternative through Certainly, at uses look

in past rates do expect continue think see markets impacted. as would look interest It’s lot we of range, a vis-a-vis of to about and it there’s months, we And do sold is $XX the business that that that we our our we quarter. business at investment over we correlation the terms capital look – the off. trading the in the during are or of sort thing fourth few an the like – rest so. as deployed stock try is of think So how one been just million where we differentiate I certainly, historical at the to we plan. did And

in traditional nature operating much to mortgage sensitive on leverage, and you basis, the less given lower a Just might relative selloff REIT think rates a much than perspective. from given, a we’re

certainly going and reflected. in ahead is value the So where today, plowing see trading hopefully, we and, that stock to gets continue initiatives with we’re our

Steve Delaney

to you. – And hear I your question hear stock that get okay. ever my hope I I I you. Yes, thought XX% of would think But imply And book. didn’t I

one – guys, very that’s final question. all one Just good

you in that loan – It’s your did second had a describe securitized You investment. maybe an been like did? you what single-family sounded you talked about might in you kicking quarter. it the like product? comments, program have rental sounded But up Can make your

Dash Robinson

initiative. securitization, bonds, capital, Steve, continue for thanks investments we the was about That’s for a continues of ourselves. Dash, we base million million did that internally working single-family make it’s organically be core total largely to creating right, a question. on investment $XX investment-grade And $X rental assets. third-party The of

capital a was far. that we thus where third-party So deployed issuance have

Steve Delaney

you’re in given But probably the yields there. great. Okay, just IG low I range, not assume but the AAA

Dash Robinson

rental of in we it’s look Yes, more broader Right. pieces the be it strategy, going grade lower obviously, be to retaining. – would credit But the the investment tranches. would forward,

Steve Delaney

Yes, a lead-in. That’s nice exactly.

lending, the think do when about way that what you at you’re aggregate space. and to product it? we prime So then I the an and Is that should in looking look alternative just securitize you to as assume are

Dash Robinson

a exactly. As complement prime to yes, the space,

Steve Delaney

you Thank for all your Well. Okay. comments.

Operator

further time earnings And we management, time. this there call. are no conference. taking This in of conclude appreciate at our This concludes to conference. very behalf our participate [Operator much On the today’s does Instructions] questions you

may You now disconnect.

Redwood Trust (RWT) 22 Feb 182017 Q4 Earnings call transcript