Equity

The following table provides a summary of changes to accumulated other comprehensive income by component for the three and nine months ended September 30, 2018 and 2017.

Table 16.1 – Changes in Accumulated Other Comprehensive Income by Component



	Three Months Ended September 30, 2018						Three Months Ended September 30, 2017
(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	$	106,725		$	(31,105	)	$	114,364		$	(44,688	)
Other comprehensive (loss) income before reclassifications ⁽¹⁾	(2,408		)	4,801			13,158			321
Amounts reclassified from other accumulated comprehensive income ⁽²⁾	(5,686		)	—			(853		)	14
Net current-period other comprehensive (loss) income	(8,094		)	4,801			12,305			335
Balance at End of Period	$	98,631		$	(26,304	)	$	126,669		$	(44,353	)



	Nine Months Ended September 30, 2018						Nine Months Ended September 30, 2017
(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	$	128,201		$	(42,953	)	$	115,873		$	(44,020	)
Other comprehensive income (loss) before reclassifications ⁽¹⁾	(9,749		)	16,649			17,899			(375		)
Amounts reclassified from other accumulated comprehensive income ⁽²⁾	(19,821		)	—			(7,103		)	42
Net current-period other comprehensive income (loss)	(29,570		)	16,649			10,796			(333		)
Balance at End of Period	$	98,631		$	(26,304	)	$	126,669		$	(44,353	)


(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, and zero and $(0.1) million for the three and nine months ended September 30, 2017, respectively.


(2)	Amounts are presented net of tax provision of $2 million for both the three and nine months ended September 30, 2018.

The following table provides a summary of reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2018 and 2017.

Table 16.2 – 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	2018			2017
Net Realized (Gain) Loss on AFS Securities
Other than temporary impairment ⁽¹⁾	Investment fair value changes, net	$	33		$	3
Gain on sale of AFS securities	Realized gains, net	(7,247		)	(856		)
Gain on sale of AFS securities	Provision for income taxes	1,528			—
		$	(5,686	)	$	(853	)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	—		$	14
		$	—		$	14



		Amount Reclassified From Accumulated Other Comprehensive Income
	Affected Line Item in the	Nine Months Ended September 30,
(In Thousands)	Income Statement	2018			2017
Net Realized (Gain) Loss on AFS Securities
Other than temporary impairment ⁽¹⁾	Investment fair value changes, net	$	89		$	248
Gain on sale of AFS securities	Realized gains, net	(21,438		)	(7,351		)
Gain on sale of AFS securities	Provision for income taxes	1,528			—
		$	(19,821	)	$	(7,103	)
Net Realized Loss on Interest Rate Agreements Designated as Cash Flow Hedges
Amortization of deferred loss	Interest expense	$	—		$	42
		$	—		$	42

(1)

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. For the nine months ended September 30, 2017, other-than-temporary impairments were $0.6 million, of which $0.2 million were recognized through our consolidated statements of income and $0.4 million were recognized in Accumulated other comprehensive income, a component of our consolidated balance sheet.

Issuance of Common Stock

During the three and nine months ended September 30, 2018, we issued 7,187,500 shares of common stock in an underwritten public offering for net proceeds of $117 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, 2018 and 2017.

Table 16.3 – Basic and Diluted Earnings per Common Share



	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands, except Share Data)	2018			2017			2018			2017
Basic Earnings per Common Share:
Net income attributable to Redwood	$	40,921		$	36,180		$	120,513		$	109,473
Less: Dividends and undistributed earnings allocated to participating securities	(1,231		)	(948		)	(3,766		)	(2,800		)
Net income allocated to common shareholders	$	39,690		$	35,232		$	116,747		$	106,673
Basic weighted average common shares outstanding	80,796,856			76,850,830			77,211,188			76,803,324
Basic Earnings per Common Share	$	0.49		$	0.46		$	1.51		$	1.39
Diluted Earnings per Common Share:
Net income attributable to Redwood	$	40,921		$	36,180		$	120,513		$	109,473
Less: Dividends and undistributed earnings allocated to participating securities	(1,284		)	(986		)	(3,867		)	(2,926		)
Add back: Interest expense on convertible notes for the period, net of tax	8,666			6,564			23,642			18,639
Net income allocated to common shareholders	$	48,303		$	41,758		$	140,288		$	125,186
Weighted average common shares outstanding	80,796,856			76,850,830			77,211,188			76,803,324
Net effect of dilutive equity awards	443,191			298,955			251,935			215,141
Net effect of assumed convertible notes conversion to common shares	33,442,641			25,553,323			30,328,906			22,379,401
Diluted weighted average common shares outstanding	114,682,688			102,703,108			107,792,029			99,397,866
Diluted Earnings per Common Share	$	0.42		$	0.41		$	1.30		$	1.26

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, 2018 and 2017, 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, 2018, the number of outstanding equity awards that were antidilutive totaled 7,761 and 7,230, respectively. For the three and nine months ended September 30, 2017, the number of outstanding equity awards that were antidilutive totaled 6,149 and 5,843, respectively.

Stock Repurchases

In February 2016, our Board of Directors approved an authorization for the repurchase of up to $100 million of our common stock and also authorized the repurchase of outstanding debt securities, including convertible and exchangeable debt. This authorization replaced all previous share repurchase plans and has no expiration date. During the year ended December 31, 2017, we repurchased 610,342 shares of common stock pursuant to this authorization for $9 million. At December 31, 2017, approximately $77 million of this current authorization remained available for the repurchase of shares of our common stock. During January 2018, we repurchased 1,040,829 shares of our common stock pursuant to this authorization for $16 million.

In February 2018, our Board of Directors approved an authorization for the repurchase of an additional $39 million 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. As noted above, 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, 2018, $100 million of the current authorization remained available for the repurchase of shares of our common stock.