Equity

9 Months Ended

Sep. 30, 2019

The following table provides a summary of changes to accumulated other comprehensive income by component for the three and nine months ended September 30, 2019 and 2018.

Table 17.1 – Changes in Accumulated Other Comprehensive Income by Component



	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(In Thousands)	Net Unrealized Gains on Available-for-Sale Securities			Net Unrealized Losses on Interest Rate Agreements Accounted for as Cash Flow Hedges			Net Unrealized Gains on Available-for-Sale Securities			Net Unrealized Losses on Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	98,307		$	(49,384	)	$	106,725		$	(31,105	)
Other comprehensive income (loss) before reclassifications ⁽¹⁾	4,484			(11,791		)	(2,408		)	4,801
Amounts reclassified from other accumulated comprehensive income	(3,492		)	—			(5,686		)	—
Net current-period other comprehensive income (loss)	992			(11,791		)	(8,094		)	4,801
Balance at End of Period	$	99,299		$	(61,175	)	$	98,631		$	(26,304	)



	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
(In Thousands)	Net Unrealized Gains on Available-for-Sale Securities			Net Unrealized Losses on Interest Rate Agreements Accounted for as Cash Flow Hedges			Net Unrealized Gains on Available-for-Sale Securities			Net Unrealized Losses on Interest Rate Agreements Accounted for as Cash Flow Hedges
Balance at beginning of period	$	95,342		$	(34,045	)	$	128,201		$	(42,953	)
Other comprehensive income (loss) before reclassifications ⁽¹⁾	19,764			(27,130		)	(9,749		)	16,649
Amounts reclassified from other accumulated comprehensive income	(15,807		)	—			(19,821		)	—
Net current-period other comprehensive income (loss)	3,957			(27,130		)	(29,570		)	16,649
Balance at End of Period	$	99,299		$	(61,175	)	$	98,631		$	(26,304	)


(1)	Amounts presented for net unrealized gains on available-for-sale securities are net of tax benefit (provision) of zero and $0.1 million for the three and nine months ended September 30, 2018, respectively.

The following table provides a summary of reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and 2018.

Table 17.2 – Reclassifications Out of Accumulated Other Comprehensive Income




		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Three Months Ended September 30,
(In Thousands)	Income Statement	2019			2018
Net Realized (Gain) Loss on AFS Securities
Other than temporary impairment ⁽¹⁾	Investment fair value changes, net	$	—		$	33
Gain on sale of AFS securities	Realized gains, net	(3,492		)	(7,247		)
Gain on sale of AFS securities	Provision for income taxes	—			1,528
		$	(3,492	)	$	(5,686	)



		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Nine Months Ended September 30,
(In Thousands)	Income Statement	2019			2018
Net Realized (Gain) Loss on AFS Securities
Other than temporary impairment ⁽¹⁾	Investment fair value changes, net	$	—		$	89
Gain on sale of AFS securities	Realized gains, net	(15,807		)	(21,438		)
Gain on sale of AFS securities	Provision for income taxes	—			1,528
		$	(15,807	)	$	(19,821	)

(1)

For both the three and nine months ended September 30, 2019, there were no other-than-temporary impairments. For the three months ended September 30, 2018, other-than-temporary impairments were $0.4 million, of which less than $0.1 million were recognized through our consolidated statements of income and $0.3 million were recognized in Accumulated other comprehensive income, a component of our consolidated balance sheet. For the nine months ended September 30, 2018, other-than-temporary impairments were $0.6 million, of which $0.1 million were recognized through our consolidated statements of income and $0.5 million were recognized in Accumulated other comprehensive income, a component of our consolidated balance sheet.

Issuance of Common Stock

In 2018, we established a program to sell up to an aggregate of $150 million of common stock from time to time in at-the-market ("ATM") offerings. During the nine months ended September 30, 2019, we issued 791,191 common shares for net proceeds of approximately $13 million through ATM offerings. At September 30, 2019, approximately $112 million remained outstanding for future offerings under this program.

On January 29, 2019, we sold 11,500,000 shares of common stock in an underwritten public offering, resulting in net proceeds of approximately $177 million. On September 3, 2019, we sold 14,375,000 shares of common stock in an underwritten public offering, resulting in net proceeds of approximately $228 million.

Direct Stock Purchase and Dividend Reinvestment Plan

During the nine months ended September 30, 2019, we issued 399,838 shares of common stock through our Direct Stock Purchase and Dividend Reinvestment Plan, resulting in net proceeds of approximately $6 million.

Earnings per Common Share

The following table provides the basic and diluted earnings per common share computations for the three and nine months ended September 30, 2019 and 2018.

Table 17.3 – Basic and Diluted Earnings per Common Share



	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands, except Share Data)	2019			2018			2019			2018
Basic Earnings per Common Share:
Net income attributable to Redwood	$	34,310		$	40,921		$	120,040		$	120,513
Less: Dividends and undistributed earnings allocated to participating securities	(856		)	(1,231		)	(3,260		)	(3,766		)
Net income allocated to common shareholders	$	33,454		$	39,690		$	116,780		$	116,747
Basic weighted average common shares outstanding	101,872,126			80,796,856			97,214,064			77,211,188
Basic Earnings per Common Share	$	0.33		$	0.49		$	1.20		$	1.51
Diluted Earnings per Common Share:
Net income attributable to Redwood	$	34,310		$	40,921		$	120,040		$	120,513
Less: Dividends and undistributed earnings allocated to participating securities	(1,036		)	(1,284		)	(3,625		)	(3,867		)
Add back: Interest expense on convertible notes for the period, net of tax	8,887			8,666			26,271			23,642
Net income allocated to common shareholders	$	42,161		$	48,303		$	142,686		$	140,288
Weighted average common shares outstanding	101,872,126			80,796,856			97,214,064			77,211,188
Net effect of dilutive equity awards	362,743			443,191			261,155			251,935
Net effect of assumed convertible notes conversion to common shares	34,287,840			33,442,641			33,727,470			30,328,906
Diluted weighted average common shares outstanding	136,522,709			114,682,688			131,202,689			107,792,029
Diluted Earnings per Common Share	$	0.31		$	0.42		$	1.09		$	1.30

We included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, in the calculations of basic and diluted earnings per common share as we determined that the two-class method was more dilutive than the alternative treasury stock method for these shares. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.

During the three and nine months ended September 30, 2019 and 2018, certain of our convertible notes were determined to be dilutive and were included in the calculation of diluted EPS under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator.

For the three and nine months ended September 30, 2019, the number of outstanding equity awards that were antidilutive totaled 11,710 and 9,361, respectively. For the three and nine months ended September 30, 2018, the number of outstanding equity awards that were antidilutive totaled 7,761 and 7,230, respectively.

Stock Repurchases

In February 2018, our Board of Directors approved an authorization for the repurchase of our common stock, increasing the total amount authorized for repurchases of common stock to $100 million, and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization increased the previous share repurchase authorization approved in February 2016 and has no expiration date. This repurchase authorization does not obligate us to acquire any specific number of shares or securities. Under this authorization, shares or securities may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. At September 30, 2019, $100 million of the current authorization remained available for the repurchase of shares of our common stock.